Subscriptions have taken off in the last two years, and brands are reaping the benefits, Ordergroove CEO Greg Alvo writes in the PYMNTS eBook, “Endemic Economics: 32 Payments Execs on the ‘Next Normal’ That Never Happened.” Savvy companies are embracing the trend, lowering customer acquisition costs and cementing customer loyalty in the process.
Subscription commerce’s adoption by brands of all sizes is the most important eCommerce innovation of the last two years. Through subscription commerce, brands have kept up with shifting consumer demand, offset rising acquisition costs and delivered stability during an unprecedented time.
As eCommerce becomes more complex and competitive, brands with subscription experiences will continue to thrive, while those that focus on one-time purchase transitions will continue to struggle.
Meets Consumer Demand
Subscriptions took off in the last two years and brands are reaping the benefits. For example, consumer demand for both beauty and pet subscriptions saw massive growth in 2021. Beauty subscribers increased 97% year over year and pet subscribers increased 94% year over year, according to Ordergroove data.
The primary reason for subscription growth is that they meet shifting consumer demands. According to an internal consumer survey by Ordergroove, 86% of consumers prefer to shop with brands that make their lives more convenient.
Subscriptions make shopping convenient by reducing the mental and physical friction associated with purchasing products. Physical friction is everything associated with the physical activity of buying a product either online or in a brick-and-mortar store. Mental friction refers to the process consumers go through to determine if a product is right for them and having to remember to purchase the product.
With subscription commerce, the purchase experience continually happens in the background, which minimizes physical and mental friction, and as a result, consumers have more time to do the things they love. This is the ultimate version of convenience.
Combating Rising Acquisition Costs
Competition is higher than ever before thanks to the relative ease of starting a new eCommerce business on platforms like Shopify and Salesforce, and the simplicity of digital advertising. The end result is that customer acquisition costs (CAC) have skyrocketed as much as 60% in the last several years and brands are struggling to protect their revenue.
By adopting subscription commerce, brands can offset rising CAC by extending their customer lifetime value (CLV). To put it another way, with subscriptions, brands acquire customers who will make multiple purchases, not just a single purchase.
To illustrate this point, Equator Coffees revealed in a recent webinar with Ordergroove that their subscribers’ CLV is five times higher than customers who make onetime online purchases.
Additionally, Ordergroove’s internal data shows that six months after enrollment, a subscriber’s incremental spend (compared to a customer without a subscription) is around 122%.
Delivers Stability
A major benefit of subscription commerce is it improves forecasting capabilities. This is critical in volatile times as the pandemic and social-political unrest has created supply chain concerns.
Subscription commerce enables brands to gain a better understanding of how much product they sell in a period. This cuts down on over-ordering, as well as makes finances easier to measure.
Subscription commerce also drives stability by protecting a brand’s customers base. If consumers have signed up for your subscription experience, they haven’t signed up for your competitor’s experience.
Moving Forward
While there have been numerous innovations in the last few years, subscription commerce has been the most impactful for eCommerce. The business philosophy is tailormade to meet today’s commerce challenges, and that’s why subscription commerce is projected to reach $478 billion by 2025.
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