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Ebook | 12 minute read
Learn why subscriptions is the fastest-growing segment in commerce, and see the industries at the forefront of the subscriptions revolution.
Twenty years ago, the most technologically-savvy family on your street cracked open a new Apple PowerBook and punched in a credit card number so that Netflix could mail to the house a DVD copy of The Day After Tomorrow.
Back then, digital subscriptions were rare – and seen as cutting edge. Today, you probably need two hands to count the number of digital subscriptions you carry. And remembering all your subscriptions? That might take a few tries.
If your number of subscriptions has skyrocketed, you’re far from alone. The subscriptions economy grew by 435% in the past decade, and from 2012 to 2018, subscriptions businesses grew about five times faster than the revenue of S&P 500 companies. Digital subscriptions are so popular that there are services to help consumers track subscriptions. And subscriptions aren’t slowing down – the subscriptions economy is expected to reach a market size of $1.5 trillion by 2025.
Subscriptions are now commonplace across sectors and business models and industries. More and more brands are rolling out digital subscriptions experiences – even (and perhaps especially) when their present business model isn’t exclusively or primarily subscriptions-based.
Learn why brands are so eager to launch subscriptions experiences and how subscriptions are reshaping industries across the retail and manufacturing sectors.
The growth of subscriptions in the digital age raises the question: Why are so many brands across so many industries launching subscriptions experiences?
The answer is three-fold. To start, subscriptions are a recurring, frictionless source of revenue.
Recurring means that when brands offer subscription options, they unlock predictable, repeatable sources of revenue, escalating a customer’s lifetime value from one purchase to dozens or hundreds.
What does frictionless mean in the context of subscriptions? Most people (86%) have at least some – if not all – of their subscriptions on autopay, which reduces customer churn and the likelihood of cancellation.
The second reason brands are expanding subscriptions is that subscription options are most popular with younger consumers. In the past year, 60% of members of Gen Z and 59% of Millennials signed up for one to three subscription services. Only 37% of Baby Boomers, by contrast, signed up for a subscription.
Such a generational schism indicates that subscriptions represent the present and future of commerce – not the past. And as millennials and members of Gen Z ascend the professional ladder, buying decision-makers in B2B business models will be more and more conditioned to expect the ability to subscribe.
The final reason that brands across a slew of industries are offering subscriptions is that subscriptions come in many forms and can be applied to many different types of businesses.
For consumers, subscription types include repeat charges, such as Dollar Shave Club, and subscribe and save models, as seen on Amazon. Digital memberships, like Netflix or the New York Times, offer access to content or goods. Mystery and curation boxes, in which a brand sends a recurring selection of items, are popular with cosmetic and snack brands.
For businesses, subscriptions include software such as Microsoft Office and services such as HR management or group fitness classes. With WeWork and similar brands, even office space now comes as a subscription.
Once, the average purchase by a retail consumer happened by walking through a store, identifying a specific item, imagining how they’d use or consume it, and proceeding to checkout.
This considered, traditional retail purchasing experience still happens, but now, a majority of global consumers hold retail subscriptions – upending industries throughout retail and putting pressure on brands to offer subscription options to boost profit margins and earn business.
The retail sector encompasses companies that sell goods and services in small quantities to end consumers – who then use the products they buy for personal use.
A recent retail report from Deloitte found that retail subscribers value spending less time on purchases, even if 69% of those with retail subscriptions say they spend more money. That’s right: the growth of subscriptions means that retailers must contend with consumers who are willing to spend more when they shop, but want to shop less often.
Within the retail sector, repeat charges and memberships are especially popular, as repeat charges mean consistent product replenishment and memberships to services mean getting goods, services, and experiences faster, with less hassle, and maybe even with a discount.
Retail subscriptions have become so commonplace that even traditional retail industries, like luxury accessories and apparel, have subscriptions-based business models. One example: our customer, Vivrelle, is a luxury fashion and lifestyle membership that unlocks access to a closet of luxury accessories, including handbags and jewelry.
Vivrelle members choose between monthly, three month, six month, and 12 month memberships across a range of retail value – getting access to goods from leading brands, exclusive perks, and even appointments with a personal stylist.
Of course, not every – or even most – retail brands will have a business model based upon subscriptions. But decision-makers in the retail sector should be aware of the revenue-boosting power of subscriptions and the way that subscription offerings are reshaping commerce in certain retail industries.
The king of retail subscriptions is the food, beverage, and grocery industry.
In fact, 41% of consumers now use food, grocery, and beverage subscription services – making it the most popular digital subscription category across all industries and sectors.
Food, beverage, and grocery subscriptions tend to come in two different forms: subscription boxes and in-store memberships.
An example of a subscription box food and grocery membership is Hello Fresh, the meal kit subscription company. Hello Fresh sends subscribers a box every week that includes:
Hello Fresh also has a host of available meal types – fitting meat-eaters, vegetarians, families, fitness enthusiasts, and more.
While meal kit boxes are the stereotypical food, beverage, and grocery subscription option, traditional food and beverage retailers are also now offering membership subscription options for add-on experiences.
In the case of popular casual restaurant Panera Bread, that looks like the Unlimited Sip Club. MyPanera members who subscribe to the Sip Club get endless in-store access to more than 20 drinks at a single monthly or yearly price.
Being part of the Sip Club also unlocks $0 food delivery, order ahead options, and additional member perks.
For Panera Bread, the Sip Club both boosts customer engagement and provides a source of recurring revenue in what is otherwise a one-transaction-at-a-time business.
