Subscription Commerce: A Guide for Businesses

Feb 28, 2023
Present enactment of Subscription Commerce
The digital reformations in the last decade have revolutionized the way customers buy products. Amazon's entry into the eCommerce market paved the way to perceive e-commerce from a broader perspective leading to the formation of companies that intended to deliver products and services to doorsteps. Early examples of subscription commerce companies are Dollar Shave Club and Birchbox, followed by the OTT media giant Netflix which serves millions of customers worldwide through its on-demand streaming services.
Harshad Parmar
Harshad Parmar

Practice Head - Customer Experience & Automation


Avinash Singh
Avinash Singh

Digital Experience Lead


Today, subscription commerce is engaging businesses more than ever. Numerous companies catering to healthcare, cleaning services, and clothing are now using this model to sell their products to grow their customer base. The rising popularity of subscription commerce is due to the following reasons:
  • First, it offers customers convenience and value for money.
  • It provides businesses with a predictable and recurring revenue stream.
  • It helps companies to build long-term relationships with their customers.
A subscription model is essentially driven by customer relationships at its core. Companies strive to assess what customers receive, their end users, and how they perceive its quality against what they pay. Companies optimize their operations, management, and delivery through this crucial information to enhance consumer experience and meet their needs. Globally, companies such as Audi, Apple, Spotify, Pearson, Dell, and many more have embraced this paradigm shift. Although subscription commerce may seem to be focused on B2C, it has also significantly impacted B2B businesses. For instance, a Volkswagen Group subsidiary, Traton, has introduced a subscription model to manage its trucking operations, maintenance, and legal compliance by utilizing social media and technology tools for its drivers.
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Here are some interesting statistics to understand the impact of Subscription Commerce on the modern marketplace:
70% of business executives worldwide have said that subscription-based business models will drive their prospects in the future
Source: Global Banking and Finance Review
53% top-level finance executives in leading companies say that at least 40% of their company's revenue come from recurring models
Source: CFO
The year-on-year growth in the subscription billing worldwide is considered to be between 30-50%
Source: Paypers
Types of Subscription Commerce Business Models
There are three main types of subscription commerce business models:
Subscribe and Save Model
In the subscribe and Save model, businesses sell physical products and services on a recurring fee basis. These products could be groceries, makeup, or shaving kits, and the services could be laundry service, home cleaning, or Air Conditioner servicing. For example:
  • The Vitamin Shoppe is an American company that offers health supplements such as vitamins, probiotic drinks, and protein powder for its customers on a monthly and annual subscription basis.
  • Mrs. Meyers, a SC Johnson subsidiary company, sells its cleaning kits and cleaning products under its clean day program for its customers worldwide on a monthly subscription basis.
Curation Model
In this subscription commerce model, businesses sell personalized and curated products tailored to customers' needs. These products could be medical supplies, premium apparel, and health care products. For Example:
  • Allegro Meds is an American online pharmacy company that provides its users with medical supplies on a subscription-based commerce model.
  • Graze is a UK-based online platform that sells curated snacks and ships them to its business and individual customers through a monthly fee.
Membership Model
In this type of subscription commerce, businesses regularly provide access to exclusive content or services through a monthly fee. These could be a gym membership, food-court passes, digital memberships, or monthly passes to access music and video content.
  • Netflix offers its video streaming service to users on a monthly or annual membership package.
Spotify is a music and podcast app offering users a premium membership that prevents ads from running between the music.
Subscription Commerce: The Rise of B2B Subscriptions
The growing market landscape depicts that subscription commerce has largely impacted B2C companies, from medications to food and beverages and everything in between. However, B2B businesses have also assessed its impact to gain lasting consumer relationships, streamlined operational processes for new products, and a faster market time for products with enhanced product lifecycles.
Helping Manufacturers Create an Ecosystem to Unlock Business Value from their Connected Products
B2B subscriptions, compared to B2C subscriptions, have few standard functionalities where a user/company opts for service and pays the price monthly or annually. Some examples of B2B subscriptions include:
  • Ecommerce Subscriptions - These subscriptions enable businesses to process recurring purchases of products and services. Businesses can also partner with delivery agencies to create autoship subscriptions for a regular supply of products to their customers at approved time intervals. In contrast with autoship, curated subscription boxes have uniquely tailored products shipped to match the customer's needs on a recurring basis.
  • Software-as-a-Service (SaaS) Subscriptions - These subscriptions include software services such as communication solutions (audio & video) that are sold on licensing models (monthly or annually).
  • Usage-based Subscription models - These subscriptions leverage the use of IoT devices to track services and products. These include data storage solutions, marketing tools, and publishing tools charged as per the data usage.
  • Service-based subscriptions - These subscriptions offer services such as support, warranty, and product upgrades post the sales on a recurring basis.
  • Product-Based Subscriptions - These subscriptions are designed to charge customers to pay for product usage on a monthly/annual basis. For example, many companies provide office and home furnishing products on a rental basis.
  • Logistic Subscriptions - These services include product shipping, delivery, handling, and returns.
Along with similarities, some key differentiators distinguish B2B subscriptions from B2C subscriptions. There are:
