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.