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What comes next for retail? How the sector can use customer-centric business models to bounce back and ensure long-term success

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By John Phillips, General Manager, EMEA at Zuora 

Retailing has long been one of the largest sectors in the UK economy. Pre-pandemic, the industry consisted of 306,000 shops – employing 2.9 million people – and boasted an annual sales volume of £394 billion. However, there’s no doubt that the last year has brought significant challenges to all businesses, and retailers are no exception, with 2020 being labeled the worst year in sales since.

Whilst supermarkets were deemed essential and saw demand increase, many non-food retailers were forced to close for various time periods in order to comply with government guidelines and keep customers and staff safe. For those without a digital presence, this proved costly. Even the biggest household names felt the pinch financially, with Primark going from making £650m in sales each month to nothing.

Despite vaccinations and the government’s new timeline for recovery bringing hope, there is no doubt that the last year has shifted consumer buying behaviour permanently. Earlier this month, our End of Ownership survey revealed the pandemic has accelerated a trend we’d already been witnessing; an increasing consumer preference for the use of subscription services over the ownership of physical products. In fact, 77% of U.K. adults have subscriptions services today. This is up from the 58% that had subscriptions 5 years ago.

A time of opportunity

Against our backdrop of change and uncertainty, retailers need to find new methods and strategies to remain profitable long term. As the last year has evidenced, those that fail to adapt won’t survive. However, this time of hardship has also been one of resilience. Many retailers responded to the ongoing situation and refocused their efforts to meet new demands in consumer behaviour. For example, Pret a Manger was one of many to launch a new subscription service to account for the fall in foot traffic on the high street.

In fact, during this time, subscription-based models have emerged as a key for businesses across a range of different sectors to ensure a stable revenue stream and for consumers to get the products they want in a convenient, low-cost way. From groceries and meal-planning boxes to coffee delivery services, the number of people signing up to subscription-based models is steadily increasing and COVID-19 has only highlighted their resilience. In fact, our Subscription Impact Report – which took data from March – May last year – found that more than half of subscription businesses had not been impacted by the pandemic, while one quarter actually saw subscriber acquisition rates accelerate. Meanwhile, the latest edition of the Subscription Economy Index revealed that subscription companies continue to outperform their product-based peers by wide margins. Last year alone, subscription revenues grew 11.6%, while the S&P 500 sales declined -1.6%.

There are several key players who are already reaping the rewards. For example, whilst many businesses have struggled to survive the pandemic, Gousto – the subscription-based recipe box provider – announced plans to create 1,000 new jobs as part of an expansion following a 115% spike in sales during the first half of 2020. Several many major retailers including Hotel Chocolat, Nespresso and Majestic Wine – have taken note of this success and now offer subscription boxes themselves. Morrisons, the UK’s fourth largest grocer, also recently joined the movement, launching a new weekly, fortnightly and monthly food box service.

Subscription-based models are proving to be a lifeline for many retailers battling the current period of uncertainty, with recent research revealing that 39% of UK shoppers have signed up for at least one. This demand is only likely to increase moving forward, with our latest CPG Subscription Report finding that consumers who have a subscription already are 2x more likely to get another in the next 3 years. But, in order to make subscription-based models a long-term success, retailers must focus on reducing churn and delivering true value to their customers.

Boosting the subscriber experience

While signing up new subscribers will always be important, it costs much less to retain an existing customer than to acquire a new one. Therefore, the success of subscription-based models ultimately relies upon reducing churn. Customers need to feel like they receive ongoing value, a significant shift away from the traditional single-transaction model. Their definition of value is much more than simply a price point. Whilst saving money is important, it will often not be enough to make them stay long term. Instead, the key to long-term success is to establish strong connections through unparalleled subscriber experience.

Today’s consumer wants to be put in the driving seat – therefore retailers that ensure both flexibility and convenience are likely to come out on top. For example, the ability to opt-out or even just temporarily suspend a service is seen as a really important factor. Moreover, the fear of being bound to a company or service is enough to put 42% of consumersoff signing up in the first place. This is because consumers want the freedom to consume on their terms. They want to escape the burdens associated with ownership, whether that’s obsolescence or time and location barriers. In order to offer this, businesses need to reinvent and build flexibility into their offerings, giving customers the ability to upgrade, downgrade, pause, cancel and renew at any time.

The delivery mechanism for subscription services must also be more convenient than traditional purchasing. It must take the pain out of tackling the high-street but still provide the 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 also crucial when it comes to improving the customer experience.  Consumers have higher expectations for a subscription model than they do with a single purchase as they are buying into a brand. Therefore, retailers taking unique preferences into account and using subscription data to personalise product offerings and pricing models are likely to build a better relationship with their customers, encouraging a longer commitment and lessening churn.

Consumer-centric subscription models allow retailers to re-imagine their businesses as a recurring service, as opposed to an accumulation of transactions. They can act as an enabler for more personalised, convenient and flexible shopping experiences than ever before – whether online or in store. If retailers are able to capitalise on this movement and deliver true value to their customers, subscriptions could prove to be a sustainable solution helping them to both survive this current time of uncertainty and thrive in the future.

Surviving post-pandemic retail challenges with subscription models

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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.