The way we shop online is changing. While growth remains important, subscription services are surging in popularity, offering both businesses and consumers new ways to connect.
For Magento merchants, embracing the subscription revolution presents a unique opportunity to increase customer acquisition, lifetime value and recurring revenue.
In this blog, we’ll explore the key trends shaping the subscription commerce landscape, the challenges and opportunities they present for Magento users, and how you can leverage subscriptions in the ever-evolving world of e-commerce.
This blog post is based on insights from Sukh Sidhu, VP of Strategic Alliances at Ordergroove.
Challenges impacting the subscription commerce landscape
There are two major trends impacting the subscriptions and e-commerce landscape. An unstable economy combined with high customer acquisition costs (CAC) means businesses are shifting their focus from simply growing sales to making sure they are profitable in the long run — and to that end, more brands than ever are launching subscriptions to drive more recurring revenue and customer lifetime value (CLTV).
The result is a huge rise in subscription-based services for all sorts of products, from cosmetics to coffee. The market is saturated with similar subscription offers, making it difficult for brands to stand out from the competition. Consumer expectations for the subscriber experience are rising, and the risk of customer churn is increasing if those expectations are not met.
This creates a challenge for businesses. They need to balance the need for recurring revenue with creating a delightful customer experience that fosters loyalty. So, while growth remains important, profitability and customer experience are certainly taking centre stage.
The most popular subscription models in today’s market
Subscriptions are a win-win for customers seeking convenience and value and businesses seeking a long-term driver of profitable growth. Within the subscription landscape, there are five primary models companies are using to acquire and retain more subscribers.
- Subscribe & save – Also known as replenishment subscriptions, this type of experience provides customers with recurring deliveries of a certain product at a discount.
- Build-your-own subscription bundles – Build your own subscription bundles let subscribers select their own personalised group of products to try each month, prolonging retention by reducing the risk of churn from overstock on a particular item.
- Fixed kit bundles – Also known as subscription boxes, fixed kit bundles seek to delight customers with novel items that satisfy their curiosity. They allow customers to subscribe to a group of products, pre-defined by merchants and sold as a single SKU, to increase average order value.
- Rotating clubs – Rotating clubs offer the most novelty to subscribers by delivering a new merchant-selected rotation of items in each shipment. They drive stronger retention by keeping subscribers engaged over time, and grow subscriber CLTV to offset CAC for profitable growth long-term.
- Memberships – Membership subscriptions give customers access to a business’ products or services for a recurring fee. Whether the subscription gives members a VIP experience or access to exclusive products or services, businesses get a flexible and creative way to engage customers and drive more revenue.
Crafting a high-performing subscriber experience
Regardless of your current business model, the most important thing is to understand your customers and tailor your approach to them. This involves traditional marketing strategies such as creating customer personas and developing a go-to market plan.
However, simply attracting customers isn’t enough. You need to convince them to try the subscription, and craft a high-performing subscriber experience to retain them and maximise LTV.
On that front, merchants need to look at the practical considerations for implementing subscriptions — and the tactical considerations to take subscription performance to the next level.
Practical considerations for launching subscriptions
- Subscription platform – Choose a platform that integrates well with your existing e-commerce platform (e.g., Magento, Adobe) and caters to your target customer base.
- Fulfilment and shipping – Consider how subscriptions will impact your fulfilment and shipping strategy. There might be cost-saving opportunities by bundling subscription shipments with traditional orders.
- CAC vs. LTV – Subscriptions might mean lower upfront revenue per customer but aim for strategies to retain customers for multiple shipments (3rd, 4th, 5th order) to make it profitable.
- Integration and partner selection – Successful subscription integration requires expertise. Consider agencies with experience such as objectsource to handle design, UX, tech stack, and data management aspects.
- Personalisation and digital marketing – Develop a strategy to leverage customer data to personalise content, offers, and marketing across your digital channels.
Tactical considerations to take subscription performance to the next level
- Understand your audience – Develop a clear understanding of your target customer. This will help you tailor your offerings and messaging to their specific needs and interests.
- Offer rewards – Implement a reward system to incentivise customers to stay subscribed. This could include discounts, free gifts, or exclusive content.
- Integrate loyalty programmes – Tie your subscription programme into a loyalty programme. This can be done by offering points, kickbacks, or other rewards for subscribing, continuing the subscription, or opting into special offers like pre-paid subscriptions. This type of reward not only benefits the customer but also secures upfront revenue for the merchant.
Using data to deliver a bespoke subscriber experience
- Meaningful personalisation – Personalising the subscriber experience could involve recommending products or services based on past purchases or offering flexible subscription options.
Online merchants can leverage data and personalisation to enhance the customer experience and drive higher engagement in several ways:
- A/B testing – Merchants can test different subscription offerings and placements on their website (product listing page, product details page, checkout) to see what resonates most with customers. This data helps them personalise the subscription experience for better results.
- Customer cohort analysis – By analysing customer groups based on purchase history and behaviour, merchants can understand their audience better and tailor subscription offerings accordingly.
- Tailored upsells – Merchants can use data to recommend relevant products or subscriptions to customers at different points in their shopping journey. For instance, Ordergroove’s one-click upsell widget tailors suggestions based on customer interaction.
The future of subscription commerce
The cost of acquiring a new customer has never been higher, especially for non-subscription businesses, but if you can keep them coming back, it becomes profitable. Subscription services are experiencing mass adoption in North America, indicating a shift towards recurring revenue models. Europe, particularly the UK, is in the earlier stages of adoption compared to North America, meaning UK merchants have a chance to be at the forefront of subscriptions in this market.
This presents a significant opportunity for e-commerce businesses to capitalise on customer preference for convenience and personalised product experiences.
Advice for merchants looking to move into subscriptions
Here’s what the experts at Ordergroove think every merchant should keep in mind to drive subscription success out of the gate.
- Focus on solving problems – Don’t just offer subscriptions for the sake of it. Make sure they solve a problem for your customers, (e.g., convenience or access to curated products).
- Prioritise customer data – Leverage customer data to personalise subscriptions and cater to individual needs.
- Targeted offerings – Consider product categories such as health, wellness, and beauty, where subscriptions naturally fit customer needs.
- Balance is key – While subscriptions offer benefits, avoid subscription fatigue by offering traditional buying options alongside subscriptions.
- Explore options – At least experiment with basic subscription models, such as rotating product boxes or customisable bundles.
By embracing subscriptions thoughtfully and strategically, e-commerce businesses can unlock a powerful tool for customer retention, increased revenue predictability, and long-term growth. Ordergroove’s focus is on helping businesses this through post-purchase strategies and customer success programmes. Unlike some of its competitors, Ordergroove has a dedicated team with a low customer success manager to merchant ratio, allowing for more personalised support.
“The subscription revolution is here, and Magento merchants have a unique opportunity to capitalise on it. By focusing on customer experience, leveraging data, and offering targeted subscription options, Magento merchants can drive long-term growth and build lasting relationships with their customers.”
Rebecca Jones, CEO of objectsource
[Video] How to maximise customer lifetime value with subscriptions
Did you know objectsource is an Ordergroove Premier Partner? This distinction is given to elite e-commerce agencies with expert knowledge of Ordergroove’s subscription technology and a proven record of helping merchants grow recurring revenue through one-of-a-kind subscriber experiences. Read more here.
Ready to get started with subscriptions on Magento?
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