D to C, Marketplaces and Subscription models

Forrester’s recent blog (The Rise of The Subscription Business Model. Forrester, 2020), is one of many that highlights how the subscription model is fast being adopted by disruptors and market leaders alike as consumer buying habits continue to adjust to the effects of Covid19.

In this blog, we bring together insights on this topic from thought leaders and commentators including, Forrester, Forbes, McKinsey and more; as well as our own commercial experience of building subscription businesses for Which.

At Upbeat we specialise in helping brands build and grow subscription income and entire businesses online.

We create and deliver viability tests, road maps, technology implementation, investment into UX or web design, and go to market launch strategies (acquisition, retention, referral). We have created and launched successful subscription products for Which for many years.

With everything from food boxes and razors to film clubs and toilet paper (or any other Amazon repeat purchase you choose) competing for a share of our monthly hard-earned income, brands need to look outside of the classic one size fits all model for a subscription business to succeed.

On the surface, a subscription model has many positive aspects especially economically. However, all subscription businesses will suffer with churn, often for reasons not obvious from customer data.

The more effective a subscription business can be in implementing methods that control the number of period churned customers, the less inactive populations will be on your platform and the more economic success potential it will have (Forrester).

Data powered customer analytics that allow for personalisation and prioritised intervention are key to reducing churn, as are incentivised referral, creating customer delight (and fun ways of sharing that) and fine-tuning what you deliver and how you deliver it to develop a subscriber-subscription relationship.

Two years ago, McKinsey was already estimating that the subscription market grew by 100% between 2013 and 2018, with 15% of online shoppers having signed up for at least one subscription service in that period (Thinking Inside the Subscription Box. McKinsey).

In 2020 they have identified three significant drivers for a subscription model:

• Replenishment
• Curation
• Access

As illustrated here:

 

In the current global climate, demand for ‘at home’ products and services has only increased further. Indeed, recent data indicates that only c. 30% of subscription businesses have experienced revenue contraction during Covid-19 while the rest have increased. Implementing A Subscription Model for Direct-To-Consumer (D2C) Sales Growth. (Forbes 2019).

Market places allow brands to offer both their own and third-party products through an online platform in the form of a subscription (or single transaction model).

Amazon’s 2017 move to deliver a self-service digital subscriptions marketplace was an early example of this.

The marketplace allowed subscribers to manage pricing including freemium models, monthly and annual prices as well as discounts for members of Amazon Prime (Amazon Rolls Out Third-Party Subscription Marketplace. Retail Dive, 2017).

Increasingly third-party platforms, such as Mirakl and Vtex are entering the marketplace or collaborative commerce space.  With these platforms, a brand or publisher can build an online marketplace allowing third party businesses and brands with complementary products to add value to their customer base while taking advantage of the organic traffic on the community platforms themselves.

A marketplace offers primary brands (eg: those with the customer base) a quick route to range extension and category expansion by diversifying their online product offerings through third parties. 

However, the EU’s recent well-publicised decision to file antitrust charges against Amazon for using business data to gain an unfair advantage over the merchants using its platform is a cautionary tale for any brand considering a marketplace strategy.

Consensus increasingly dictates that the Covid-19 pandemic has created a shift in how consumers buy that is here to stay, with online orders jumping but also many contacting manufacturers directly.

Brewdog’s current £25K “Strike Gold with Punk” promotion, designed to drive the online direct purchase of a Punk IPA 12 pack (find a golden can) is a good example of brands thinking creatively to drive direct sales and increase purchase value (this was promoted via Linkedin, amongst other places).

If you are interested in finding out more, an example of our work for Which is a good example of launching a subscription business.

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If you are considering a subscription strategy and want to discuss why and how best to do this, then get in touch, we are always happy to share experience and ideas on a call