Why subscription businesses have been rising as a trend lately
Subscription businesses have been on the rise as traditional brick and mortar businesses look for different ways to reach their customers. Specifically, businesses that traditionally had no online presence have been forced to consider moving their offerings online, especially during this time of COVID-19. In fact, it has almost become a requirement for brick and mortar businesses to bring their businesses online in order to maintain or grow revenue.
Businesses want to create a forever customer that keeps on coming back. Traditionally, businesses would do this by creating loyalty programs. Today, we see these evolving as loyalty programs are combined with paid subscriptions to allow businesses to continually re-engage their customers with a higher amount of flexibility.
As digital is permeating into every facet of the business world and the threshold for good customer experience is increasing, subscription businesses have become more relevant than ever before.
What a business misses out on when they don’t have a subscription offering
Businesses may miss out on valuable opportunities when they neglect to implement subscriptions into their business. For starters, they are missing out on a number of ways to engage with their customers and establish a loyal brand following. In a time when consumers have seemingly unlimited choice in product selection, being able to incentivize a customer to come back to your business is more important than ever.
Having an online presence is also a key to being a competitive player in the marketplace. Because the majority of businesses now offer their products and services online with things like mobile ordering and online shopping, businesses that don’t have an online presence are automatically competing at a disadvantage.
However, because a movement toward digital has become the norm, simply having an online presence is no longer enough to differentiate a business from their competitors. Businesses need to find other ways to set themselves apart from their competitors, and offering a subscription program is one way they can do this.
Why businesses are hesitant to get into the subscription space
Businesses may be hesitant to offer subscriptions because they lack experience in the subscription space. Operating subscription programs requires a different skill set and level of experience that many businesses don’t have. This specific skill set includes things like knowing how to transact with customers, knowing how to manage payments and bill customers on a recurring cycle, and more.
Subscriptions also require businesses to think outside of the box. Businesses need to brainstorm ways in which they can engage with their customers and bring in revenue through a subscription offering. This can be especially difficult for businesses that have never seen examples of subscription offerings from other companies in their industry. Businesses that are traditionally not present in the subscription space may feel like their particular product or service doesn’t lend itself to a subscription service and hesitate to be the first in their industry to enter into the subscription space. However, although being the first business in an industry to come out with a subscription service is more challenging, there is also a higher potential reward as there are no competitors offering subscriptions in the same space.
How to get started in the subscription space
There are many resources to help businesses get started in the subscription space. For example, businesses can work with consulting firms that specialize in advising businesses on things like how to position their product in the market and how to best price their subscription program. They can also work with companies like Rebar Technology for help on creating and managing a subscription program.
One of the first ways to get started in the subscription space is to think through the steps needed for implementing a subscription offering. For physical products, this includes identifying the target market and thinking through how to package and procure goods. For digital subscriptions, this shifts to thinking through how to procure content, how to keep users engaged with new content, and how customer usage will change in a subscription model. For example, if a customer of a video service switches from a pay-per-view model to an unlimited subscription model, it’s natural to assume that their usage will increase significantly.
After thinking through the initial ideation and implementation steps, businesses need to carefully decide on a pricing model. This is one of the most important elements of a subscription program because the pricing needs to be both attractive to consumers and profitable long-term for the business.
To ensure profitability, businesses need to understand the costs they will incur. This is fairly straightforward for businesses that offer physical products such as subscription boxes, because the costs associated with putting together the product and shipping it to the customer are tangible and relatively stable. Digital businesses, on the other hand, need to create a projection for how much they expect customer usage to increase. They then need to determine which costs this will affect and figure out how much higher this will drive costs in relation to usage.
Businesses then need to figure out how they’re going to market their product. One way to do this is by offering a free trial or free product sample to potential customers to help them get a taste of the subscription without having to commit upfront.
Companies like Rebar Technology provide full service management for subscription businesses. Rebar uses their expertise in subscriptions to work through the initial subscription set-up and provide ongoing subscription management to ensure that their clients are successful in the long run.
Common pitfalls businesses face when getting started with subscriptions
The biggest mistake businesses make when building a subscription offering into their business for the first time is not thinking through the long term implications of the decisions they make. This includes everything from the subscription product or service itself, to the technology and platforms used, to the employees needed to sustain growth, and so on.
Subscription businesses often start small and grow quickly. Recognizing this and planning for future growth and scale early on is vital to the success of a subscription program. This includes thinking through questions such as “who am I integrating with?” and “who am I adding to my team?” It’s essential to examine all elements of the business and to be honest about whether each element is able to scale.
One example of an area in which businesses may not pay much attention when starting out is payment processing. Finding the right payment processing partner to work with can both save on expenses (e.g. giving a payment processing partner 2% of $100,000 might make sense initially but no longer make sense when revenue moves into 7-8 digit numbers) and help with revenue. In fact, larger subscription organizations usually have teams devoted to processing payments and maximizing recurring revenue. This is because improving just a few basis points, when you’re at scale, in payment collection rates or reduced churn can add a lot of revenue to the top line.
At the end of the day, a subscription business is only as good as its weakest link. If any element of the supply chain process (payments, fulfillments, customer service, acquisition, etc.) starts to break, all of the other elements will be affected as well.
Examples of traditional retailers that have moved into the subscription space
Volvo was one of the first companies to move into the subscription car space. They created a subscription where, for a fixed monthly price, customers would get a car, maintenance, insurance, and more. Volvo realized that younger consumers were more interested in products and services that tied them down as little as possible, as well as products and services that offered them the greatest level of convenience. Being able to change out cars or modify their subscription whenever they wanted was much more attractive to younger consumers, even if it meant paying a premium price, than having to save tens of thousands of dollars or get a loan just to buy a new car.
Bed Bath & Beyond
Seeing an opportunity to merge a traditional loyalty program with subscription, Bed, Bath and Beyond launched Beyond+. This $29 annual membership gives customers discounts on everyday purchases, free shipping for online orders, and other benefits. Not only does this program provide the retailer with a new source of revenue, the program benefits incentivize customers to transact with them for greater savings.
Panera’s coffee club allows customers to get unlimited coffee from Panera for a monthly fee of $8.99. Despite giving away a high margin menu item, Panera ultimately benefits because they receive higher amounts of foot traffic which ultimately drives additional purchases by their coffee club customers. It’s all about the lifetime value of the customer rather than a single transaction.
With Amazon’s subscribe and save program, customers choose a product (e.g. toilet paper, water filters, etc.) and select how often they want to receive it. Amazon then automatically sends them the product at a discounted price so they don’t have to worry about constantly re-ordering it.
How Rebar can help businesses get started in the subscription space
The staff at Rebar Technology have all been in their customers’ shoes before. Nick Frederick, the President of Rebar, worked at a subscription merchant that processed over a billion transactions annually for over 10 years. The staff are well-versed on the processes and potential pitfalls of running a subscription business, and they have extensive experience in helping subscriptions scale, improving profitability, reducing costs, and more.
Rebar has integrated with a number of partners, and they work with most of the major players in the subscription software management space.. They also work with vendors that support all types of essential considerations in the subscription ecosystem, including fraud, tax, communications, and more.
In addition, Rebar operates their own tech platforms that manage essential elements of a subscription. This includes subscription lifecycle management, recurring billing platforms, payment processing, and more. They handle data securely as a Payment Card Industry (PCI) Level 1 Service Provider, so merchants who process transactions with Rebar’s platform can be confident in the security of their data.
Finally, the Rebar team provides continuous support and subscription management not only during the initial deployment, but throughout operations. If you’re looking for help in getting started with subscriptions, head to Rebar Technology.