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.