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We like to share our expertise with our clients since the online market is changing rapidly. Subscription commerce is one of the most important business models for the next few years. We would like to share every opportunity.

Do subscriptions lead to higher fixed costs?

Now the (online) subscription model gains popularity, different organisations and persons are considering the advantages and disadvantages of a subscription. One of the reasons everyone constantly point out as disadvantageous is that a subscription would lead to higher fixed costs of the consumer. But that's absolute nonsense. It does depend on whether your subscription service focuses on pleasure or convenience though.

Popular forms of subscription

Nowadays, online subscriptions come in many shapes and sizes. Spotify and Netflix are well-known examples and are characterized by their access to a database of music, series and films. This form of subscriptions is also called 'from possession to use'. A closet full of CD's and DVD's has become a pastime, access to Adele's newest album is enough.

Another example of a successful subscription model is the meal box. It can be quite a challenge to take care of a healthy meal every night. Parties like HelloFresh, Matthijs Maaltijdbox and Marley Spoon anticipate to this. The daily search in the supermarket has become a pastime and families get the chance to enjoy a healthy diet full of variety.

A subscription is often successful for one of the reasons below (or both):

  1. it offers convenience;
  2. it gives pleasure.

If one of these two ingredients is not there, a subscription has no added value for the consumer. But what effect do these subscription models have on the consumer's fixed costs?

Convenience: just the shopping list

Besides our weekly errands, there are multiple products that we purchase on a regular basis; shampoo, toothpaste, shower gel and washing detergent, for example. Why wouldn't a subscription for all these categories be interesting? We have to pay for these products anyway, so they don't really increase our fixed costs. Even better, a subscription would provide more insight in our exact costs for these products.

I visit a local pharmacy once every three months. I purchase the products that I need in a way that I only have to go back every three months. When I walk through the shop, I come across a nice incentive. My favourite perfume is on a discount, so I purchase that as well!

A physical store wants to tempt you to spend more money by means of incentives. The chance is big that you get home with more products than you intended to buy in the first place. In other words: you would spend less money when you would have a subscription for the products you need.

Pleasure: enjoy luxury

Not every form of subscription is made for convenience. Some forms of subscriptions are made for pleasure. An example is the beer or wine subscription: a box of unique beer or wine bottles every month, specially selected for you. The so-called curated subscriptions, at which you receive a box full of surprises every month, is also part of this category.

In the United States, the category focused on pleasure is just as big as the convenience subscription category. Consumers allow themselves pleasure and leisure, and look forward to their monthly gift. Every package is true joy to receive and unpack.

Convenience vs. pleasure

Every form of subscription has advantages. The important thing is to decide what ingredient suits your product assortment. After all, not every assortment is suitable for a subscription.

The ingredient convenience is often applied to consumption products, but also to service subscriptions. You could think of a subscription focused on SEO services, for example; taking the customer's worries away - companies or consumers - is at the central point of attention.

The ingredient pleasure is more applied to 'fun' products. Whether or not a product is fun depends on the consumer, of course, and is quite personal. A pleasure subscription therefore applies to a very limited target group. Is your assortment made for this form of subscription? Then you have to make sure you keep surprising your subscribers. You lose the customer when your deliveries become predictable.

According to the CBS, 71 percent of the Dutch inhabitants purchase online. That is more than 10 million Dutch people. No concrete numbers on the number of online buyers in our country that have an online subscription are available yet.

We do have these numbers for the United States: 30 percent of the online buyers has an online subscription focused on convenience. In our case, this would be 3 million Dutch people with an online subscription.

Although these numbers are no reality in our case, they are sufficient reason to consider a subscription model. And then we haven't even considered the 20 percent of online buyers with an online subscription just for pleasure yet.

Own responsibility

Let's talk about the reason we discussed in the introduction again, being that subscriptions would increase the consumers' fixed costs. Subscription models focused on pleasure generally lead to an increase of the consumers' fixed costs, while convenience subscriptions replace other costs so the consumers' fixed costs remain the same or even drop.

Every consumer makes its own decisions regarding the subscriptions he/she wants. This means that consumers have their own responsibility and have to consider the effect that the fixed costs and the impact the subscription will have.

The rules

You can't prevent consumers from subscribing when they don't have the financial space for it. How do you deal with that?

A first step is setting up internal rules regarding subscriptions. How many terms can be unpaid? When do you block a subscription and when do you stop your deliveries? Always make sure that your customers don't incur unnecessary costs by taking wise decisions for your company and the consumer.

Furthermore, you can offer the consumer all flexibility that belongs to a subscription model. Does the consumer have enough in stock? Can they pause their subscription then? And when the consumer's subscription is too expensive, will they get the possibility to change it? Can the consumer cancel the subscription when it is no longer needed? Trickery is a pastime when it concerns the current subscription models.

Conclusion

The subscription model is popular because the consumer needs convenience. The subscription models focused on this point of view won't easily increase the fixed costs because they replace the other costs.

A subscription model focused on pleasure can increase the fixed costs though. These subscription models are often a conscious and well-considered choice.

Make sure your subscription model is organized in a way to provide the consumer convenience or pleasure. The subscription model shouldn't function as reason to keep your customers in a way that they end up with problems. A subscription model is only interesting when it offers the consumer significant advantages.


Jessica Hoogsteen has been active as a Product Manager for the e-commerce and credit management industry since 2013. With a great passion for subscription commerce, is Jessica a fine sparring partner and creative person with the goal of making subscription models accesible for everyone!