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    FEATURED STORY OF THE WEEK

    The Rise of Subscription Services: Origins, Economics, and Predictions

    Written by :
    Team Uvation
    | 9 minute read
    |March 26, 2022 |
    Industry : automotive
    The Rise of Subscription Services: Origins, Economics, and Predictions

    Subscription services with home delivery are becoming an increasingly popular way for consumers to
    acquire regularly purchased products. From food to clothing, subscriptions are popping up in a wide
    variety of consumer verticals as well. The “subscription economy” is set to grow to $1.5 trillion by 2025,
    The Washington Post reports, more than double its estimated worth in 2021.

     

    But questions remain about what is driving this trend, and why it is disrupting consumers’ traditional
    methods for buying goods. In this article, we explore the economics behind emerging subscription
    services and what their popularity might mean for both B2C businesses and consumers in the future.

     

    The Unique Nature of Modern Subscription Models

     

    There are a few key reasons why subscriptions have become more popular in recent years. For starters,
    the rise of eCommerce has made it easier than ever for consumers to purchase items online. Today,
    consumers can access just about any type of product—whether it’s a houseplant or a prescription
    drug—without leaving their homes. And with the increasing number of subscription services available,
    it’s becoming easier and easier for consumers to find a service that meets their needs in areas
    traditionally serviced by in-store retailers.

     

    Compared to traditional retail, subscription services offer far more convenience and flexibility. With a
    subscription, consumers can schedule deliveries according to their personal schedules. The
    sophistication of online eCommerce platforms supports consumers’ confidence that they are purchasing
    the right products as well.

     

    Types of Subscriptions Taking Off Today

     

    There are dozens of products we buy regularly and on a recurring basis. There are products where there
    are highly variant levels of quality in the market as well. Products that we buy regularly, that vary in
    greatly in quality, or both are viable candidates for subscription services.

     

    Simple examples include Purple Carrot, which offers premium vegan grocery products not available in
    most retail groceries; and Stich Fix, which offers personalized, designer-selected clothing—a service
    unavailable in traditional apparel outlets. Other popular types of subscriptions include:

     

    • Clothing (e.g., Stich Fix)
    • Houseplants (e.g., The Sill)
    • Food (e.g., Hello Fresh, Purple Carrot)
    • Beauty products (e.g., Birchbox, Allure Beauty Boxes)
    • Toiletries (e.g., Who Gives a Crap USA)
    • Traditional subscriptions (e.g., National Geographic magazine)
    • Pet Supplies (e.g., Chewy.com)
    • Prescription Drugs (e.g., Nurx)
    • and others

     

    Comparing Subscription and In-Store Retail Models

     

    Subscriptions are often less expensive than buying the same products in stores. This is due in part to the
    economics of the subscription model, which lock in certain value reduce B2C companies’ costs
    associated with traditional supply chains, such as building relationships and aligning distribution with
    traditional in-store retailers. Cost savings allow B2C companies to provide products at reduced prices or
    provide more premium-quality products at reduced costs.

     

    Also, unlike physical retail, subscriptions allow for customization of products based on a consumer’s
    needs—not just what is made available at a store based on market metrics.

     

    For example, if a person only wants to receive organic produce in their subscription box, they can find a
    service that meets this need. Or, if they only want to subscribe to products from specific brands, there
    are services for that, too. They needn’t rely on the distribution decision making of corporate retailers.

     

    Modern eCommerce technology and the ubiquity of high-speed internet make subscription models
    more viable as well. Many new services provide websites with in-depth details and experiences; many
    provide person-to-person or self-service consultations with experts before consumers subscribe to the
    products they need.

     

    In fact, 50% of prescribers are comfortable prescribing routine medications for non-severe problems
    (e.g., acne, acid reflux, and herpes) without seeing a patient in person; and 75% are comfortable doing
    so for refills on ongoing treatments (e.g., birth control), according to GoodRx Health. This makes
    healthcare a more viable market for subscription-based home delivery services.

     

    Clear Business Benefits for B2C Companies

     

    There are clear financial and brand benefits for B2C companies who offer subscription services.
    Subscriptions offer businesses a way to reduce the costs of shipping and handling, as well as packaging
    materials. Retailers effectively pass on distribution responsibilities to small package goods providers
    such as UPS and FedEx as well, saving them some administrative and logistics costs.

     

    Perhaps most importantly, subscriptions can be a way to build loyalty with customers. This is especially
    important in an increasingly competitive marketplace. And if subscriptions offer customizable products
    based on consumer needs, it’s easier for companies to appeal to a wider range of potential subscribers.

