The rapid growth of ecommerce and proliferation of subscription services is changing the retail landscape for good. Deloitte Digital estimates that online retail is growing at more than twice the rate of brick-and-mortar sales. And within ecommerce, subscription models are becoming increasingly popular. A survey by The Harris Poll shows that 71% of adults have subscription services, up from roughly half five years ago, and 74% of adults believe that in the future people will subscribe to even more services.
Simply put, consumers are craving convenient and valuable retail experiences, and today’s pandemic has been a catalyst for the rapid acceleration of this global trend.
Many retailers have been quick to action in today’s new normal. Why? Because now more than ever, prioritizing and truly providing recurring value to consumers is critical to getting a leg up on the competition. Look no further than the highly anticipated launch of Walmart’s new subscription membership offering to compete with Amazon Prime.
Given its clear benefits, this subscription innovation has made its way to consumer packaged goods (CPG).
CPG: A Sector Ripe for Change
While the retail industry has been evolving for years, the consumer packaged goods (CPG) sector, in particular, is at a critical inflection point. From BarkBox to Blue Apron to Dollar Shave Club and more, CPG subscriptions have surged in popularity, with many brands becoming household names seemingly overnight.
A recent CPG Subscription Report found that consumers who currently have at least one subscription are two times more likely to increase CPG subscriptions in the next three years than they are to decrease. And with the total CPG market estimated to be worth roughly $2 trillion, according to The Shelby Report, there’s an incredible opportunity for CPG brands to revitalize their business models to meet customers where they are.
Yet many CPG companies have traditionally focused on the development of stagnant products, leaving the customer interactions to traditional retailers, or focusing efforts on box-of-the-month offerings that leave little room for understanding customer wants and needs. As a result, there’s a new urgency for these brands to reimagine their approach to market, build direct relationships with their customers and complement their offerings with recurring services…before the competition builds them first.
Doubling Down on Digital Strategies
Today’s consumer wants to be put in the driver’s seat — and businesses that double down on providing value through flexible, personalized and innovative digital services will ultimately solidify future growth and customer loyalty. Taking unique preferences into account enables businesses to build a better relationship with their customers, encouraging a longer commitment and lessening churn. In fact, research from the Subscribed Institute recently discovered that for companies where one in 10 subscriptions has a change after the initial sign-up — an upgrade, downgrade or add-on — the revenue growth rate more than doubles to 20% YoY.
The truth is, today’s CPG model of prioritizing products and the shipment of box-of-the-month packages falls short in the delivery of constant innovation, and fails to meet new customer demands for an elevated retail experience. Without a digital strategy, it’s nearly impossible for brands to personalize and provide unique customer value. Why? Because they have little to no insight into, and understanding of, usage. Without some sort of digital service, you risk shipping products that customers don’t need or want.
Not to mention, many of these offerings create waste and will not meet the needs of today’s sustainability-conscious consumer. A recent IBM survey found that globally, nearly eight in 10 consumers say they value sustainability, and over 70% of these respondents would pay, on average, 35% more for eco-friendly brands. As a result, CPG brands need to be mindful about packaging and recycling to maintain long-term loyalty.
Considerations for Launching a Successful CPG Subscription
In reimagining their approach to the market with subscription services, CPG brands need to consider that the success of a subscription service is determined by the perceived value consumers feel they are receiving. Several core considerations include:
- Consumers aren’t simply buying a product, they’re committing to a relationship and desire control over the interaction. The same CPG Subscription Report found that saving time (51%) and ease of opting out (48%) are important influences on subscription purchasing, and fear of being tied down (42%) can be a strong influence on the decision to cancel. By allowing subscribers the freedom to pause, skip and change up their subscriptions, brands are putting the power in their customers’ hands. Ultimately, relationships are based on trust. In order to commit to a subscription, consumers need to trust that their expectations will be met.
- Customer satisfaction with subscriptions is high, but loyalty is elusive. Customer satisfaction with subscriptions ranges from 80% to 93%, but churn remains high. As a result, CPG companies must balance the right price point with the value of their services, in addition to adding a layer of personalization to maintain positive and ongoing customer relationships, especially with the number of subscription services available today. If customers are left wanting more out of an offering (or needing less), brands risk losing them.
- Cross-selling presents a major opportunity. It’s critical that CPG brands leverage research into their potential customers’ broader subscription habits, and understand the opportunity for expansion and monetization. For example, consumers plan to increase subscriptions in the future within food and beverage (47%), fashion (41%) and pharma (48%). The reality is that once consumers become comfortable with the subscription model, they are more likely to use it for additional products.
If done well, subscriptions can lead to brand loyalty — and consistent revenue streams — down the road. But any company still executing their business and only thinking about their product, without knowing their customers, will not survive. If you’re not wrapping your entire business model around your customers’ wants and needs, chances are that you may not have a business left in the next 10 years.
Amy Konary is Zuora’s VP of Customer Business Innovation, with close to 20 years of experience advising companies on subscription business strategies following a tenure as an industry analyst at IDC. She is the founder and chair of the Subscribed Institute at Zuora, a think tank for the subscription economy.