How Your Business Can Bring Subscriptions Back to Life
In recent years and particularly during the pandemic, the world went subscription crazy. Led by B-to-C digital commerce ($687 billion), the total market was predicted to surge to $1.5 trillion by 2025. But two years in, many of the factors that led so many consumers to invest in subscription services have begun to evaporate. Some have even warned of a “subscription apocalypse.” It’s a great headline, but is it true? In reality, the model has plenty of life left in it, both in a B-to-C and B-to-B context. But the key to extracting value from subscription-based services lies in a strategy based on composable commerce. Such platforms enable sellers to deliver more sophisticated offerings — tempting customers with personalized, dynamically priced services.
Ups and Downs
Before the pandemic struck, the average U.S. consumer had an estimated 1.5 retail subscriptions. By November 2021, the figure had grown to five. Signing up to services like these was seen as a hassle-free way to get everything from day-to-day groceries (Hello Fresh) to streaming video (Netflix), clothes (Stitch Fix) to consumer tech (Breo Box). And for everything in between — from pet food to multivitamins — there was Amazon.com. And with no end in sight to the stay-at-home mandate, many consumers had little else to spend their money on.
However, Netflix’s financials at the start of 2022 were a sign things had begun to change, wiping $130 billion of market value off the firm. Things soon went from bad to worse as the streaming giant forecast it would lose 2 million subscribers in Q2. A combination of inflationary pressure, an end to government stimulus, and a post-COVID opening up means consumers now have more to spend their money on — e.g., dining out, travel — and are becoming more prescriptive about what they do buy.
One report claims most consumers want to spend less than $50 per month on subscriptions, and that on average they spend at least 40 percent more than they think. There could be a reordering of things as more people realize they’re not getting the best from generic, one-size-fits-all subscriptions, which put better value one-off deals out of reach. Sellers also suffer if they reach customers through large ecosystem providers. They’re saddled with all the hassle of managing stock and fulfillment, but then see a healthy slice of the profits go to the likes of Amazon.
Back From the Brink
Yet rumors of the demise of the subscription model may have been greatly exaggerated. There's a way to make things work better for everyone without lining Amazon’s pockets. How? By using a composable approach to digital commerce. By building their own website from modular components, both B-to-C and B-to-B sellers can design their own subscription models based around data on their own business and customers.
The automotive industry is a prime candidate. Many drivers no longer want to own a car outright themselves. That might be because of cost or environmental concerns. OEM (original equipment manufacturer) producers are also struggling to fulfill orders at a time of global chip shortages. Many prospective owners simply can’t wait 18 months for a new model to get built and shipped. Fortunately, intermediaries have stepped in to fill the gap in the market. Finn Auto, SIXT and Hertz all provide such subscription services, including specialized offerings for those that want to go green.
Another emerging use case for subscriptions is in pay-as-you-go (PAYG) B-to-B services. Consider construction or manufacturing where producers may need access to highly specialized heavy machinery, but not all the time. It may not be in use for much of the year, or only be needed for a short production run. PAYG offers an ideal option. Why pay for six months of use if a heavy-duty welding machine or industrial 3D printer is only being used for two hours in a day?
Composable Commerce is the Key
It's the job of digital commerce sellers to understand their customer base and where subscription services could be leveraged to best meet demand. Their ally in doing so is the composable commerce model. By choosing digital platforms that allow for best-of-breed modules to be slotted together, these organizations can create web stores customized to the needs of their customers — and agile enough to adapt as these requirements inevitably change.
Most importantly, they can use data on buying patterns, stock levels, logistics capabilities and more to fine-tune any subscription offer. That will ensure it’s targeted to the right customers and offers the right frequency and product selection. The same intelligent analytics can help to create dynamic pricing so that customers never feel they’re getting a raw deal by being “locked in” to subscription plans. And because it’s offered directly, rather than through an ecosystem provider, more revenue flows back to the seller.
The subscription model as we know it may be dead. However, B-to-B and B-to-C sellers can give it a whole new lease of life with the help of composable commerce.
Related story: 5 Guiding Principles to Optimize Modern B-to-B Commerce
Over the last 18 years, Boris has been responsible for shaping the international commerce tech industry through his unique vision and approach to strategy across product development, sales, channel & operations. Prior to Spryker, he founded two successful commerce tech companies, both respectively sold to one of Europe’s largest electronic retailers and to CGI Inc. He is a frequent keynote speaker at several prestigious events and a guest on the Innovate or Die podcast.