Subscription businesses, which sell products or services on an on-going basis to customers who make payments at regular intervals, have boomed in the last decade. Since 2012 they have grown more than four times faster than the S&P500 index.¹ Research by ING in 2018 found that European consumers spent around 5% of their total spending on subscriptions² – and the pandemic has only fuelled the appetite for this business model. One survey found that 31% of Europeans now have more subscriptions than they did at the start of the pandemic, with almost a quarter (24%) currently having more than four.³

The huge success of this business model in the last decade has been driven by content and media subscriptions – such as Netflix and Spotify – and business software services.¹ But subscriptions for physical consumer products have thrived as well – particularly since March 2020. What’s more, physical goods are set to account for the largest revenue share of the subscription market in 2022.⁴

The growth is already being felt. Subscription e-commerce businesses saw an average 31% increase in their subscriber numbers in 2021. There was also significant growth in average order value – up by as much as 19% in some product categories.⁵

The possibilities for product subscriptions – and businesses that want to build business models on them – are broad. Consumers can now sign up to subscriptions across a wide range of categories including beauty and personal care, meal kits, drinks selections, and even essential goods such as washing powder.

There are also different types of product subscriptions. Replenish subscriptions offer consumers the convenience of automating orders for essential items. Curated subscriptions are those that send a mixture of products – usually in categories such as fashion and beauty – which have been selected according to the customer’s tastes. And access subscriptions offer consumers a premium service or discounts on products.⁶

For businesses, subscriptions have the advantage of securing recurring revenue and fostering stronger relationships with customers.⁷ But it is a challenging proposition to get right. According to McKinsey, consumers want an outstanding experience in exchange for their commitment to a subscription.⁶

As more businesses enter the market, the competition for a share of the customer spend gets stronger. Price is one of the biggest incentives for subscribers, especially for replenishment subscriptions, so getting the right balance between the margin being made and the price point being offered is an important consideration.⁶

Subscriptions should offer value, variety and quality

The strongest motivator for consumers signing up to subscriptions is good value for the price point. Almost two thirds (62%) of consumers who buy subscriptions said this was their motivation, in a survey by McKinsey. This was followed by a high-quality product or service (motivation for 45% of respondents) and a good variety (41%).¹⁰

Commit to subscriptions

Experimenting with a subscription service could feel like a safe way to dip a toe into the market. However, a half-hearted approach risks decreasing the perceived value of your products or damaging your reputation. Making a real commitment to the model could stand you in a better stead for winning and retaining subscribers.¹⁰

Offer options to avoid cancellations

Once customers cancel a subscription, there’s just an 11% chance they will return. Offering customers a variety of subscription options with tiered pricing, plus the flexibility to change their subscription, is one way to discourage cancellations.¹⁰