Subscriptions 101: How to develop a strong subscription strategy that boosts customer loyalty

Subscriptions are becoming an increasingly commonplace part of everyday life. Whether you use a streaming service like Netflix, order in a weekly meal kit, or you get a regular delivery of household essentials, it’s easy to see how subscription sales figures have grown so quickly in recent years. In 2018 the global ecommerce subscription market was valued at around $13.2 billion, and is expected to grow to a staggering $478.2 billion by 2025. With such explosive growth and huge scope for opportunities, many Shopify merchants will have their eye on expanding into the subscription market. 

As mentioned already, there is more to subscription ecommerce than just your classic monthly curated boxes ranging from services to regular deliveries and more. Therefore there are multiple different ways that Shopify merchants can incorporate this model into their existing strategy in order to reap the benefits of subscription ecommerce.

Why more merchants are getting into subscriptions

Predictable/Reliable Source of Income

One of the biggest challenges for any ecommerce merchant is being able to accurately predict sales and growth. One month you might see high sales because of a promotion, the next might be much lower than average because of inventory issues. What subscriptions offer is a predictable income floor - you know how many subscribers you have, what their plans are, and how much income that will generate month to month. There may be some fluctuations as subscribers sign on or drop off, but in general you’ll be able to predict with some accuracy how much revenue you’re going to see each month.

Useful, richer customer data

Understanding your customers is what drives your store and the decisions you make. From product development to inventory and fulfillment, it’s important to be informed by data. Subscriptions and recurring payments give you invaluable insights into your customers and their behaviors. For example if your subscription service is a curated box, you’ll be able to see which items are most frequently swapped out and which are most positively reviewed which can help guide you in the right direction for purchasing. Or perhaps you offer product replenishment subscriptions, the data you get from your customers will help inform inventory forecasting as well as seeing how pricing changes might affect sales.

Build stronger relationships with your customers

Delivering high quality experiences consistently is key to building a strong relationship between your brand and your customers. Subscriptions allow you to deliver that experience on a regular and frequent basis, showing your customers time and time again that they can expect high quality service and products from your brand. Using customer data, you can also continue to improve and develop your subscription offering, ensuring that customers always receive the best your brand has to offer. To go a step further you can also use that data to personalize the experience, be that through their name on a curated box’s packaging or emails with recommendations based on their order and subscription history.

Spend less on customer retention

Selling to existing customers is far easier than acquiring new ones. It costs five times more to attract a new customer than to retain an existing one, and you have a 60-70% higher success rate of selling to customers who have previously ordered from your store. Not only is it easier to sell to these customers, but it’s also more profitable. Having made a purchase already, they’ve been through your customer journey and now know the quality of your products and customer experience. Subscriptions and recurring payments are an easy route to creating that base of loyal customers who will order again and again, either through their regular subscription payments or through one-off orders.

Types of subscription

The word “subscription” tends to conjure up an image of a classic curated box paid monthly, however there are many different ways merchants can use subscriptions as part of their Shopify store. Let’s take a look at some of the models available, as well as their benefits.

Curated Box

The curated box model of subscriptions can take different forms:

• Mixed items from different brands
  Example: sample size products from different facial care brands
  
  
• Selection of items from a single brand
  Example: a coffee roaster selling a monthly box of seasonal coffee beans
  
  
• At-home kits
  Example: weekly meal boxes, or DIY cocktail kits

These work well if a store has a mix of different products available at any given time, for example beauty brands or food and drink producers. You can introduce new products to customers on a regular basis, and give them a fresh experience every time they receive a subscription. Especially in the last 12 months, offering these at-home experiences for customers to try something new and interesting in the comfort of their own home has become a huge market. You can also use these curated boxes to determine which products you should keep in stock for regular non-subscription orders, as well as introducing new products to figure out which ones your customers respond best to.

Replenishment subscriptions

In short, the way this model works is a customer signs up to receive the same product or set of products after a certain period of time has passed. This could be ordering health supplements every 3 months, or a certain type of shampoo every 2 weeks. The most well-known real-world example of this model would be Amazon’s “Subscribe and save” option on products. 

This model works best if you sell products that customers might need top-ups of on some kind of regular basis. The most common product categories that utilize this model are health, beauty and personal care, food and drink, and pet care. These categories represent what customers typically will need to buy regularly but it is niche specific; pet owners will need food and flea medication, whereas they might not necessarily need pet beds replaced with such frequency as they’d likely sign up for a subscription. Consider how frequently your customers might order certain products, and create subscriptions that suit the typical product use cycle.

Service subscriptions/Memberships

This model of subscription works in a couple of different ways. The first is when a customer pays for a service to consume content such as Netflix or Spotify, or use technology such as Adobe or even Shopify. This is less relevant to an ecommerce merchant, as these tend to be utilized by large corporations. However there are other ways ecommerce merchants can leverage service based subscriptions:

• Support and repairs - customers gain access to prioritised product support, and have better/cheaper/free repair options available to them.
• Members-only access - customers receive exclusive discounts, early sale access, freebies, new product previews.
• Shipping - customers pay a flat fee to receive free or discounted shipping e.g. Amazon Prime, ASOS Premier.

These membership style subscriptions work really well for merchants who want to offer a subscription element on their store, but want to start small. It has a low barrier to entry, costs less to maintain than a product subscription, and encourages customer loyalty as they’ll want to make the most of their service benefits.

