The subscription model is taking the retail industry by storm, from beauty products to grocery items. And it seems consumers are becoming increasingly comfortable with keeping credit cards on file to receive products and services on a recurring basis from brands they love.
But in the world of B2B, there is still some catching up to do. The B2B e-commerce market is expected to reach $6.7 trillion by 2020 and can earn a portion of this potential income by learning from leading B2C brands in the subscription model such as Birchbox and Blue Apron.
Subscription services are the future for B2B, according to Bob Moore, head of business intelligence at commerce platform Magento. FierceRetail sat down with Moore to explore why B2Bs have thus far shied away from this model and what income they are potentially missing out on.
FierceRetail (FR): Why are more B2B companies not using subscription models at this time?
Bob Moore (BM): This is a great question because quite frankly, they should be. Subscriptions have been wildly successful for B2C brands because they engender loyalty and greatly increase the rate of repeat purchases. As a result, businesses like Birchbox and Dollar Shave Club have been able to thrive. But B2B companies often find business model overhauls to be extra challenging. Their supply chain and back-end logistics can be very complex, whether they’re dealing with medical equipment, office supplies or anything in between. More established companies can also face political hurdles internally when proposing such a significant and disruptive business model change.
FR: What are some of the challenges that come with implementing a subscription model?
BM: Customers can be hesitant to enroll in subscription programs, especially if they are already accustomed to a more traditional buying experience. This means that investments in marketing, advertising, user experience design and technology are critical to the success of a subscription launch. These investments can be well worth the up-front costs, however, when you consider their impact on repeat purchase rates and customer lifetime value.
FR: Are there any examples of B2Bs that are successfully using subscription models at this time?
BM: There are, though not nearly as many as one might expect. Some are B2C companies that have found success with subscriptions and extended these services to B2B aspects of their business. One of my personal favorites is Graze, a wildly popular subscription snack service. While most people think of them as a B2C service, many businesses use their subscription as a way to keep creative office snacks in supply, leading to a large B2B business component. As we continue to see these B2C-B2B crossovers disrupt existing B2B players, I expect the established B2B market to respond with more subscription offerings of their own.
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FR: What are the biggest advantages to subscriptions?
BM: Repeat customers can make or break a company. Subscriptions are a way to build repeat purchases into the very core of a customer’s relationship with a business. Once on-boarded to a subscription plan, customers don’t have to worry about renewing their order or take time each month to shop around and compare products. In return, subscription customers benefit from seamless, effortless buying experiences, saving them meaningful time and frustration each buying cycle. This win-win creates a virtuous cycle that leads to happier customers, more revenue and a more predictable cash flow profile for the business.
FR: Where do you see the future of B2Bs and subscriptions heading?
BM: Subscriptions are now widely accepted—even expected—in the B2C space, and B2B companies are starting to catch on. These companies are looking for ways to remain competitive in a dynamic market, and implementing subscriptions is a financially impactful place to start that has proven long-term benefits. B2B subscriptions will continue to gain steam in the coming years as they continue to drive retention, conversion and customer lifetime value.