  • Purchase Journeys - B2B subscription usually require a longer time to purchase due to multi-level decision making involved in the process.
  • Market Focus - B2B markets are often niche when compared to B2C markets that have a broader spectrum of products and services.
  • Offerings - B2B subscriptions are more complex with different structures of services to meet different business requirements.
  • Motivation to Buy - While B2C subscriptions are driven by motivation related to emotions, convenience and comfort, B2B subscriptions are based on return on investments, business value and service essentials.
Benefits of Subscription E-commerce for Businesses and Customers
For Businesses:
  • Commercial growth: Ecommerce subscriptions can increase customer base and generate a recurring revenue stream to help businesses stabilize their cash flow and become more profitable.
  • Enhanced Customer Relationships: Subscription e-commerce helps businesses build stronger customer relationships. Satisfied and happy customers are likely to continue using it and are more likely to recommend it to others.
  • Structured Inventory Management: Subscription e-commerce can help businesses to manage their inventory better and reduce costs. It enables business forecasting businesses to avoid overstocking and understocking.
  • Optimizing time and effort in closing deals: Subscription e-commerce saves time and effort for businesses by automating the buying process. Customers have a set timeline to opt for services and products; therefore, the efforts to close the B2B deals can be channelized to promote sales and attract new customers.
For Customers:
  • Convenience: Subscriptions can save customers time and money by providing a convenient way to get the products they need regularly.
  • Quality Assurance: It can provide the customer peace of mind, ensuring they always have the product they need at the right time.
  • Rewards: It can provide customers access to exclusive deals and discounts to make them feel more rewarded for their purchases.
Transition to Subscription commerce: Rising Challenges
  • Sales - Subscription commerce can challenge how businesses interact with their sales partners (vendors and resellers) since automation can eliminate physical touchpoints. It can also disrupt pricing strategies to accommodate sales benefits/commissions for partners, internal incentives, and keep the edge over the competitors to attract new customers.
  • Fulfillment & Customer Service - Subscription commerce can change how businesses manage revenue and fulfillment models. The transactions are no longer limited to one-time upfront payments but are broken down into a set of multiple payments at regular intervals that can impact short-term cash flow management. Customer service essentially becomes a long-term integral component due to the systematic buying process.
  • Back Office - Subscription commerce impacts business operations across the vertical. Therefore, it can bring significant challenges in cross-department communications affecting the coherence of different team setups for sales, marketing, and analytics.
How to make a subscription model work
  • Understand your niche: Offering a product that meets the customers' needs is the first step towards subscription e-commerce. Keeping track of competitors' products can help you curate and modify your product to make it worth the monthly fee.
  • Streamline Customer Onboarding: The sign-up process for the subscription has to be clear and straightforward on your website or app to ensure the customers have easy onboarding onto your services.
  • Create a Strong Value Proposition: Providing a solid value for your subscribers can boost your subscription e-commerce. Businesses can achieve this by providing access to exclusive content, discounts, and other perks to establish loyalty.
  • Enhance Customer Experience: A prompt customer support service can provide an excellent customer experience to your users. Customers are more likely to stick to your platform if you can quickly resolve problems and queries related to your products.
How to Foster Growth and Loyalty Via Subscriptions
Merchants should consider the following considerations to foster loyalty and consistent growth via subscriptions.
  • Address the needs: It's essential to offer valuable products or services that customers will find useful enough to want to return for more.
  • Track Customer Journeys: It's essential to manage customer subscriptions. Tracking their usage cycle and proactively suggesting replenishing the product and services can improve consistency.
  • Improve Customer Engagement: It is vital to keep subscribers engaged by regularly sending them information about new products, services, or deals. An effective email and social media strategy will bolster your brand presence in the marketplace.
Subscription Commerce: Understanding the journey
Starting a subscription commerce business can be a great way to build recurring revenue and generate a loyal customer base for your business. A company can start on their Subscription commerce stores in two ways.
  • Integrate Ecommerce Engine with Dedicated Subscription Service - A dedicated subscription management service can simplify complex eCommerce business processes by automating revenue streams. This solution is advisable for large businesses with multiple business niches and customer touchpoints.
  • Embed Subscription Extension into eCommerce store - Embedding customized eCommerce extensions into your ecommerce store such as Magento can enhance and modify existing business operations to create eCommerce model revenue for small and medium-sized enterprises.
What does the future hold for subscription commerce?
As businesses continue to manifest, subscription e-commerce is helping enterprises achieve benefits such as higher revenues, enhanced customer experiences, and customer loyalty. It is safe to say that the Subscription commerce trend is here to stay. Three distinctive features will assist Subscription commerce in leading the marketplace in the future:
  • Convenience for consumers.
  • Continuous Revenue Stream for the businesses.
  • Collection of valuable data for business analytics.
The convenience and flexibility are driving this shift that subscriptions offer. Hence, In the foreseeable future, if businesses can strategically implement B2B subscription services, it can strengthen the brand image, elevate the brand's market position, and generate new revenue streams in the demand-driven market landscape.
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