Subscription model driving the age of experience

There are four trends driving the rise in subscription services. (Stitch Fix)
Isabelle Roussin

In the age of convenience, subscription retail models are on the rise. And the economy is quickly moving from a product-focused to a service-focused model. Although companies selling everything from cheese to pet food have used the model for at least 10 years, subscription-based retail is still in its infancy. Brands are continuing to tweak the experience to offer personalized and flexible options that consumers have come to expect.

Isabelle Roussin, global vice president of market development, billing and revenue Cloud, SAP Hybris, says there are four underlying trends driving this transition:

  1. Consumers' preference for a tailored and individualized experience each time they shop
  2. The growth of consumers' desire to assess rather than possess 
  3. The fast-paced economy leaving consumers with little time for shopping—even online
  4. Retailers benefit from differentiation, increased customer loyalty and financial stability

FierceRetail (FR): What are some of the challenges that go along with setting up a subscription service?

Isabelle Roussin (IR): When retailers move into a subscription model, the traditional go-to-market model changes because it is no longer a one-off sell relationship. Customers are now buying a service and their expectation has shifted to an outcome-based approach. While retailers used to go through a network of resellers, they now need to handle a direct relationship, knowing each customer’s preferences and purchasing habits. These modifications have a direct impact on the underlying business processes, and infrastructure needed, meaning the whole quote-to-cash-to-deliver process must be revisited.

Plus, the pricing of this type of service must remain competitive. It is not just a matter of changing a price point, but rather tuning, in concert, all the knobs and dials across upfront fees, recurring fees, metered usage fees with entitlements, etc.

Customers must be guided to the right pricing plan for their individual needs and continuously informed of where they are in their subscription plan and what entitlements they have remaining.

To be successful, brands must be able to harness all of the data they are collecting. From location data to usage data, sentiment analysis and financial data, this data constitutes a gold mine to define a personalized experience and to invent new pricing models. Data should be collected, aggregated, cleaned, analyzed and monetize in real-time to offer a dedicated customer experience.

In addition, retailers need commerce sites and platforms that can handle a large amount of transactional data and can support partnerships both on the supply-side (advertisers, content and services suppliers, third-party logistic providers) and the sell-side (resellers, distributors).

FR: Are there some areas of retail that work better as a subscription model than others? 

IR: When looking at the consumer industries space, the subscription service model works best for repeatable and perishable consumables, i.e.: wine clubs, groceries, beauty goods and fashion items. However, success depends on one key factor: keeping consumers loyal and avoiding churn. Innovation and personalization are at the heart of success and to succeed, businesses must provide personalized offerings by mining and analyzing historical consumer data.

FR: Beyond Amazon, are there any brands you can point to that you think are doing a good job of implementing this model?

IR: Subscription service models such as Birchbox and Stitch Fix have undoubtedly disrupted their sectors, encouraging competitors Sephora and Nordstrom to develop their own models. This is because their businesses are curating experiences for consumers, translating preference data that is regularly captured into a personalized shopping experience.

FR: For established retailers, is it too late to offer a subscription model?

IR: We are only at the beginning of the subscription transformation. There is plenty of opportunity for retailers to build their own subscription models, as long as they include a unique value-add around the product they deliver. Birchbox has seen success through partnerships with high-impact brands, while Dollar Shave Club offers cross-line products such as shaving cream and gels. These brands have been able to differentiate themselves in a sustainable way because they spend time understanding their customers and supplementing experiences with additional in-demand products.

Established retailers should already understand how often their customers buy and how much they typically spend. With this, they can find holes (if they exist) in how they can improve the customer experience through a subscription model. Whether it is bridging the omnichannel divide by allowing customers to pick up their subscription box in-store or providing incentives when purchases are made, the consumer should be able to appreciate a unique value add from a subscription offering.  

FR: What's the first step when undertaking the implementation a subscription program?

IR: The first step in designing a subscription program is to define the business model framework and develop a go-to-market strategy. This means answering “To whom, what and how do I sell?” and “How will I deliver this new service?” Retailers should work to understand their customer pain points, what competitors exist in the space and what their unique selling proposition is. Once the reasoning is established, they can move to logistics and execution by identifying the type of billing process necessary and methods they will use to scale. Here, retailers must choose the right type of quote-to-cash process to put in place and decide if partners can enrich the service. Finally, retailers need to determine the fulfillment and delivery process that is cost effective, efficient and can provide the experience consumers expect.

FR: Will this trend continue to grow?

IR: With retailers constantly shifting from product-based to consumer-centric and experience-based strategies, more and more industries are embarking on subscription models. I expect to see the subscription model expand to sectors beyond B2C implementations to B2B as well. Anything can become a subscription model, including equipment, cargo shipping, financial services and more.