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Want recurring revenue and predictable income from customers? A retail subscription program, in which buyers commit to receiving your products or services at recurring intervals, could be just what you need.
High-growth brands are looking for additional revenue streams to diversify their mix and, ultimately, maintain a high-growth trajectory. In fact, a report by Barclaycard Payments showed that two thirds (67%) of retail businesses were planning to launch new or more subscription options in the future.
This is unsurprising, given that subscriptions are estimated to have accounted for 36 percent of retailers' total revenue over the past year, an increase of 11%.
You may have considered subscription programs to supplement a transactional model, but is it right for your brand? Let's explore.
Subscription services offer the ultimate convenience for consumers, with discounts and incentives for commitment, flexible models, and the perk of getting items delivered regularly without friction.
The pandemic significantly impacted the appeal of subscriptions, with craft boxes, grooming essentials and food delivery boxes allowing social distancing and a respite from boredom. Subscriptions are now part of life for many of us, and a recent UK government study has shown that 49% of UK adults pay for entertainment and book platforms like Netflix, Spotify, and Amazon Prime Video. Further, 29% subscribe to product delivery services.
For retailers, subscriptions offer predictable revenue, new audiences, and access to untapped markets, such as gifting. Subscription brands have challenged category leaders. After Dollar Shave Club sliced 6% off Procter & Gamble’s (P&G) grooming sales, P&G then saw fit to purchase the brand for $1 billion.
Subscription programs are not new. Since the 1600s, books have been sold on subscription, and by the 1800s, brands like Singer had started to offer sewing machine rentals. The théâtrophone (devices used to listen to theatre performances over telephone lines) placed in public spaces could have subscribers, allowing users the right to listen.
What is new is the range of subscription services that are now available. Let's explore the types of models, their benefits, and how to succeed.
Retailers selling consumable or regularly-used products can benefit from the replenishment model, where subscribers receive recurring deliveries of items they consistently need.
The access model offers exclusive memberships and/ or content. Consider a brand like Sonos, which, in addition to offering hardware, now offers subscriptions to Sonos Radio.
The curation model is commonly used in the retail sector, where curated boxes or packages tailored to customers' preferences are sent at regular intervals, offering personalisation and surprise. Consider the Fortnum and Mason’s ‘Teatime Subscriptions’, offering a refill of premium teas and biscuits for a year of delicious teatime pairings.
Subscription models provide a reliable stream of recurring revenue, helping to stabilise cash flow and reduce financial uncertainty.
Subscriptions can achieve a consistent and predictable revenue stream, which makes for easier budgeting and forecasting. Subscriptions can also be tiered, withholding specific features for higher-cost tiers or reducing for consumers with further commitment. For example, a commitment to a 12-month lock-in over a rolling contract might have different price points.
Between 2017 and 2020, spending on subscription boxes purchased as gifts for others increased by 121.2%.
The gift market presents a huge opportunity for niche products where it would otherwise be hard to achieve significant sales volumes. A small treat purchase typically picked up as a rarity or one-off can become a monthly commitment if your product can be presented as a giftable subscription with the right delivery options and appealing wrapping.
Consider businesses such as Rowan and Reid that offer localised products from Highland-based producers for those keen to give an authentic Scottish gift.
With a subscription model, consumer products can be pitched as gift opportunities for events such as Mother's Day or National Friendship Day, either in press gift guides or through your own marketing channels.
Another huge perk of the subscription model is that it allows retailers to test and promote new products.
The beauty advent calendar is an approach similar to subscription models that does just this. Brands submit products for consideration of inclusion in a 12-25-day physical advent calendar, with the costs partly covered by the seller of the calendar. The consumer gets an array of desirable beauty goods, while the brands build awareness of their additional lines and develop the opportunity to reach new customers.
The Lush Kitchen subscription box is an example of a monthly subscription service that helps consumers access new products. It offers fresh, handmade exclusive products and one or two surprise goodies chosen by Lush inventors.
The 2020 Physical Subscription Commerce Report indicated that subscription box business models have a higher average order value, yet a higher churn rate.
With traditional transactions, the value is simple: the product is needed and then purchased. With subscriptions, the desire or necessity can wane.
Forgetful consumers may hold subscriptions or get automatically charged for renewal and then resent the overspend. According to recent research from Citizens Advice, the amount consumers spend on "accidental subscriptions" has risen sharply: it estimates unused subscriptions have cost UK adults £688m in the past year.
To safeguard the relationship of the subscriber for the long term, the offering has to offer good value for money. The good news is that according to a Gov.Uk study, those subscribing to product delivery services (72%) felt they had good value for money.
