Why subscription services are on the rise & how to make yours a success

Evelien Al
on
July 9, 2019

Subscription services are popping up everywhere for all kinds of products and services and are becoming increasingly popular. This McKinsey research states that by 2016 the largest retailers in the subscription e-commerce market were making more than a $2.6 billion in sales, and last year (2018) 15% of online shoppers had  subscribed for one or more subscription services. These numbers have only increased over the last year, and there are no signs of this stopping anytime soon.

As you can see there's great potential for companies to create a successful subscription business, for many different products and services. This McKinsey research also shows though, that customers are also very quick to switch if a subscription service doesn't live up to their expectations.

That's why it's so important to know what unique benefit you could create for your customers by offering a subscription model. Here, I'll mention a few key trends that are currently contributing towards the rise of the subscription model. I'll also mention some examples of subscription services doing this right, and advice on how to capitalise on these trends with your subscription service.

Ease & convenience

A major reason why people are switching to subscription services is the ease and convenience they can provide. Subscription services can offer this in multiple ways:

  • By automatically shipping to a customer's home every so many weeks or months they take away the hassle of the customer having to remember to go out and to buy something.
  • By offering additional services like product maintenance they help users take care of products in an easy way, making sure they last for a longer period.

Here are some examples of successful subscription services that have ease and convenience as their main selling point:

Dollar Shave Club

"Shave and grooming made simple" is their tagline. And that's what it does: if you sign up you can tell exactly what you need, and how often you want to get a restock. After that, Dollar Shave Clubtakes care of the rest and will keep sending you restock based on the interval you set, until you change your subscription.

Their strategy has proven successful: by 2015 Dollar Shave Club was projecting over 200 million in revenue, and in 2016 they were acquired for 1 billion by Unilever.

The Dollar Shave Club works really well because:

  • Shavers, shower gel, and other hygiene products, are something we need on a frequent basis, and something most of us don't want to run out of. The thing is, we don't need to buy it so frequently that it's part of our grocery routine, and we (occasionally) forget it. Thus it's an ideal candidate for a subscription service!
  • Dollar Shave Club offers all kinds of different hygiene products (shavers, toothpaste, shower gel), making it the one-stop-shop for your hygiene needs.
  • They allow you to choose the products you want in your package, and how often it should be shipped. You can also easily snooze or skip a shipment if you still have enough shavers (or shower gel).
  • They make it very easy to unsubscribe, which doesn't make it feel like a big commitment, and makes it easier to try it out.

Swapfiets

"Always a working bike" is what they promise, and they deliver on it by not only giving you a bike, but also providing maintenance in the form of dedicated bike repair & swap shops.

Here in the Netherlands this works especially well because:

  • Bikes can be high maintenance, especially in big cities where people park them everywhere (in public places) and cycling through hazards like glass on the street can often leave you with a flat tire or even a stolen bike.
  • Dutch people (especially students) are usually very dependent upon their bikes as it's the main mode of transport. Thus, even a day without a bike (like in the case of a repair) can cause considerable headaches.

And while renting a bike via Swapfiets is in the long run much more expensive than buying a second-hand one, Swapfiets has been hugely successful because of these benefits. The net result is that the company went in one year from 150 to a whopping 50.000 customers

In case you're interested to find out more, in this article I've written more on how Swapfiets optimises for the customer journey and makes it their big selling point.

Using ease & convenience as your main selling point when starting a subscription business

In the following cases you can make the lives of your customers much easier with a subscription service, and create a huge selling point:

  • When you sell products that are used on a frequent basis, need to be replenished, and your customer prefers not to run out it; examples: diapers, deodorant, pet food, coffee, etc.
  • When you sell products that are used on a frequent basis and usually require quite some maintenance during usage; this includes many transportation vehicles like bicycles and cars, but also musical instruments, for example.

Don't forget to make sure that you know your customer's journey inside-out so you can optimise for it, and not create unintended pains for your customers.

IKEA.

MBJ | FILE PHOTO

IKEA recently started a project that perfectly fits into this trend: renting out furniture rather than selling it. It's part of shifting their focus to providing services, while repairing and recycling products.

