Three million customers, turnover of 152 million dollars and a market value of 1 billion. All this through selling a single type of product for men who pay every month to receive the exclusive good at home.
This success case is from Dollar Shave Club, a subscription business that began as an e-commerce startup and today is owned by one of the largest multinationals in the world, Unilever. The item sold? Shaving supplies, such as reusable razors.
The case shows the potential of investing in subscription models, a market that offer the security of predictable and recurring billing. E-commerce stores can also benefit from this business model, offering more convenience to the consumer at a lower cost.
Are you interested? Let us uncover the subscription business model in e-commerce. You will learn:
– how subscription model works
– when to invest in a membership program
– the advantages of this type of business
What is a subscription model in e-commerce?
The concept is simple: the company offers the customer certain products which they can choose to receive at home periodically. Delivery is usually made every month and the customer can pay for the service from monthly to annual subscriptions.
By analogy, it follows the model of magazine signatures. The customer always knows that they will receive their magazine by the end of the month, but he does not know what subjects and reports will be addressed. In the case of the Dollar Shave Club, for example, the client expects to find shaving items, but leave to the company the choice of blade types, novelties, etc.
There are two main modalities of subscription: curatorship or frequently used products. The first one offers the element of surprise and what is worth here is the experience. The second modality usually brings the advantage of a better pricing of the products they use in their day to day life.
Is investing in this model worth it?
The segment of B2C subscription businesses has attracted more than 11 million subscribers in the US in 2017 alone, growing 200% every year since 2011. And it is not only a North American trend. In Brazil, the model had its peak in 2014, with BRL 430 million in revenues and since then, has been steadily growing 11% per year, according to data from the Brazilian Association of Electronic Commerce.
Some of the advantages of this sales system are:
Reduction of costs
One of the great advantages of recurring sale is cost forecasting. This avoids having more products in stock than necessary, reducing storage costs and suppliers.
Niche audience and loyalty
The subscription program is geared towards a niche market. This allows the company to specialize in a certain segment and to reassure consumers by offering products of quality that interest them.
Good consumer experience
What the company investing in a membership or subscription program should keep in mind is what is sold: not a product but the whole experience. And this is precisely what will lead the consumer to acquire the products frequently. A good curation allows to positively surprise the client, offering him convenience and exclusivity.
As sales are recurrent, you can predict what the estimated sales will be in the coming months. This avoids surprises in finances and makes it possible to calculate expenses and profits with certainty.
Examples of successful subscription templates
Coffee, wine, books, beer, beauty products. There are no limitations in the signature club market for e-commerce. Even the big brands have surrendered to this model.
How to set up a membership club?
Setting up a club does not have to be difficult. Here are the first steps:
Define the product to be offered
The first step is to check if the product you have in mind supplies a recurring consumption need. The customer must need (or you create this need) daily, weekly or monthly consumption of the product.
The hint here is deeply understand your customers’ need by involving personal and behavioral preferences, not just the basics.
Set prices and subscription plans
It is necessary that the prices charged allow the customer to acquire them frequently. Therefore, eliminate all external fees that could discourage signing the service, such as freight, by embedding them in the price of the service offered.
Always give different options of plans, varying the quantity of items and the frequency of receipt, and always stimulate the acquisition of the most complete.
Choose the right platform
The chosen platform should offer options that address the main needs of a subscription e-commerce: periodic collection, default management and online purchases.
Fortunately, there are many options in the market that fit this business model.
The challenges of subscription businesses
The signature club market in e-commerce offers many sales opportunities with good results. Although the optimistic scenario, like any business, there are risks and challenges to be faced.
Embarking on such a market requires you to keep constantly feeding the interest of the customer. Thus, product curation work should be well done, taking into consideration the taste of consumers. It is also necessary to always bring news and keep attractive the benefits of opting for subscription rather than single purchases. So, invest in promotions, discounts and other advantages for the customer.