Why the future of retail is subscriptions-based

By John Phillips, General Manager, EMEA at Zuora

Retail has long been one of the largest sectors in and biggest contributors to the UK’s economy. However, there is no doubt that the two years have brought significant challenges. One such challenge is adapting to a significant shift in consumer buying habits. The pandemic accelerated a trend that was already well underway, referred to as the ‘End of Ownership.’ This is an increased consumer desire to adopt new consumption models over purchasing and owning physical products. As a result, 77% of U.K. adults say they have subscription services today. This is up from the 58% that had subscriptions 5 years ago.

It is a trend that doesn’t show any signs of slowing down – especially for the retail sector, with a recent CPG Report on direct-to-consumer subscription business models finding that consumers who have a subscription already are 2x more likely to get another in the next 3 years. So, how can retailers capitalise on the subscription boom and make it a success long-term?

The power of subscriptions

Against our ongoing backdrop of change and uncertainty, retailers need to find new strategies to attract buyers and remain profitable long term. As 2020 proved, those that fail to adapt won’t survive. However, this time of hardship was also one of resilience and subscription-based models emerged as a way to ensure stable revenue and get customers the products they want in a low-cost way.

From groceries and meal-planning boxes to coffee delivery services, the number of people signing up to subscription-based models steadily increased last year. These models helped many retailers to survive the months of enforced lockdowns, when brick-and-mortar sales came to a standstill. In fact, Zuora’s Subscription Impact Report – which analyzed data from March through May 2020 – found that more than half of subscription businesses had not been impacted by the pandemic, while one quarter actually saw subscriber acquisition rates accelerate. Meanwhile, the latest edition of the Subscription Economy Index revealed that subscription companies continue to outperform their peers by wide margins. Last year alone, subscription revenues grew 11.6%, while the S&P 500 sales declined -1.6%.

Subscription models enabled many retailers to remain resilient during one of the toughest periods in modern history. However, as we enter into our new post-pandemic world, retailers need to work out how to make these models a long-term success.

The next chapter

In order to thrive in the Subscription Economy, retailers must focus on reducing churn. Customers need to feel like they receive ongoing value, a significant shift away from the traditional single-transaction model. Their definition of value is much more than simply a price point. Whilst saving money is important, it will often not be enough to make them stay long term. Instead, the key to long-term success is to establish strong connections through unparalleled subscriber experience.

Today’s consumer wants to be put in the driving seat – therefore retailers who ensure both flexibility and convenience are likely to come out on top. The ability to opt-out or even just temporarily suspend a service can set you apart. For example, a clothing rental service which offers its customers the ability to opt-in and out depending on the season or even just big life events – such as interviewing for a job or attending a special occasion –  will be seen as more valuable than those which stick to traditional models.

Customisation is also crucial. Consumers have higher expectations for a subscription model than they do with a single purchase. Taking unique preferences into account is likely to enable businesses to build a better relationship with their customers, encouraging a longer commitment and lessening churn. For example, when it comes to cosmetic subscriptions, retailers can boost their offering by customising refill schedules. Rather than sending each customer a new product at the same time each month, they can monitor each individual’s usage and base delivery times on this. It helps to ensure customers that they are not just a number and build longer lasting relationships.

It is also important that the delivery mechanism for the subscription is more convenient than traditional purchasing. It must take the pain out of tackling the high-street but still provide the experience at home for customers. There is a common thread that the most popular subscriptions will save time, deliver to the home or be something that the customer would struggle to get hold of under normal circumstances.

Subscriptions served retailers well during some of their darkest days. And, as the industry gets back on its feet, it’s all about taking them to the next level. When used correctly, subscription models will enable retailers to re-imagine their business as a recurring service, as opposed to an accumulation of transactions. By focusing on delivering true value – through flexibly, convenience and customised experiences – retailers can make subscriptions a long-term success.

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