In the Netherlands, IKEA started a pilot project renting out furniture to students. This is a great target group as they're very likely to move places frequently and perhaps study abroad, compared to someone who settled down in a suburb. There are some other reasons why this is a great idea:

  • Furniture is one of those things that's costly to move around: you have to invest time, money to rent a van or ship items, and especially cheaper furniture starts breaking down the more often you assemble and disassemble it.
  • Getting second-hand furniture is a non-ideal alternative: you have to invest time into finding good items & shipping them to your home. Then when you leave you have to get rid of it again.
  • IKEA is already known as one of the best and cheapest ways to quickly furnish a new apartment or room, and many people are familiar with their catalogue. It's the ideal one-stop solution.

There are no numbers yet on IKEA's furniture leasing success, but I'm sure this initiative can pave the way for many other subscription services to come!

Wanting to own less stuff (minimalism)

Another reason why people are switching to subscription services is because of a move towards owning less. This is partially due to people moving around more frequently, like expats and digital nomads do. There's also a trend of moving to inner cities where (living) space is often limited. And the emphasis has shifted from possessions to experiences.

With subscription services you can rent products for the time you need them and easily return them afterwards, without the product(s) piling up in your home. You can also easily move places without needing to sell your furniture and buy it again; an often costly and time-consuming process. With items (like couches) that need to be used for a long time to "earn back" their money, renting it is a great solution if you're only in one place for a few months.

Using minimalism as your main selling point when starting a subscription business

You can use minimalism as your main selling point when starting a subscription business when either:

  • You sell products that are likely to be used only for a limited period of time, like building equipment, seasonal sports equipment, or barbecues.
  • You sell products that are hard to take with you when moving around, like furniture, big kitchen appliances, and transportation vehicles.
  • You sell expensive (hobby) products where people might first want to try it out to see if they'll keep using it, like musical instruments, cooking appliances, and sewing machines.

You might fear it'll bring down your sales, but it can turn out to be your unique selling point in comparison to competitors!

Consuming more sustainably

The last big reason why subscription services are becoming more popular is because people are caring more and more about consuming in a more sustainable manner.

With subscription services products can easily be re-used and recycled. It also forces companies to focus on the long-term quality of a product, as they earn off the actual usage of a product and not just the selling. It encourages repair and refurbishment rather than throwing away.

Rent The Runway

A Rent the Runway store

Rent The Runway is a subscription service that lets you rent designer clothing, and rotate your wardrobe on a monthly or continuous basis. It means you can frequently freshen up your wardrobe, without the rest of your clothes ending up in the back of your closet.

As the clothing industry & fast fashion is one of the most wasteful industries around, this model can have a huge impact on the environment.

Why Rent The Runway works is because:

  • It uses products (high quality designer clothing) that are suited for re-use as they last longer than most clothing.
  • It helps customers become more sustainable without needing to change their behaviour much (they can still follow the trends, refresh their wardrobes often).
  • It takes away the usual hassle of buying second-hand clothing by ensuring proper maintenance & quality.

Using sustainability as your main selling point when starting a subscription business

When selling the following products you can greatly contribute towards a sustainable future when starting a subscription business:

  • When you sell products that can easily be re-used when maintained well, but are often thrown away before they actually need to. Examples include clothing (especially high quality designer items), mobile phones, and gaming stations.
  • When selling products which, when broken, can be more efficiently recycled, refurbished or used in other ways. This includes clothing and electronics as well.

Don't forget it's important to be consistent if when choosing how to sell your subscription service. Customers are more and more critical as well as, socially aware, and if one part of your business is sustainable, for example, but another one isn't, there's a good chance your customer will find out and look for something else.

Subscription services: There are many advantages to it

If you've given the examples I've mentioned a second thought, you figured out that many of these subscription offerings actually make life easier, less cluttered, and more sustainable! There are many advantages to switching to a subscription service, especially in our society, and it explains why so many people are doing so.

If you're selling products and are seeing a decrease in your sales, take a hard look at your company and wonder if one of the trends I mentioned might be an explanation. How you can make a subscription model work to your benefit?!

If you want to test a subscription model for your products, without needing to put infrastructure in place yet, contact us. We can help you launch a subscription for membership models, like VerbouwMatch that match contractors with homeowners wanting to remodel, or a try & buy model like Philips Lumea where customer's test a product before deciding if they want to buy it! We make trying out a subscription service and testing the waters as easy as it can get... see how we can help your business grow!