What are subscriptions?
Subscriptions involve the selling of products or services on a recurring basis for a specific period of time, rather than as one-time purchases. Subscription prices can either be paid as a lump sum upfront for a specific subscription period (i.e. an annual subscription to a magazine), or as recurring payments that are made on a regular cadence (i.e. a monthly subscription for a gym membership). There are three main subscription business models: curation subscriptions, replenishment subscriptions, and access subscriptions.
What is an example of the subscription life cycle?
Let’s put the subscription life cycle in more concrete terms with an example. After seeing that a subscription coffee company offers a free trial period for new customers, a customer decides to sign up for a subscription. They select their desired subscription products and delivery frequency, then enter their payment method details, shipping address, and other required information. On the billing date, their credit card is charged, and they then receive a delivery of their chosen subscription product. This cycle continues on the next billing date unless the customer decides to cancel their subscription.
Customers can also take actions to manage products in their subscription. For example, a merchant might enable customers to skip a delivery or pause payments and deliveries for a set time period—a strategy that both improves customer satisfaction and reduces unnecessary churn. Merchants might also enable customers to upgrade their subscription to a more premium version (upselling), or add on complementary one-time purchases to an existing subscription (cross-selling).
How do subscription business models benefit merchants and consumers?
Consumers are drawn to subscriptions for their convenience. They can sign up and input their payment information once, “setting and forgetting” their subscription service to receive their favorite products and services. Additionally, the subscription business model often provides a huge value draw for shoppers, as businesses will often offer discounts for recurring purchases as opposed to one-time purchases. This can be seen in the “subscribe-and-save” (replenishment) subscription model, but businesses often also offer free trials or other price discounts to incentivize subscribers to sign up.
For brands, subscriptions offer a reliable source of recurring revenue, which enables more accurate forecasting. Due to their recurring nature, they facilitate customer relationships over a longer period of time, allowing businesses to collect valuable product feedback and hone their product offerings to improve customer satisfaction. When subscriptions are seamless and flexible, businesses benefit from higher LTV and AOV.