A Subscription based e commerce model requires customers to purchase items one by one, with subscription services which come with benefits like discounts, offers, subscribe-and-forget etc. These businesses have greater efficiency and effectiveness compared to a normal e commerce model where customers make one-off purchase. Subscriptions are a win-win situation for both; getting recurring revenue to the businesses and providing convenience to customers.
One good example is Dollar Shaving Company which became worth of $615 Million in a mere span of 5 years. This company provided shaving equipments to their customers on a subscription basis. Every business wants to have as many customers as possible to max out their revenue but in subscription based e commerce models, existing subscribers should not be left out on the cost of getting new customers. Businesses need to understand that the existing subscribers are bringing revenue on a periodic basis. Not catering well to these subscribers will force them to cancel the subscription and move elsewhere.
Another aspect of looking at this business model is that this generation has high disposable income (which can be used for subscriptions) but low wealth which suits perfectly with subscription based businesses. Examples of Subscription based businesses can be anything which is consumed on a regular basis. Most prominent ones are food, toiletries, beauty products, entertainment etc. Amazon’s Subscribe and Save program offers a minimum of 10% discount plus free shipping if customers signs up to receive a monthly package of household items.
Recurring subscriptions helps businesses predict how much inventory is required at a particular point of time which optimize inventory management. Businesses can also count on incoming revenues from existing subscribers at different points of time helping cash management. There are some subscription business with a try-and-buy approach. The customer receives a trial version of the order and if happy with it she can subscribe for the complete package online. This is an innovative method of making a customer try (and probably buy) a product which he wouldn’t have otherwise.