5 ways to increase revenue with a subscription-based model for CPG Brands

QUICK SUMMARY

I am sure you have heard this countless times, “The e-commerce market is exploding or the e-commerce market has grown dramatically within the past five years!” The disruption in the way we shop and choose our products due to the large adaptation of digital channels has shifted customer expectations to buy from brands that offer convenience, speed, and positive experience while doing so. The subscription based model is fantastic for CPG brands to offer convenience to their customers while remaining competitive and growing their brands. Here are 5 ways we think CPG brands can use this model to increase revenue with a subscription based model. 

What is a CPG brand? 

A CPG brand is a brand selling Consumer packaged goods (CPG), which are “items used daily by the everyday consumers that require routine replacement or replenishment, such as food, beverages, clothes, makeup, and household products.” Doesn't this sound perfect for a subscription based model? 

What is the subscription based model?

In its most basic form, a subscription business model is one that charges customers a recurring fee usually charged monthly or yearly for the access to a product or service. Think Netflix, Dollar Shave Club, or Serenity Kids.

This definitely sounds like the perfect match; a product that requires routine replacement, replenishment, or access matching with a service model that offers the product at the rate of consumption that is right for you. I think we have hit the jackpot!

The Future Outlook of Subscription Based models for CPGs

Conglomerate CPG companies that are competing in the various categories like personal care/beauty, home cleaning, food and beverage are finding it difficult to meet high standards of regulations while still delivering substantial growth and maintaining profit margins. This is why many companies have started to turn to direct-to-consumer and subscription service models to keep increasing revenue and ultimately their bottom line.

You’ve heard that the e-commerce market has exploded but the subscription economy has also boomed right along with it, if not more in recent years. In the past seven years subscription based companies have seen agrowth rate of a whopping 300%! Furthermore the global subscription economy is now projected to grow 70% year over year andhit half a Trillion dollars by 2025, growing 9x faster than the S&P 500 average. Another great forecast to look forward to is that by 2023, 75% of businesses that sell direct to consumers are expected to start offering subscriptions according to thisShopify article.

Advantages of subscription-based businesses.

• Subscriptions create recurring and predictable revenue streams:Subscription based models are more consistent and predictable revenue channels compared to other retail channels which easily fluctuate based on factors like seasonality, trends, and production limitations.
• One-to-one relationships with consumers offer more genuine insights:Subscription services construct one-to-one relationships with consumers and provide various channels to collect data for more informed marketing campaigns, customer service improvements, and product innovation decisions.
• Subscriptions drive loyalty: constructing one-to-one relationships drives loyalty which gives your business opportunities to cross-sell or up-sell through curation and personalized offers.

The Three Types of Subscription Models

Now let's talk about the different types of subscription based models so you can pick the one that best suits your business and tailor your offerings to your specific market.

• Replenish products:  The simplest form of subscription is the replenishment model. This subscription service will send refills of products the customer ordered on a regular basis.

• Curate products: Curated subscription services offer a special selection of products tailored to the customers preferences or built around different themes. Many curated services will take customer data into account to better meet their needs and increase customer satisfaction. 

• Access to exclusive products: Services that offer exclusive access to products rely on exclusivity to gain subscribers. This service requires proof that the product is truly  “exclusive”. One way to do this is to develop dedicated contracts with providers to offer products earlier than released to the general public or to offer products that aren’t for sale anywhere else.

Image fromMcKinsey

5 Ways on How to Increase Subscriptions and Decrease Churn

Now that you know the basics of the subscription model let's get down to the ways you can improve your subscription rates and reduce your churn rate if you are already using this model. The following five tactics will make your subscription service more effective and build customer loyalty.

1. Build a unique value proposition

There are thousands of CPG subscription services online. You shouldn’t be exactly like any of them. Instead, you should be creative to help your brand stand out and find its competitive advantage. Look for patterns in the ways your competitors sell their products in your market and find ways to be different. What sets you apart from your competitors? Is it price? Is it convenience? Is it exclusivity? If you do focus on exclusivity can you offer even more exclusive items?

2. Personalization increases retention rates and reduces churn

Personalizing the subscription experience helps companies retain more of its customers. Don't we all want options that fit our needs? Offering customers the ability to build their own plan is key to retaining your customers and customer satisfaction.

If you offer curated subscriptions, you should put a lot of emphasis on personalization. People sign up for curated boxes because they want something special that is put together with their preferences in mind. The more you can make them feel special by giving them exactly what they want based on their preferences, the more your customers will love what they receive. This is why it is imperative to collect as much user data as you can. The more you know about your customer the more you can personalize your curated box which will lead to increased customer satisfaction.

3. Make subscribing easier

Convenience is key in the subscription economy. If you’re offering CPG goods, it is crucial to make it easier for your customers to subscribe than to have them manually reorder every subscription period. It should be even easier to sign up for recurring deliveries than it is to buy something once. There has to be a benefit to subscribing.

These are a couple of ways you can accomplish this:

• Prioritize your most popular entry-level subscription on your homepage so people see it every time they visit while also de-emphasizing the non-subscription items. 
• Make subscriptions the default option instead of requiring people to choose a subscription.Do this by designing the check-out system to prioritize subscriptions. This requires the customer to opt-out instead of opt-in. This change will increase the number of new subscribers you gain each period. 
• Offer one-click subscription buttons. Place a “Subscribe” button on different product pages that automatically adds the item to the user's shopping cart. 

4. Offer ways to simplify your model subscription service

Most customers subscribe to products because of convenience. If you are able to find more ways to make your customers’ lives more simple, you will start increasing your subscriptions. Here few ways you might be to simplify your service:

• Offer auto-pay: Making customers have to manually pay every subscription period is inconvenient and will undoubtedly push them away. This practice will also substantially increase your churn rate.  Auto-pay will automatically pull funds from the customer’s card so they don’t even have to think about it. Isn't this about convenience after all? Offering peace of mind to your customers is key.
• Perform automatic renewals:  Integrate automatic renewal to your model to further offer convenience to your customers. If your subscription service lasts for a set period of time you can let your customers know that their subscription will automatically renew unless they specify to cancel it. This prevents the customer having to deal with deciding to opt-in to the service again after their subscription period is over, which is a common churn point.
• Provide long-term subscription discount rates: Offer percentage discounts for quarterly or annual subscriptions. This will give you more revenue upfront and keeps your customers engaged for a longer term.

5. Dedicate time to monitoring your data.

Data is king! It’s easy to get lost in the sauce of the day-to-day task of running an e-commerce business. But if you want to  increase your e-commerce subscriptions you must set aside time for analyzing your customers data points and KPIs. Check your subscription data at least once every subscription period. Pay attention to key KPIs like new subscription sign-ups, upgrades, cancellations. This helps you successfully market to your customers, for example, you can sway them into re-subscribing by offering them a discount if they just canceled their subscription.

How to get started increasing your e-commerce subscriptions now

It is easier than you think, whether you are just starting out or if you want to improve your current model,ReCharge is a great platform for CPG brand owners to easily integrate and manage their brand’s subscriptions services. Quickly enable subscriptions, increase lifetime value, reduce customer churn, and measure your performance using ReCharge. With varying prices andplans, a help center, and a resource library on their website, you are being set up for success from the start. Schedule a free discovery call with us today and chat with us  about integrating this exceptional application onto your Shopify store.