     

    Potential Pitfalls of Subscription Services

     

    Despite several advantages, there are potential pitfalls for B2C companies who choose a subscription
    model. First, the company becomes the responsible party for all customer experience problems
    consumers may incur when using their services. Some of those responsibilities might otherwise be
    mitigated by in-store retailers or even online marketplaces that might otherwise sell their products.

     

    What’s more, products that are already highly affordable and convenient in retail locations might not be
    good fits for subscription services. Products that consumers may not require or demand on a regular
    basis may be poor fits for subscription models as well.

     

    Finally, subscription models can become very rigid, locking businesses—and consumers—into certain
    production, product, and distribution models that might become unappealing or unprofitable over time.
    It is more difficult for a company with existing, ongoing subscriptions to trade one product for another,
    even if subscriptions for the existing product become too limited or less than profitable.

     

    Five Predictions about the Future of Subscription Services

     

     

    The COVID-19 pandemic has increased the appeal of subscription services, eliminating the need for
    some trips to retail stores. But the popularity of subscription services is not likely to subside, even after
    the COVID-19 pandemic does. Rather, consumers’ exposure to subscription services likely has made
    them “stickier” in terms of their market appeal. Her are five predictions about the future of subscription
    services for retail products based on these trends.

     

    1. Saving Time Will Never Go Out of Style

     

    Subscriptions allow consumers to stay home when they would normally drive to stores and still get the
    products they need. Consumers therefore spend less time sitting in traffic, standing in line, or walking
    through aisles in physical stores—experiences that are not particularly fulfilling in the first place. They
    can apply that saved time to work, recreation, or family instead.

     

    2. Consumers Enjoy Quality Combined with Cost Savings

     

    In-store retailers must be highly selective about which products appear on their shelves. Each of those
    products must transition through a complex, volume-based distribution chain to arrive in their limited-
    capacity retail stores as well. Subscription models avoid these costs as well as the limitations associated
    with physical retail spaces. That means they can offer more exclusive products for selective
    customers—products that are often hard to find or too expensive in retail stores.

     

    3. Remote-Work Models Mean Consumers Are Available

     

    Many people are now working from home. As companies shift towards permanent “hybrid” work
    models, working from home likely will remain popular among some employers and their workers, as
    Gallup reports. Consumers who work at home may have more time to order subscription-based
    products. They are available when those deliveries arrive at their front doors as well. This represents a
    stark difference compared to only a few years ago when consumers might have been reluctant to have
    deliveries arrive in front of their homes while they were away at work.

     

    4. Small Package Tracking Capabilities Increase Visibility for Consumers

     

    Consumer-facing tracking systems supported by UPS, FedEx, and USPS remove all ambiguity about the
    delivery process. Subscription providers can use tracking metrics to anticipate delivery times, then
    provide customers with a consistent experience based on those estimates. Consumers can easily track
    any one of their orders so that they can be nearly certain as to when they will arrive.

     

    5. Subscription Services Will Perform Better Over Time

     

    No matter the economic climate, subscriptions offer advantages for both companies and consumers.
    Companies will hone best practices as the market grows more mature. As eCommerce, communication
    technologies, and high-speed internet become more sophisticated, the online experiences that facilitate
    subscription services will continue to improve as well.

     

    Getting Started with Subscription Services

     

    If you’re a B2C company thinking of offering subscriptions, there are a few things to keep in mind:

     

    •  First, make sure that your subscription offers value for customers. This means that the
      subscription should be cheaper than when consumers buy the same products in stores; it should
      provide greater convenience, making products more accessible to consumers; or both.

     

    • Second, make sure that the subscription is easy to change, delay, or cancel. This will help ensure
      that customers don’t feel trapped in your subscription and give them peace of mind as they
      continue their relationship with your brand.

     

    • Finally, make sure that the subscription is profitable for your business. Products which
      consumers buy on a recurring basis, products which are difficult to access in retail stores, or
      products that have both these characteristics are ideal for subscription models.

     

    Find Your Winning Approach
    There is no single best strategic approach to creating a successful subscription business. But there are
    some characteristics all successful subscription services companies will share.

     

    “The winners will be brands and retailers that use a customer-centric approach to offer the right
    combination of value, flexibility, product options, and novelty to create customer devotion and business
    resilience,” as McKinsey describes. “Those companies will successfully delight customers, reimagine
    their businesses, and help shape the future of retail.”

     

    Partner with Uvation as You Transform Your Business Model

     

    The B2C experts at Uvation can help you as you transform your business model to provide subscription
    services for consumers. Contact one of our experts directly to discuss your options today.

     

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