4 most important factors in running a successful subscription service

Flexibility

One of the single biggest trends to surface recently in subscriptions is the importance of flexibility for customers. There are a few key areas that your customers will want your service to have flexibility in:

Subscription frequency

Customer needs change over time; one month they might use less of a product, so don’t need it fulfilled on the day their next order is due to arrive, or the opposite may occur and they need their replenishment sooner. If you’re offering curated boxes, they may still be making their way through the previous month’s products, or perhaps the next payment date doesn’t line up with payday that month. Without the option to skip, move forward, or delay their subscription orders, customers may be more inclined to simply cancel their subscription. However if you instead offer customers greater flexibility and control over how frequently they receive their order and allow them to change this easily, then they’re much more likely to keep their subscription rolling.

Products

As customer frequency changes, so too do their product needs. Especially with curated subscriptions, not every product in a box is going to suit every customer’s preferences. The more unsuitable products they receive, the more likely they then are to simply cancel the subscription as your product no longer meets their needs. The solution to this is to be flexible with what products your customers receive and allow them to swap out products they don’t need for those they actually want. If you offer a replenishment subscription, make it easy for customers to switch products as their needs change. Moreover make it easy for them to add one-off products to their subscription order, and offer complementary products to their subscription. For example if they have a coffee subscription, make it easy for customers to add paper filters or other coffee making equipment that they might want but won’t necessarily need as part of a regular subscription.

Communication

The key to a great customer relationship is communication throughout the entire experience. Especially with subscription services, customers expect there to be excellent communication about their orders. Letting them know when a subscription is due to renew, extra details about what to expect, and giving them plenty of information about dispatch and delivery are all small things you can do to give them that peace of mind and control over their subscription.

However you can go a step further using what the customer has access to outside of your brand directly contacting them. Subscriptions themselves are meant to be simple, so the visibility the customer has over that subscription should be simple too. Make it easy for a customer to manage their subscription and account, with account dashboards that clearly display where a customer can view their upcoming deliveries and make changes to the frequency or products.

Reward Loyalty

Research shows that 8% of your customers are responsible for over 41% of sales. Retention ultimately leads to lower churn, and higher Lifetime Value (LTV). Therefore you want to nurture relationships with those customers as best as you possibly can. One way to do that is by rewarding their loyalty. The more they purchase, the more benefits they receive, and the more likely they then are in turn to purchase more frequently. Using platforms such as Loyalty Lion, you can easily integrate loyalty and rewards into your subscription service to not only boost your chances of retention but to deliver even more value to customers.

Personalization

It’s nearly impossible to cater to every single customer’s individual tastes and needs with a subscription service, but by personalizing the experience you can add that extra touch that will make a big impact on a customer’s perception and their likelihood to keep renewing their subscription. The key is that customers expect a great experience, and personalization gives you the chance to offer that. According to McKinsey, a personalized experience was the most important factor to continuing a subscription across the board regardless of the type of service. This can be done in a number of ways including personalized packaging and recommendations, or surveys completed in the early stages of the subscription to tailor the subscription to the customer’s preferences.

How to ensure continued success

Starting a subscription service is only the beginning of a long journey. There are a number of tasks you and your team can do in order to ensure that your subscriptions are delivering value to your customers.

Monitor growth to enable scalability

It’s important while you’re promoting and growing your subscription business that you continue to monitor its growth month to month. This will allow you to better track inventory requirements, and what you can do to scale the subscription offering. Keep this in mind ahead of promotional push periods such as Black Friday, or key seasonal sales periods related to your subscription products. This ensures you’ll have the resources to meet demand as your subscription offering grows.

Use your data to develop your value proposition

As with most things in ecommerce, the decisions you make about your subscription service should be driven by data. Monitor some key elements of your service to ensure continued development and growth that will continue to delight your customers:

• Regularly swapped items
  If you offer a curated box, look to what your customers are swapping on a regular basis. This helps you determine which items do and do not work in your box.
  
  
• Item reviews
  Whether positive or negative, reviews will help you to determine which you should continue to stock.
  
  
• Success of promotional campaigns
  Looking at where you see the most success in promotional campaigns helps you to determine where you should focus promotional efforts, as well as what offer works best for attracting new subscribers. Do promotions perform best on Instagram, or email? Did you see a higher uptake in subscribers after a 10% off promotion, or a free shipping offer?
  
  
• Customer demographics
  Understanding who your customers are is vital to knowing what to develop next. It will help you to know where you should go to attract more of the same audience or if you want to try and attract a different audience.
  
  
• Customer service enquiries
  Look at the support tickets you get in, if you notice a pattern then it’s something your team can look into improving.
  
  
• Ongoing customer satisfaction surveys
  Knowing what your customers feel about their subscription in different aspects is invaluable in ensuring that you offer a consistent and high quality service.
  
  
• Cancellation reasons
  Do most customers say your subscription is too expensive? Or are you seeing a rise in cancellations being the result of product quality? Understanding why customers are choosing to cancel allows you to better develop your value proposition. 

Continue to learn from your competitors

As the subscription ecommerce market continues to grow, so too will the level of competition across every industry niche. Knowing what your competitors are doing will help you to better understand what your brand is doing well and where it could do more to better address customer needs to draw them away from your competitors. Regular analysis will show you what they’re offering and at what price, what the customer experience looks like, and what promotions they run most frequently. This allows you to then further develop your own experience, and ensure your store is always at its best. 

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