When it comes to lifetime value (LTV), it pays to offer necessities over luxuries. One way to tweak the offering could be to tier your subscription service, provide additional benefits aside from products and freebies, or consider a partnership.
You also have to watch the market and fluctuate costs with your competitors. Value is all relative and your subscription will be compared to not having the product, as well as the convenience on offer, the performance, as well as overall spend on subscriptions. In short, if all the other subscription services elevate their costs, it might be your brand that suffers the cancellation.
Good delivery is an essential part of the subscription service.
When asked why they subscribe, approximately four in ten consumers said it is convenient to them, and this is also true for retailers. Subscription deliveries make sales predictable, so you can have extra warehouse staff ready to pre-pack orders and ship in good time.
It may be important for your brand to maintain a strong social media or virality component with packages arriving on the same day, supported by algorithms and multi-node shipping to ensure the boxes all arrive on the same day.
On the flip side, it may align with the brand to focus on ESG and eco credentials, asking your subscription customers to accept slower shipments in return for discounts, credit, or extra products.
When it comes to apps, less than 0.1% of users who actively use a free app convert to a subscription, according to Apple data. Getting people through the door can be tricky, and it's hard to create an audience when it's been estimated that U.K. shoppers already spend a cumulative £2 billion every year on subscriptions.
To break into the market, many subscription services use influencers, door stops, canvassing, discounts, and affiliates to get subscribers—all budgetary line items that can add up quickly.
In 2023, the meal kit delivery service HelloFresh spent approximately 1.44 billion euros on marketing, an increase from the previous year's marketing budget of 1.28 billion euros.
To get started, you may need deep pockets or loss leaders, but it should prove worthwhile.
According to AWIN, when a subscription is offered as a free gift to qualifying customers, the average conversion rate is +20%, and feedback from subscription advertisers suggests that at least 48% of referred customers convert into full-paying subscribers after the free trial.
Customers likely understand that you will have to raise prices at some point, or the model and what’s on offer may change, but if you provide the same or even more value commensurate with the increase, you can likely retain these customers.
Pret a Manger faced backlash to its subscription model changes, which saw it move from five drinks a day for a monthly fee of £30 down to five half-price coffees a day for £10 a month. The chain also removed its 20% discount on food and received thousands of complaints that not all drinks once included in its subscription service were available.
In 2021, the Advertising Standards Authority advised the coffee and sandwich chain to rethink how it advertised the subscription service.
Amazon and Netflix have also added ad-supported tiers. According to Savanta data, consideration for Amazon Prime Video dropped during the announcement, but it soon returned to its previous level.
It seems that if what you offer is strong enough, it may withstand price increases, but it can be helpful to forecast into the future to avoid under-budgeting for your service which would lead to over-promising and under-delivering.
In 2019, Mastercard implemented a policy requiring merchants to get a cardholder's approval at the end of a trial before they start billing. This is interesting, as when a bank needs to step in before a brand does, it shows just how simple and frictionless subscription experiences are, but how they also come with a lack of connection.
One study showed that many consumers would like automatic renewal, but it can take very little to change a circumstance when a subscription is no longer needed. From a period of illness to a long holiday, it's essential to be able to convert cancellations or get in front of considerations of doing so.
The ability to pause and restart is a wise choice and has been used by brands such as Freddies Flowers, who offers the ability to skip or pause a delivery for up to six weeks. Audible offers the ability to pause membership once every 12 months and brands like Babbel offer no-questions-asked cancellations.
There are many ways to handle the risk. Visitations to your cancellations pages that suggest intent can be flagged as at-risk accounts to contact with discount codes or support.
Chatbots can also be used to capture customers searching for cancel or pause related terms directing them to specific landing pages showcasing the benefits of staying a subscriber. If they do want to leave, let them go on a high, and hopefully, they’ll be back once more.
Whether you're launching a new subscription model or enhancing your current operations, Narvar provides the tools and expertise to ensure your success every step of the way.
Narvar’s AI-driven delivery promises boost customer confidence and can increase conversions by up to 4%. By offering personalised, real-time delivery estimates of your subscription goods, you’ll provide your subscribers with transparency and reliability.
Additionally, Narvar’s proactive, tailored communications keep customers informed throughout the entire delivery process, reducing concerns and building trust so it’s a delivery they look forward to.
With over 40 customizable messages across the retail journey—from shipment updates to delivery confirmations—Narvar ensures a delightful, seamless customer experience far beyond the "buy" button. Every touchpoint is designed to engage your customers, build loyalty, and keep them subscribed for longer.
Schedule a demo with Narvar today and discover how we can elevate your subscription model, delivering the smooth and personalised experience your customers expect.
