In this piece for DTC Daily, Lara Livgard, senior director merchandising solutions management, Oracle Retail, dissects the genres of subscription based models, to understand how technology is supporting those individually and what this looks like in the wider context of the retail industry.
It seems like every other day a new expert predicts the latest trend set to redefine retail. It doesn’t take much to perceive that retail is changing, but trends that genuinely re-shape shopping habits are few and far between. One trend that seems to be here to stay, however, is the subscription model.
Indeed, in the past five years, e-commerce subscriptions have grown more than 100%. Whether it’s beauty products from Birchbox, entertainment from Netflix, or dinner ingredients from Hello Fresh, consumers are flocking to the convenience of subscription services. And retailers are benefiting from these recurring revenue streams, as well as gaining deeper insights into their customer’s spending habits.
It may appear a no-brainer, but getting subscription services right is harder than it seems. Managing inventory, shipping and logistics is a challenging juggling act; and recurring payments can be a hassle to administer. However, there are several steps retailers can take to ensure they reap all the rewards of subscription models without the potential drawbacks.
Choose the right model
Not all subscription models are created equal. Retailers offer subscription packages in a range of different shapes and sizes, each designed to appeal to different customers. Before launching your own service, it makes sense to consider which subscription type will resonate most with your own target audience.
The “renewal” model delivers a regular delivery of ongoing-use items: for example dry dog food or paper towels. This model offers convenience – and often financial discounts – for customers who use their favourite products on a routine basis.
Then there is the “curated” subscription box, which introduces customers to a selection of products, like makeup or meal plans, which have been hand-selected to appeal to their particular tastes. These often include added-value items, like chef’s advice on dinner pairings, and appeal to customers who want to keep up-to-date with the latest trends in a particular category.
Finally, there is the “access” model, which allows customers to rent a particular item – generally an expensive or luxury item that a consumer would otherwise not be able to afford. This type of subscription appeals to consumers looking to reduce unnecessary waste and expenditure from their lives, without skipping the finer things in life.
Know your customer
It’s not enough to understand which subscription type is best suited to your customer base. To succeed in subscriptions, retailers need to capture their customer preferences and react to them.
One of the biggest advantages of Direct-to-Consumer selling, of which subscriptions form a part, is the ability to create personalised offerings based on customer profiles. Brands should tailor their subscription models—access, curation or renewal—to best fit their target customers’ habits and wants. Retailers can even use their own subscription services to form an even more detailed understanding of their customers’ preferences.
Keep track of your inventory
Perhaps the most difficult aspect of managing a subscription service is keeping track of inventory. Already a challenge in traditional retail models, inventory is even more important for businesses that run subscription models. In the past, poor inventory decisions may have meant a loss of sales when stocks of a sought-after item dried up. With subscriptions, the situation becomes even more complicated as subscribers compete with shoppers for stock. The risks of poor management are also substantially higher, as an inability to fulfil a subscription would doubtlessly lead to very unhappy customers.
According to Auburn University RFID labs, 65% of US retailers lack visibility over their inventory – with figures estimated to be similar in the UK. To be clear, this means a third of retailers lack full control over stock levels. Fortunately, with the right tools and know-how, it is possible to get a handle on inventory and stay ahead of the game. For any subscription model to work, retailers need a clear picture of what’s in stock and where, which calls for a solid system of record at the core of their tech stack. Smart retailers plan for inventory management and lay the right foundations, even if new business models like subscriptions are still in the planning stage.
While subscriptions offer a new and unique way of connecting with consumers, the key principles of traditional retail still apply: the customer remains in the driver’s seat, inventory remains critical and brands need the right technology in place in order to keep up. Retailers that set themselves up with the rights tools for the job, combined with a detailed understanding of their customers’ needs, will be the ones to reap the rewards of subscriptions month after month.