Are subscriptions the future of DTC?
A stat I read a few days ago stopped me in my tracks – the Subscription Trade Association (SUBTA) stated that 75% of DTC businesses are expected to offer subscriptions by 2023. Read that again – it is predicted that 75% of ALL DTC brands are going to provide some sort of subscription option for their customers in the next two years.
I had a sneaky suspicion (based on recent research and years of experience as a Shopify app expert) that subscriptions were becoming more popular with DTC businesses, and the latest SUBTA stat has confirmed it.
But are they really THE future of DTC?
There's been a major shift in eCommerce, and what got you to where you are today, won’t get you to where you want to be tomorrow.
Brands NEED to not only grow their predictable revenue per customer, they also need to ensure they retain that customer by delivering a top-class customer experience at every stage of their buyer’s journey.
With this in mind it seems obvious that offering subscriptions is the sensible way to go but there are several factors contributing to the growth of global DTC subscription commerce. These include the age and gender of subscribers, their income, the convenience that the sub brings and, in the case of subscriptions with next day delivery as a benefit, the needs of customers for instant gratification.
According to Multi Channel Merchant, 90% of Gen Z shoppers use subscription services, with Millennials just behind them at 70%. With Generation Alpha due to begin flexing their muscles (and their money) in the online space in the next 5-10 years we are expecting yet another generational rise in subscription numbers.
With Netflix and Gen Z both beginning in 1997, they are the first generation to have grown up with subscribing to entertainment services the norm, meaning that buying into a subscription to a physical brand isn't a huge leap for them.
This means however, that the types of subscriptions brands offer will need to evolve with every new wave of subscribers. Simply sending people “stuff” on a recurring basis isn’t going to be enough, especially as the number one cause of churn in a subscription business is too much product. Brands will need to up their game significantly to keep the attention of, and revenue from, their subscribers, rather than driving them away by flooding them with product every 30, 60 or 90 days.
Even as one of the originals, Netflix's subscription program has evolved - it used to exclusively be a catalogue of other people's content available on their platform. Now they commission, create and deliver original content based entirely on what they believe (and know) their subscribers want.
The subscription landscape is continually changing and to keep up, Amazon frequently add more features to their Prime subscription. By adopting this age-old method of delighting people by giving, they are retaining the attention of their subscribers so they don’t go elsewhere, meaning that they are maintaining both existing customers and also gaining new ones at a pretty impressive rate.
The number of Amazon Prime members in the US rose from 120 million at the beginning of 2019 to 151.9 million at the beginning of 2021 – a rise of over 26% in just two years (eMarketer.com).
However, Amazon’s membership figure isn’t the only number to be rising right now. With the recent innovation in ad targeting and supply chain logistics, came an influx of DTCs and DNBs, meaning the marketplace just got a lot more crowded. The battle for customer eyeballs is on and leading to an increase in Customer Acquisition Costs (CACs) for everyone in ecommerce
The methods you used to guarantee would bring you new customers aren’t working quite as well as they used to…
- The cost of paid ads is increasing due to a rise in demand for customer attention.
- The effectiveness of those ads is decreasing due to an increase in the number of ads out there.
- Instagram influencer campaigns are well over-saturated meaning savvy customers are more difficult to win over.
- Amazon is overtaking private label markets.
- The web-coding complications that used to stop your competitors entering the online market, are now more insignificant than ever after the evolution of templated web building platforms like Shopify & BigCommerce.
Merchants trying to scale an ecommerce brand online, can't just sit on the side lines and expect to hook people anymore.
It has become MORE expensive to acquire FEWER customers; the money required to acquire 100 customers last month, will only acquire 50 now - what got you to where you are today, WILL NOT get you to where you want to go tomorrow.
With more and more businesses flooding the ecommerce market, all vying for the attention of customers meaning CAC is continuing to rise; the lives of those customers becoming busier and them having a bigger than ever need for convenience, the one DTC model that ticks all of the boxes is subscription - but only when it’s done well.
Done badly and subscribers will churn fast, meaning you need to compete for new eyeballs more frequently than those who schmooze their subscribers well enough to retain them month after month.
And, according to McKinsey, subscribers promote products more and have a CLTV (Customer Lifetime Value) that is on average 38% above typical customers. Subscribers are easier to harness as “free marketing tools” than one-time customers.
But getting someone to subscribe isn’t “enough” because 50% of subscriptions cancel during the first period.
Companies in the subscription space must develop great experiences, not just great subscriptions. The winning brands delight their subscribers by fulfilling needs they didn’t even know they had, solving their problems before they are problems, but most of all, they are anticipating their customer journey and ensuring every move they expect them to make is streamlined and convenient. There’s a reason that we put the “bad” food on the hard-to-reach shelf - the more effort it takes, the less likely we are to get it. The same goes for sales, the more effort you expect your customers to go to, the more people you will turn off before they hit checkout.
Today, it is vital that brands are able to provide and promote convenience to their customers. Forgetting to order your supplements, not knowing what to cook your kids for dinner or running low on your favorite protein shake – all issues solved by subscriptions - when done right. However, flood your customers with products, don’t communicate with them well enough or under deliver on your promises, and you will see them leave just as quickly as they came.
It's not as simple as checking off the box of offering a convenient subscription any more. Consumers increasingly expect to build a relationship with their favorite brands. Wanting them to adapt and anticipate their needs to keep up with a strong shift in their consumer behavior.
An impactful way of doing that is by offering a subscription BUT the model needs to make sense for your brand and the value of your product to the customer. And you need to be prepared to get creative with what you're offering as a subscription. It doesn't need to be replenishment of a physical product on a rolling basis if it doesn’t fit with your brand, it could be as simple as subscriber-exclusive content, access to a community of like-minded people, early-bird offers or faster shipping.
So, to answer the original question - are subscriptions the future of DTC? Done well, I’d say so.
Are you a serial subscriber? Take 5 to tell me about your current favorite subscription in the comments, I’m always looking for new ones to try!
- 75% OF DTC BUSINESSES ARE EXPECTED TO OFFER SUBSCRIPTIONS BY 2023
- IT ISN’T AS EASY AS OFFERING REPLENISHMENT OF PHYSICAL PRODUCT - FLOOD SUBSCRIBERS WITH “STUFF” AND THEY WILL CHURN
- THERE ARE A NUMBER OF WAYS YOU CAN ADD SUBSCRIPTION INTO YOUR BUSINESS MODEL - EXCLUSIVE CONTENT, DISCOUNTS, EARLY-ACCESS TO LAUNCHES, SUBSCRIBER ONLY FEATURES
- CAC IS RISING WHICH MEANS RETAINING CUSTOMERS REMAINS A PRIORITY
- 90% OF GEN Z SHOPPERS USE SUBSCRIPTION SERVICES, WITH MILLENNIALS JUST BEHIND THEM AT 70%.