The subscription economy

Global spending on subscription-based services and products is booming, powered by an ever-growing range of brands offering everything from media content, to specialist food and drink, apparel, and cosmetics. Initially these existed in the realm of pioneering startups offering niche services and products. Now global retail giants are scrambling to capitalise on consumer demand for long-term subscription based relationships, rather than one-off transactions. The emergence of a wide-ranging subscription economy has fundamentally shifted the consumer retail landscape, influencing the new dynamics of interaction and value-exchange between brand and customer. Here Andy Cockburn, CEO and co-founder of Mention Me will take a closer look at the phenomenal growth of the consumer subscription market, considering the key success factors. The makeup of today’s subscription economy The concept of a subscription-based product or service isn’t anything new. Many of our home amenities are run on a subscription basis, from our gas and electricity, to our TV license, to our broadband provider. Add to this gym memberships, even insurance. It’s where the traditional subscription business model has intersected with the world of e-commerce that some really interesting consumer trends have been taking shape. It is becoming apparent that we are prepared to sign up more widely to a subscription model with brands we shop with, that really resonate with our values and preferences. This can be driven by convenience, but more successfully for the novel value of receiving harder to secure, premium products and experiences. This type of product and service lend themselves really well to referral, as people love to share niche brands. It’s a trend that shows no signs of abating. According to US-market research carried out by McKinsey., the subscription e-commerce market has grown by more than 100% a year over the past five years. Another study carried out by SaaS provider Zuora, showed an estimated 58 million Brits now subscribe to services — representing almost 90% of the UK population. The range of subscription services behind these stats, is vast. Within e-commerce, the subscription-model market was until recently mainly occupied by media content providers such as Netflix or SaaS (software as a service) vendors. In a few short years, it’s rapidly diversified. Today, just about any goods you care to think of — from cosmetics, to food and drink, razors, apparel, flowers, to vitamins and pet food — have been worked into some kind of subscription based business model that customers seemingly can’t get enough of. Examples including Pasta Evangelists, Bloom & Wild, Beauty Pie, Pact Coffee and Graze. The above mentioned McKinsey study found that e-commerce subscribers tend to be younger (25 to 44 years old) urbanites with a good level of disposable income. And women account for 60%. These new wave of e-commerce subscription businesses generally fall under three key categories: Replenishment subscription services: these are business models built on a value proposition of convenience, allowing consumers to automate the purchase and repurchase of everyday ‘commodity’ items like razors, nappies or groceries Curation subscription services: seek to surprise and delight by providing new items or highly personalised experiences that go beyond everyday convenience or routine item purchases. This type of subscription business is particularly popular in categories such as apparel, beauty, and food Access subscription services: where subscribers pay a monthly fee to access attractive benefits or rewards, such as exclusive discounted prices or other member-only perks. Again, this category is particularly common in the apparel and food categories Interestingly, of the above three categories, curation services account for the majority of consumer market share — 55%, according to McKinsey. This adds further weight to the suggestion that what customers care most about today, are unique, highly personalised services that resonate with their personal values. Here’s another interesting thing about the dynamics of subscription based products and services, emphasised in the McKinsey research report: recommendations between friends are the number one driver of customer growth for this business model. The report states that: “A recommendation, including word of mouth and positive online reviews, is a key trigger for consumers to sign up with a subscription service, particularly those for curation and access. Subscribers to both also want something new and innovative.” Highlighting that in e-commerce, nothing is a more authentic, trust-powered strategy for customer growth than referral. And brands creating one-of-a-kind, high value products that stand out from regular high-street experiences, will be the ones reaping the rewards of the subscription economy. By Andy Cockburn, CEO of Mention Me

The subscription economy

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