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Can subscription billing programs save retail stores?

Jul 13, 2018 | By Young Upstarts

Author: Kevin Cancilla, Head of Global Marketing, Vindicia

The retail industry, despite being a cornerstone of the U.S. economy, has seen better days.

The rise of Amazon and other online sites has significantly disrupted traditional retailing operations across the nation. 2017 was capped by the announced bankruptcy of Toys “R” Us, a once formidable retail giant. In all, there were 662 bankruptcy filings in retail last year, according to data cited by CNNMoney. That amounts to a 30 percent year-over-year rise.

As online competition continues to heat up — from Amazon, specifically, which shows no signs of slowing down — brick and mortar retailers have been hard pressed to find new ways to acquire customers, secure their loyalty and continue expanding. Among the strategies tested by retailers are subscription billing programs. Monthly subscription boxes for pet goods, beauty items and apparel have exploded in popularity among consumers lately, and subscription business models have attracted the wide interest of companies from Microsoft to Cadillac to Office Depot. This popular model could also prove valuable for retail chains and stores looking to stave off Amazon and generate new revenue streams.

Big names getting onboard

The draw of ecommerce has complicated things for traditional retailers. When consumers can buy everything they need online — from household goods and food to apparel and electronics — there’s less incentive to head to the local big-box store or other retail location. The reduced foot traffic and general shift toward Amazon as a one-stop-shop has forced retailers to adapt. Yet discounts, loyalty program perks and in-store promotions can only go so far in driving business and sustained success in the internet age.

Subscriptions help retailers get to the heart of the real issue confronting them, which is less how to be Amazon and more about how to meet customer expectations and personalize the shopping experience. These factors, more than anything in the current climate, can drive consumer activity and recurring business for retailers.

That’s why so many retailers have taken steps to incorporate subscription services into their business models. Subscription services are attractive options for their ability to be tailored to a specific customer segment, or to fit a general need. According to CNBC, some examples demonstrating this diversity and adaptability of subscription in retail include:

Target has subscription boxes for beauty and baby products, as well as a children’s clothing offering that costs $40 and includes items from its popular kids apparel line.

Walmart, ever known for its low prices, markets a $5 beauty box that comes quarterly and includes a smattering of name-brand essentials, including eyeliner and hairspray.

J.C. Penney has led the way among department stores by partnering with Bombfell (a curated apparel box service) to create personalized boxes for big and tall male customers. Subscribers take a short quiz to determine their style preferences and then have seven days to try on items. What they keep is paid for, and the other items can be returned at no cost.

Under Armour extends an interesting offer: a subscription box with no initial fee. After a customer signs up and gets their personalized box, they have a week to choose what to keep and what to return. Anything they select is discounted at 20 percent.

Subscriptions take attention and effort, but can pay off

Retailers looking to profit from subscriptions must keep in mind that such offerings aren’t a low-touch product. While convenience and ease are primary benefits for customers, subscription lifecycles are a constant process requiring dedication and action from retailers on a number of fronts: customer acquisition, retention, billing, expansion and success.

However, when done right, subscriptions can generate a number of positive outcomes above and beyond the new revenue streams they open up: Fewer returns, improved customer insight and the greater possibility of earning recurring business are all advantages that any retailer would like to wield in the highly competitive industry.

Here are some things to keep in mind when strategizing subscriptions:

Experimentation will be needed: Personalization can be hard to nail, even with all of the data gleaned from customers informing product development. Retailers will need to test out various offers and how to serve them to the right customers, which entails trial and error. To that end, businesses need a tool that enables them to cheaply and rapidly iterate subscription offers to not only hit customer expectations, but also keep up with ever-changing preferences and trends.

Churn can be a beast: Churn is one issue retailers have to address with subscriptions that isn’t altogether present in brick-and-mortar operations. Even if a retailer has signed up a record number of customers for a new subscription, come the next billing period, they still need to pull out all the stops to ensure as many consumers as possible stay on with the service. Retailers need to combat both active churn (when customers decide to quit) and passive churn (like when an expired credit card interrupts service). Having the means to save customers on the brink of canceling and recapture failed payments goes a long way in the fight against churn.

Innovation can’t stall: With Amazon continually gobbling up new blocks and segments of business, retailers will need to look to new demographics, regions or markets beyond their established bases. Subscription services need to expand along with retailers, and having a solution that enables easy monetization of new ventures or products is a crucial edge that can be gained from subscriptions.

While subscriptions may be new territory for many retailers, the emerging view is that they represent a big opportunity for businesses to forge deeper relationships with customers and build up recurring revenue. For any retailer, having a high-quality solution for subscription billing is a requisite to delivering a high-quality service to customers. Finding an experienced partner who can help bring such plans to fruition can help make good on those plans.

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