The subscription economy

The subscription economy: changing our relationships with brands

  

Global spending on subscription-based services and products is booming, powered by an ever-growing range of brands offering everything from media content, to specialist food and drink, apparel, and cosmetics.

Initially the realm of pioneering startups offering niche services and products, global retail giants are now scrambling to capitalise on consumer demand for long-term subscription based relationships, rather than one-off transactions.

The emergence of a wide-ranging subscription economy has fundamentally shifted the consumer retail landscape, influencing the new dynamics of interaction and value-exchange between brand and customer.

Here we will take a closer look at the phenomenal growth of the consumer subscription market, considering the key success factors, and sharing some of our favourite examples.

The makeup of today’s subscription economy

The concept of a subscription-based product or service isn’t anything new. Many of our home amenities are run on a subscription basis, from our gas and electricity, to our TV license, to our broadband provider. Add to this gym memberships, even insurance.

It’s where the traditional subscription business model has intersected with the world of e-commerce that some really interesting consumer trends have been taking shape.

It is becoming apparent that we are also prepared to sign up to a subscription model with brands we shop with that really resonate with our values and preferences. This can be driven by convenience, but often more for the novel value of receiving niche, harder to secure, premium products and experiences.

It’s a trend that shows no signs of abating. According to US-market research carried out by McKinsey, the subscription e-commerce market has grown by more than 100 percent a year over the past five years.

Another study carried out by SaaS provider Zuora, showed an estimated 58 million Brits now subscribe to services — representing almost 90 per cent of the UK population.

The range of subscription services behind these stats, is vast. Within e-commerce, the subscription-model market was until recently mainly occupied by media content providers such as Netflix or SaaS (software as a service) vendors. In a few short years, it’s rapidly diversified.

Today, just about any goods you care to think of — from cosmetics, to food and drink, razors, apparel, flowers, to vitamins and pet food — have been worked into some kind of subscription based business model that customers seemingly can’t get enough of.

The above mentioned McKinsey study found that e-commerce subscribers tend to be younger (25 to 44 years old) urbanites with a good level of disposable income. And women account for 60 per cent.

These new wave of e-commerce subscription businesses generally fall under three key categories:

  • Replenishment subscription services: these are business models built on a value proposition of convenience, allowing consumers to automate the purchase and repurchase of everyday ‘commodity’ items like razors, nappies or groceries
  • Curation subscription services: seek to surprise and delight by providing new items or highly personalised experiences that go beyond everyday convenience or routine item purchases. This type of subscription business is particularly popular in categories such as apparel, beauty, and food
  • Access subscription services: where subscribers pay a monthly fee to access attractive benefits or rewards, such as exclusive discounted prices or other member-only perks. Again, this category is particularly common in the apparel and food categories.

 

Interestingly, of the above three categories, curation services account for the majority of consumer market share — 55 per cent, according to McKinsey. This adds further weight to the suggestion that what customers care most about today, are unique, highly personalised services that resonate with their personal values.

In summary: brands creating one-of-a-kind, high value products that stand out from regular high-street experiences, are the ones reaping the rewards of the subscription economy.

Examples of great subscription based brands we love

Pasta Evangelists

Pasta Evangelists provide restaurant-quality pasta for home delivery. Discerning pasta lovers can either make a one-off order, or choose from one of three themed subscription delivery options. Among the delectable dishes available in an impressive range of recipes are the delica pumpkin tortelloni with sage butter and cheese, and paccheri with slow-roast aubergine and ricotta salata cheese. Foodies rejoice.

Bloom & Wild

Bloom & Wild has made a real name for itself in the boutique floristry market, with its trademark online ‘letterbox’ flower delivery service. Unsurprisingly, the digital-savvy brand offers the option to subscribe for regular flower bouquet deliveries for a set price. Having a steady stream of fresh flowers in the home, at an affordable price has never been easier.

Beauty Pie

Beauty Pie’s innovative membership subscription model has been seriously disrupting the luxury beauty industry. Memberships (starting at £5 per month), give consumers juicy discounts on high-end products compared to typical high street retail prices on brand name equivalents.

JustFab

Applying a similar incentive-based membership model as Beauty Pie, only applied to fashion apparel, JustFab offers VIP members exclusive 30% discounts on their ranges, as well as invitations to VIP-only events and promotions, and a monthly ‘personal boutique’ of individual item recommendations based on the consumer’s preferences and styles.

Pact Coffee

A boon for coffee lovers everywhere, Pact offers gourmet brews from around the world, delivered through the letterbox. Customers get to customise the frequency of deliveries they receive, depending on how much coffee they want / how much they wish to spend per month (bags start at £6.99 each). Everything fair trade, everything artisanal-quality — and every received package comes with a neat little info card explaining the coffee’s flavour profile, the country of origin, and a little bit about the particular farmer who made it.

The number one driver of subscription products?
Friend referrals

Here’s another interesting thing about the dynamics of subscription based products and services, highlighted in the McKinsey research report: recommendations between friends are the number one driver of customer growth for this business model.

Direct from the report:

“A recommendation, including word of mouth and positive online reviews, is a key trigger for consumers to sign up with a subscription service, particularly those for curation and access. Subscribers to both also want something new and innovative. In contrast, replenishment subscribers are more motivated by financial incentives, such as discounts, and by a strong need for the product.”

This is, of course, merely confirming what we at Mention Me have always believed and preached: in e-commerce, nothing is a more authentic, trust-powered strategy for customer growth than referral.

Learn more about how outsourcing refer-a-friend with Mention Me platform works. Request a demo

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