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Are subscription-based models the future of D2C retail?

OCTOBER, 2022

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We discuss why omnichannel retailers should strongly consider providing a subscription service for consumers to compete against traditional retail methods.

Direct-to-consumer retailers who have implemented subscription boxes into their omnichannel strategy are playing an increasingly significant role in revolutionising the retail landscape.

Over the pandemic, there has been exponential growth within eCommerce's digital space, and since the cost-of-living crisis spiralled out of control, subscription services and D2C trends are beginning to dominate the market as consumers crave convenience and value.

The substantial growth of digitisation and temporary closure of the high-street led to the surge in the number of D2C sales, as consumers turned to the source rather than buying from a third party.

Free to breakaway from legacy retail, D2C businesses began toying with innovative distribution methods such as shipping their products directly to customers, opening local pop-up shops and providing subscription services; staying competitive online by adapting their products and wider retail operations.

Subscribe & Survive

As we discussed earlier, the subscription box retail market has grown significantly in response to the pandemic and the demand for increased convenience and value. Despite the transition back to a 'new-normal’ life, the demand remains strong for subscription services that make consumer lives easier and provide good value for money.

The UK subscription box market is set to be worth £1.8 billion by 2025.
Royal Mail
UK Subscription Box Market report

A slow-burning trailblazer in the retail industry, aside from the grocery market, it's remained a relatively untapped market until now. Retailers are increasingly capitalising on the ROI of providing subscription services to their customers.

Before retailers build a subscription model, knowing exactly what their customers want (and what they can manage financially) and segmenting them accordingly is key to improving convenience, retaining customer loyalty and increasing customer lifetime value, as well as mitigating any delivery or stock challenges.

68% of businesses currently offering subscriptions will expand their portfolios before the end of the year; driven by companies in groups less commonly associated with this space. DIY & home improvement (76%), homeware & furniture (73%), department stores (73%) and technology businesses (69%) plan to launch new subscription offerings, all above the industry average of 61%.
Barclaycard Payments Research
"Subscription Services", 2022.

Subscription models also provide superb upsell opportunities for businesses to combine standard orders or premium packages which gives customers a convenient, valuable and personalised shopping experience.

There are certainly logistical issues to tackle with this model and so it is crucial that organisations have the technology in place to monitor live stock levels, process all subscription sign-ups and communicate from customer to warehouse.

Subscription services as extensions of existing retail offerings

Scalability is definitely something to consider with a subscription model; the success of the model as a smaller subset of household brands may see more struggling traditional retailers to gamble with a subscription offer as the latest customer retention and acquisition benchmark.

For brands with an omnichannel retail operation, subscription services are now considered an organic branch of services that large retailers currently offer to consumers.

Higher-value products such as furniture & technology are where new growth is coming from, rather than more traditional areas like entertainment & meal kits. Recently we’ve seen packages for wearable devices, coffee machines, bicycles and even robotic vacuums all start to take off. Businesses who diversify by tapping into how consumers want to pay for, and renew, more expensive items will be best placed to thrive as the subscription economy evolves.
Harshna Cayley, Head of Online Payments
Barclaycard Payments Data

The endgame of a subscription service should be to successfully integrated into a businesses' omnichannel solution where it's a cohesive, valuable extension of existing offerings. Subscription services should ultimately become a well-positioned retail channel for consumers.

Strategies for sustainable eCommerce using subscriptions

Retailers should consider the benefits of subscription initiatives towards their environmental impact and the values of eco-friendly consumers. Subscription services encourage ethical and sustainable practices since they collate data for retailers to predict future demand and offer consumers the opportunity to bundle purchased products and reduce shipping requirements.

There are the quick-fix methods of making businesses greener and softening environmental impact such as switching to eco-friendly packaging and shipping items in as few cardboard boxes as possible. Other methods of 'going green' are less widely-popular, like collaborating with sustainability apps that allow customers to negate the carbon footprint of their online orders or even reduce food waste from grocery orders.

34% of businesses plan to introduce more environmentally friendly packaging, and 24% are looking to sell more ethical and sustainable products through a subscription model.
Barclaycard Payments Research
"Subscription Services", 2022.

Regardless of the sustainable business models a retailer chooses to undertake, showcasing environmentally-friendly products and campaigns will demonstrate value and intent to eco-customers that they're working towards a sustainable future. It’s evident that modern consumers are looking for brands that are environmentally-conscious, so it's essential that retailers should feature their eco-initiatives front-and-centre to their customers.

Wrap

While subscription services may not be viable or relevant to every retailer, the success of such services rest on retailers understanding modern consumer demands and providing a seamless customer experience that could potentially prove to be a sound ROI in the long-term.

A subscription outlet can reap the benefits of increased revenues, customer loyalty and retention, with an improved revenue predictability. The subscription parcel channel also presents plentiful opportunities for expansion overseas for retailers who're able to facilitate international delivery.

As the digital world continues to dominate retail, the dependance on technology means that retailers have to adapt to survive. The urgency to embrace new technology is a result of modern consumer habits along with the growth and revenue opportunities that new business models such as a subscription service presents.

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