Subscription Merchants Tweak Business Models to Keep Consumers

As subscription commerce moves from the pandemic sign-up wave to consumers being more selective and wanting more control, subscription providers are enhancing business models to deliver more value at a time when many subscriptions must pass the “nonessential” test.

Speaking with PYMNTS for the “Subscribe and Scale” series, sticky.io Director, Sales Engineering Greg Austin laid out the subscription models getting the most traction in the shifting sands of the ongoing “great unsubscribe,” calling out how various models appeal to different consumers.

Austin said the subscription management platform is observing four primary models emerging in response to consumer cutbacks, all designed to maximize lifetime value and stop the string of cancellations and account pauses that are rampant in the market now.

Replenishment is the most common in the growing subscribe-and-save movement, he said, noting, “This could be for any usable or consumable good where the consumer is subscribing to that product, and it’s seen as a convenience to the consumer to deliver that good on a monthly or bimonthly basis. They don’t have to go back to the website and reorder that particular product.”

Next up are the increasingly popular bundling and curation models, also called “kitting” in subscription parlance, and taking in everything from surprise and delight recurring gift boxes to seasonal variations, all designed to keep consumers engaged — and enrolled.

“With curation, we’ve also seen that shift to the consumer where merchants are now giving their consumers the ability to curate their own box,” Austin said.

“This would allow them to go to the storefront to select the products they want to put in their upcoming box. But this would also allow them to have full control over that subscription where they can go in and interchange those products for the next month’s delivery and future deliveries as well.”

The third model where sticky.io sees growth is memberships. Austin said these tend to be “used as a VIP-type membership or a buyer’s club where the value is really to be a member of that particular brand.” He cited Fabletics as an exemplar of the membership model, noting that “you subscribe to Fabletics and their value is you’re now going to get access to exclusive products at very competitive pricing because you’re a member.”

Fourth up is the service model — everything from streaming entertainment to software-as-a-service (SaaS) to lawn maintenance — some of which are seen as decidedly nonessential in a tough economy, hence more efforts to add value and keep consumers from disengaging, even temporarily.

See also: Subscription Plans Must Be Simple and Streamlined to Scale

Curation and Value

Of the four dominant subscription models in the marketplace, Austin said curation is proving its worth in giving subscribers more control over box contents, price, and even frequency.

“Merchants are exploring different ways to frame that curation box,” he said. “Are they setting it up for a fixed price, where the consumer can select five products out of 20 for that upcoming box, or do you put the onus of that price control with the consumer where each line item that’s added to that box is at a particular price? I could have a box that costs $20 and somebody else could have a box that costs $50. I think you’re seeing a couple of different models there.”

The resilience of luxury goods in the face of inflation is a factor more subscription services are considering, which is where memberships are helping merchants to scale subscriptions.

Austin said brands wanting to adopt a membership model “have to deliver enough value to justify that cost to the membership, whether that’s cost savings for the consumer or just the exclusivity of the products and lines that they’re able to access. We’ve seen merchants that will only offer certain products to their members. It creates a little bit of exclusivity and builds loyalty toward that brand as well.”

A key metric to monitor in the decisioning process is repurchasing rates among subscribers, as this contains valuable insights that subscription merchants can use to their advantage. It’s easy for beauty products, cleaning supplies and the like, he said, but less so for other categories.

He said one-off purchases like apparel are more difficult. “How do I build a subscription model around that? That’s where I think we’ve started to see things like membership and curation start to take full effect is [in items that] aren’t easily replenished. We have to give the customer some sort of value and control over how that subscription behaves.”

Changes are imperative as more consumers pull back on spending. In “The Subscription Commerce Conversion Index: The Challenge Of Cheaters,” a PYMNTS and sticky.io collaboration, we found the share of consumers not subscribed to any service in July rose by 19% from May.

“Streaming services bore the brunt of this belt-tightening, losing 10% of their subscriber base on average. Retail product subscription providers lost 5.3% in comparison. We also found a 16% drop in the share of retail product subscription holders who pay for their own memberships.”

Read:  The Subscription Commerce Conversion Index: The Challenge Of Cheaters

As subscription merchants seek the tweaks that can stop pausing and cancellation, Austin is somewhat perplexed that more of these providers aren’t using digital means.

Asked about his reaction to the finding that less than half of subscription merchants let consumers edit their plans, Austin countered, “Certainly, they’re not finding online ways of doing it. In the age of SMS text messaging and online membership portals, it’s really in the brand’s best interest to give the consumer control. I think brands are hesitant to do so because they think if I allow a customer to log in and cancel, they’re just going to do so.”

He pointed out, “If I no longer like that particular product, or if there are different flavors or scents of that product, I want to have control to be able to get a different product. The more flexibility you put into terms and allowing those subscription terms to be flexible will retain a happier customer and mitigate some of that churn that merchants are experiencing.”