How the Subscription Model Gives Retailers a Competitive Edge

Retail, as we know, is changing fast. As retail sales remain flat or decrease, direct-to-consumer (DTC) brands have experienced tremendous growth. Now, established retailers — perhaps with the exception of cosmetics sellers or other niches where retail is still growing — are beginning to realize that selling directly to consumers is the only way to keep up.

Aside from changing economics, there’s another big reason for the shift to DTC. Ecommerce customer experience is becoming a key battleground for consumer-facing brands in every industry, and

the direct-selling channel allows companies to learn about customers and ultimately build stronger customer relationships. The feedback loops that develop out of these relationships enable brands to make ongoing incremental improvements to products or services and to curate and personalize offerings in order to meet heightened consumer expectations.

In the old days of commerce, merchants and customers would oftentimes be neighbors or friends. Storekeepers would know their customers and know exactly what they wanted, and how often they’d make a purchase. They’d keep certain items in stock to meet specific customers’ needs. Unfortunately, that type of inventory management strategy doesn’t scale well.

As the world has changed, traditional retail sales models have been slow to adapt. Brands have continued to rely on assumptions and guessing to manage inventories and supply chains. DTC removes that guesswork, replacing it with data. It makes testing inexpensive, allowing brands to get more clarity on what consumers are willing to pay for and to more accurately identify pricing thresholds.

Winning With Subscriptions

One of the most popular methods within the direct selling channel is the subscription model. Aside from allowing for greater customer insights, this model gives brands a logistical advantage. Because subscriptions are about recurring revenue, all planning — including cash flow — becomes more predictable, making projections easier.

The subscription e-commerce market more than doubled in size every year between 2011 and 2016, and it continues to grow. Sephora, one of the largest cosmetics retailers in the world, is one of the brands that have pioneered the subscription space while maintaining a robust footprint of physical stores. Its “Play!” program offers a prime example of how the two channels can be integrated: Subscriptions with trial-size products drive traffic to stores with full-size products, and positive store experiences create the desire to subscribe.

Seeking to achieve the same harmonious integration, Target added its private baby apparel label, Cat & Jack, to its existing subscription box services. The baby box is now available for quarterly subscriptions and single orders, and Target predicts the elements of discovery and convenience made possible by a subscription model will entice new customers.

Other established retailers including Walmart, Nordstrom, Walgreens, and others are following suit by either inviting subscription boxes into their stores — for traffic and to achieve a more modern appearance — or by buying subscription companies and making them part of the brick-and-mortar landscape.

Joining the Subscription Economy

Any retailer with the right products and enough capital to invest in a new channel can join the subscription economy, and there are plenty of resources to help you get started.

Small business owners can find ideas and inspiration online at My Subscription Addiction or talk to other entrepreneurs in the space at one of the Subscription Trade Association’s many conferences held around the country. On its website, SUBTA also provides retailers with information about technology, supply chains, logistics, and anything else that might impact an aspiring subscription business.

Amazon also offers a relatively basic option for retailers to participate in its Subscribe and Save program, for those that simply want to reach more customers without investing in a complete business system. Shopify is the most commonly used e-commerce platform, and Shopify Plus allows merchants selling a high volume of products to integrate subscriptions into their business.

Jagged Peak is one of the older full-service subscription solutions providers, and of course, I’d be remiss to leave out one of the most sophisticated large-scale providers around, OceanX. To learn more about what we do and how we can help you join the subscription economy, contact us today.

Free Whitepaper: The Psychology of Subscriptions