Who is Driving the Subscription Economy?
There is no denying the fact that startups are leading the subscription economy. Creative startups fueled by venture-capital investments are launching new subscription businesses by the day. The market growth and the lucrative recurring revenue also attract big enterprise retailers to the subscription industry as they fear being left out.
On the one hand, we have startups whose entire business models are built around offering subscription services. On the other hand, big enterprise retailers are testing and trying the market often with a pilot project first.
What is the Focus of This Article?
Two questions that we get asked frequently regarding product subscriptions from both groups are:
What tools do I need on a fundamental level?
- What do I do when my products come back?
In this article, we will answer the 1st question: what tools are needed on a basic level to run a subscription-based e-commerce business for physical products.
Short Answer: Tools Needed Are the Ones That Create a Buying Like Experience
The subscription market consists of customers who are still making a conscious and active choice between buying and renting. As a result, the expectations of customers from renting is the same as when buying online. Therefore the tools needed at the basic level are the ones that can create a buying-like experience, customers are already used to. The tools required are a CMS (like Shopify, WooCommerce), a Payment Service Provider (Stripe, Adyen) and a Subscription Management Software like circuly).
What is a hygiene factor?
Typically a hygiene factor is defined as a feature that will make the recipient/user unhappy or unsatisfied if it is not provided. For example, a hygiene factor for a job is comfortable working conditions, and for a good job application is getting the name of the company right in the cover letter. Hygiene factors often indicate the bare minimum that should be there for a person to move on to the next step of their decision-making process.
E-commerce also has a hygiene factor. It doesn't take a genius to guess that when it comes to e-commerce, a seamless customer experience is the hygiene factor. Big retail giants like Amazon have made customers accustomed to faster checkout processes. One-click checkouts, though a notorious thing for the person on the buying end (say bye to your money faster as checkout processes become quicker) have raised the bar for what to expect when buying online.
Since the market is still in the phase where customers make a conscious decision between buying and renting, the expectations are also often intertwined. Customers want the same experience when renting online as they do when buying online. Period. Therefore, the tools that are needed on a fundamental level are the ones that fulfil this need.
What Are the Tools Required at a Basic Level?
Tool 1: A Content Management System aka CMS
A Content Management System serves as a data storage unit for your rental business. A CMS also builds a buying-like experience that customers are used to. Additionally, they support integrations with inbound marketing tools, native WMS or ERP integrations that are often needed to scale the rental business. The infographic below explains the process of data flow to the CMS.
Selecting a CMS for your subscription business depends on what you want it to do. Read more about which CMS is best for your rental business.
What a CMS can't do.
A CMS is built for buying online and not renting. Subscriptions live and thrive from its recurring nature - something a CMS can't handle. When an order is placed, a CMS will perfectly send out all the relevant transactional emails (order confirmation, shipping). But the monthly invoice emails or dealing with the return process of subscription products is beyond the capabilities of a CMS.
Conclusions: A CMS is needed but requires support from a subscription management software to become the holy grail.
Tool 2: A Payment Service Provider aka PSP
A PSP enables you to set your customers on a recurring payment plan for your products subscription. A PSP stores the payment token of the customer. Choosing a PSP depends on which combination of payment options you want to provide your customers, such as credit card plus PayPal or PayPal plus direct debit or Credit card plus direct debit and so on.
Tool 3: A Subscription Management Software
A subscription management software takes care of the core component of a subscription business - managing subscription-based products. Unlike digital products that do not come back and do not require any physical storage, physical products can come back after the rental/subscription period (if not bought out).
A subscription management software is needed because a CMS cannot deal with the recurring nature of a subscription business. A CMS simply doesn't understand the technical logic that a product is not sold instead rented. If it is rented, then it means instead of a one-time transaction, there would be monthly/weekly/bi-weekly/quarterly transactions. Payment needs to be collected from the customer for all these transactions, and an invoice must be sent.
The key point here is that the entire process needs to be automated.