Technology companies recognized the benefits of offering their products as subscription-based services (SaaS) long before consumers could set up recurring deliveries of their favorite products using Amazon’s Subscribe and Save service or get a curated box of dog toys and treats delivered monthly to their doorstep by signing up for Bark Box. Even before SaaS emerged, the subscription economy was flourishing, with consumers subscribing to newspapers, magazines and even milk delivery for hundreds of years. Today, the subscription aka “recurring revenue” business model, has become highly profitable for businesses across every industry.
As convenience and time-savings have become top priorities for consumers today, the popularity of subscription services has soared. Forbes noted the subscriptions trend in 2019, pointing at brands ranging from Costco, Target and Sephora to Dollar Shave Club, Lululemon and Restoration Hardware as examples of companies “using the subscription model to grow their customer base.”
According to a recent study produced by PYMNTS.com in collaboration with sticky.io, 15% of consumers buy online to control the amount of time spent shopping — and setting up recurring deliveries of products such as household goods, toiletries, groceries and pet supplies, can create significant time savings. This clearly explains why the same study showed that 31% of subscribers said they use scheduled and auto-fill subscriptions for most of their regularly used products. Time-savings, along with convenience, most probably also play a factor as to why 28% of Amazon’s pet supply revenue is generated through subscriptions — a figure that continues to increase.
Greg Alvo, the founder and CEO of Ordergroove, saw the potential of the subscription economy early on, launching his company in 2010, at the same time subscription boxes like Birchbox, FabFitFun and BarkBox were exploding in the market.
In a CommerceTomorrow podcast hosted by Dirk Horig, founder and CEO of commercetools and Kelly Goetsch, Chief Strategy Officer of commercetools, Greg shared, “Our hypothesis back then and still remains now, is that subscriptions and recurring revenue in D2C eCommerce provide a highly profitable model.”
His company offers a SaaS solution that according to the website, “manages frictionless subscription experiences that delight shoppers, grow recurring revenue, and boost customer value. ” Established brands including Macy’s, Walmart and Tractor Supply Co. as well as newcomers like Dollar Shave Club, Peet’s Coffee and Honest are all listed as customers.
Greg said brands typically turn to Ordergroove because they’ve started hitting challenges with the solution they either built in-house or purchased from another vendor. Once they migrate to Ordergroove, they’re not only able to create more personalized experiences and give consumers more control, but they’re also able to reduce operational headaches and optimize for growth.
Greg believes that subscriptions, along with loyalty programs, will be key to the evolution of what he calls relationship commerce. A category is based on a direct connection between the brand and the customer — and one which he believes will be built on non-shopping cart experiences.
People like to do business with people they like and who make their lives easier. If you remove friction from the path to purchase and repurchase, consumers will reward the brand or the retailer with extended loyalty, which extends into lifetime value, better economics, et cetera.
founder and CEO, Ordergroove
With the global eCommerce subscription market expected to reach $904.2 billion by 2026, it’s clear that subscriptions are creating a significant shift in the commerce landscape — one that business leaders have recognized.
70 percent of businesses believe that membership and subscription models hold the key to future commercial growth and expansion, yet very few are harnessing its potential.
However, it’s important that business leaders not just jump on the bandwagon without a clear strategy in place. Today’s consumers are demanding, and brands with very old, monolithic tech stacks in place will find it difficult to deliver to expectations. As Forbes cautioned, “If you’re not willing to personalize for each subscriber, customers will go elsewhere.”
Regardless, Greg sees a future where the subscriber experience is optimized by using predictive AI and generative AI. For example, creating a connection to consumers' calendars to suggest products they might need, such as sunscreen if they’re going on vacation. “This hyper-personalization is definitely central to relationship commerce, “ said Greg.
This is a key part of the future…and I think every single brand, if they don’t have a subscription or recurring revenue story now, they’ll have one in the next few years.
founder and CEO, Ordergroove
Listen to the Dirk and Kelly’s CommerceTomorrow podcast featuring Greg Alvo to learn more about the rise of the subscription economy and how Ordergroove is helping businesses launch and scale their subscription programs to support long-term growth.
Anita J. Temple is the Corporate Journalist at commercetools. She was a fashion editor at Women’s Wear Daily (WWD) and W Magazine before launching a career as a freelance writer and creative producer. She has written content and worked on a wide range of marketing projects for companies including Dreamworks, Walmart, Coca-Cola, Verizon, and Adidas.