By John Phillips, General Manager, EMEA at Zuora
Whilst many organisations are feeling the economic effects of the global pandemic, subscription-based businesses are proving to be resilient. In fact, a recent report found that more than half of subscription businesses have not been impacted by the pandemic, while one quarter are actually seeing subscriber acquisition rates accelerate.
So, what can the traditional retail industry, especially those in Consumer-Packaged Goods (CPG), learn from the strength shown by subscription services?
During the pandemic, in order to follow government guidelines and ‘stay at home’, many consumers took to ordering a variety of products – including groceries and home staples – online, signing up to subscription models they potentially hadn’t thought about before. But, as things return to some semblance of normality, in order to continue to drive this growth and build loyalty within their customer-base, CPG businesses need to focus on forming direct relationships with their customers.
The strength of subscriptions in 2020 has proven that forming direct relationships with customers and focusing on adding long-term value over short-term revenue is going to be key for retails in surviving the impending recession.
COVID-19: The catalyst for shifting consumer attitudes
Subscription box retailers have enjoyed steady growth in recent years, with 27.4% of Brits signed up to subscription box services as of February 2019, according to Royal Mail Group research. At the time, the UK subscription box market was forecast to reach £1 billion in value by 2022, a 72% increase from its value in 2017. Many early entrance to the retail subscription market are reaping the rewards, including Hello Fresh, Graze and Nespresso.
While the COVID-19 pandemic affected brick and mortar sales, subscriptions enjoyed a fruitful period as millions were stuck at home. In July, new Royal Mail research showed 15% of adults had ordered a paid subscription box online since lockdown began.
Some subscription services were able to turn adversity into opportunity by listening to customers and their changing needs during the pandemic. This compassionate approach is in turn leading to increased loyalty and overall growth. A good example of this can be seen from the restaurant reservation platform Resy. During COVID-19, Resy was committed to providing 100% relief on all fees and billing until the end of June. Since then, they’ve seen customer subscriptions spike. The adaptability offered by subscription-based models is proving to be a lifeline for many retail organisations battling the current period of uncertainty.
The future of CPG is in subscriptions
According to our CPG Subscription Report, 61% of UK consumers who have a CPG subscription have one with a food and beverage organisation, followed by electronics (33%), pharma and beauty (33%) and fashion (31%). This demand is only set to increase as time goes by, with consumers who have a CPG subscription being 2x more likely to get another in the next 3 years.
COVID-19 has provided all industries with an opportunity to re-think the norm, and the same goes for retail. Shifting to a service model via subscriptions will not only help organisations to bounce back following the global pandemic, but it could boost the profitability further down the line.
In the past, CPG brands could let retailers worry about the customer experience; they only had to provide the products. Now, in a direct-to-consumer reality, brands need to forge relationships based on customer experiences they themselves have created if they want to succeed. Creating a seamless and positive experience has never been more important to ensure stability moving forward.
The three C‘s for success – convenience, customisation and customer satisfaction
In an uncertain economy, many consumers re-evaluating where they spend their hard-earned money. This makes it more important than ever for brands to prioritise customer satisfaction to drive loyalty and reduce churn rates. So, what makes customers stay?
According to the same CPG report, customers value flexibility, convenience and customisation above all, citing saving time (51%) and ease of opting out (48%) as key factors in making a decision about subscribing to a CPG brand.
In terms of delivering this overall customer experience, flexibility is high on the agenda for those signing up to a subscription-based service. Fear of being bound to a company or service is enough to put 42% of consumers off signing up in the first place. Therefore, companies that enable changes to their subscriptions are likely to see a positive impact on the bottom line. In fact, research from the Subscribed Institute recently discovered for companies where one in 10 subscriptions has a change after the initial sign-up, for example, this could be an upgrade, downgrade or add-on, the growth rate more than doubles to 20% YoY revenue growth.
Another key pillar for success is convenience. In order to meet consumer demands, the delivery mechanism for the subscription must be more convenient than traditional purchasing. It must take the pain out of tackling the high-street but still provide the retail experience at home for customers. There is a common thread that the most popular subscriptions will save time, deliver to the home or be something that the customer would struggle to get hold of under normal circumstances.
Customisation is the third piece of the customer satisfaction puzzle and is likely to be the defining factor which enables a subscription service to stand out from its competitors. Consumers have higher expectations for the relationship in a subscription model than they do with a single purchase and it’s important to meet these. Taking unique preferences into account is likely to enable businesses to build a better relationship with their customers, encouraging a longer commitment and lessening churn.
For CPG brands looking to fortify themselves long-term, adopting a subscription-based model is an avenue worth exploring. For those that do, focusing on adding value and improving the overall experience for customers will prove critical in building and retaining loyalty long term. If businesses are able to deliver the right blend of flexibility, convenience and customisation, subscriptions could prove to be a sustainable solution helping businesses to both survive this current time of uncertainty and thrive beyond the pandemic.