Subscriptions aren’t just remaking the cannabis industry – the cannabis industry is remaking the retail sector at large.
What was once tucked away into dingy head shops has exploded into an industry worth tens of billions of dollars. Retail cannabis sales are projected to be upwards of $53.5 billion by 2027, according to analysis from the MJBiz Factbook.
Industry leaders like our customer, Mood, offer cannabis in flower, gummy, edible, and vapor form. These retailers offer tested, legal products and discreet delivery.
The next stage of growth in the cannabis industry? Subscriptions. Already, there are cannabis subscription box services that send weekly or monthly shipments of curated weed to customers.
For many customers, cannabis serves a medicinal purpose, and that necessary replenishment makes it a logical place for subscribe and save subscription options. The continued growth of the cannabis industry means that customer habits and loyalties are being formed now – cannabis brands that establish strong subscription options will carve out marketing share and recurring revenue.
The third retail industry being reshaped by the subscription economy is beauty, health, and wellness.
The daily nature of beauty, health, and wellness products make them a natural fit for subscription boxes and replenishment services. Beauty mystery subscription boxes have become a popular gift or recurring subscription, especially for consumers who want to try out products before committing to them.
Also popular in the beauty industry are subscribe and save subscription options, like those offered by our customer, Charlotte Tilbury.
Charlotte Tilbury offers a subscribe and save option on a host of beauty products, such as Sepum.
The subscribe and save option gives customers the ability to save 15% and get free, regular delivery on a pre-selected cadence.
Part of the reason subscriptions are so powerful across the beauty, health, and wellness industries is that the products by nature run out. Whether subscribing to a month of Orangetheory Fitness workout classes or a service that delivers contacts every month, consumers taking care of their bodies need products they can trust and need those products to arrive or be available over and over again.
Ask your coworkers in the neighboring cubicles or the department Slack channel about the impact of subscriptions in their lives, and you’re likely to hear all about fitness subscriptions, meal kits, news sites, and streaming services.
What those colleagues may underestimate is the extent to which the finished goods they themselves own – the chair they sit in, the car they drive, the filter in the air conditioning unit – are produced as part of the subscriptions economy.
Subscriptions go beyond retail and are an increasingly important part of the manufacturing sector, which encompasses the processing of raw materials and parts into finished goods through machinery, tools, or manual labor.
The subscription model is so profitable for brands in the manufacturing sector that over the past decade, manufacturing companies with a subscription model exceeded S&P 500 benchmarks by more than 5X, and were the fastest-growing sub-segment within the subscriptions economy.
Within the manufacturing sector, two industries – industrials and automotives – are being particularly affected by the surge in subscriptions.
The first industry in the manufacturing sector being reshaped by the subscription economy is industrials.
Industrials represent products and goods produced for use in equipment or machinery. Often – but not always – industrial products are produced for use by businesses. Industrial segments often suffer from low profit margins, so subscriptions services open up higher customer lifetime value, recurring revenue, and higher profit margins.
Manufacturing equipment manufacturers, for example, are more frequently offering subscriptions as a way to unlock better, more frequent, and more responsive service of parts.
An example comes from Donaldson, the integrated filtration company that produces air filters for commercial, chemical, pharmaceuticals, and aerospace companies.
Donaldson’s air filtration devices need to be monitored and serviced. Donaldson’s clients now have a subscription available for regular maintenance and remote monitoring.
In contrast to a regular contract with appointments, what benefit does a subscription bring to buyers of industrial products? In a phrase, customer service.
Industrial manufacturers are learning what D2C and B2C businesses learned years ago and what a study recently found: 86% of customers are willing to pay more for an upgraded, superior experience. Subscriptions – particularly memberships that mean more frequent service and proactive monitoring – unlock those improved experiences. For an industrial brand running on tight profit margins, offering subscriptions can help reduce reliance on big bang contracts and ensure streams of recurring revenue.
Buying a car has often been considered the quintessential one-time purchasing experience. A consumer walks into a dealership, goes on some test drives, and ultimately signs a contract.
But the automotive industry is making ambitious forays into subscription-based purchasing options.
Some subscriptions in the automotive industry aren’t surprising. Volkswagen, for example, offers subscriptions for regular service and maintenance in its own shops. The regular maintenance and upkeep of cars is a naturally recurring need that is easily moved into a digital subscription model.
Other automotive subscription models, like Porsche Drive, involve the manufacturers of automobiles offering monthly subscriptions in which consumers get single vehicle or multi-vehicle access in lieu of car ownership.
Other subscriptions in the automotive industry are more inventive – and sometimes controversial.
BMW famously tried to charge $18 per month for a heated seats subscription – only to stop amid consumer backlash, returning to the model of charging for heated seats at the point of purchase.
But the concept of automotive manufacturers charging subscription fees to unlock advanced functionalities is growing. Mercedes is charging a $1,200 monthly subscription to some electric vehicle customers who want increased horsepower and torque.
These performance-enabling subscriptions are controversial but reflect a new automotive reality. Consumers can get savings if they accept limited functionalities or can get premium services if they accept a higher price.
Even America’s most traditional automakers are getting in on the subscriptions act. GM is targeting $20 billion to $25 billion in subscriptions revenue by the end of the 2020s, and Ford is selling subscriptions software with gross margins over 50%.
Whether you're a growing retail brand or a major manufacturer, subscriptions have the potential to open up a recurring revenue stream and boost profit margins for your business. Our subscriptions product, Elastic Path Subscriptions, is a composable, API-first offering that boosts customer LTV. Check out Subscriptions and see how to increase revenue without taking on a high cost of subscriptions management ownership.