t3n 05/16/2022, 09:05 am • 4 min reading time
The subscription economy is booming. According to a study by Juniper Research, the market for subscriptions to physical goods will grow to almost $263 billion by 2025. Why it’s worth taking a look and how you, as a retailer, can calculate the whole thing correctly.
Whether fresh fruit and vegetables, clothing, cars, pet food or cosmetics: everyday items are increasingly being offered in a practical subscription model. For customers, this has one advantage above all: one less to-do on the list, which in turn means less stress and more time in everyday life. A provider such as Hellofresh, for example, offers consumers the opportunity to cook fresh and delicious food with its meal kits – without having to look through recipes and go shopping yourself.
For companies, in turn, subscription customers mean recurring payments and thus more stable cash flows, higher customer loyalty, and better upselling opportunities. However, what is absolutely necessary for this is an uncomplicated billing option. But before that, the question arises as to which products and business models allow a subscription at all.
When Is a Subscription Model Suitable For My Company?
Subscription models are interesting for all companies that offer high-value products with a high resale or usage value – i.e., for example, FMCG (fast moving consumer goods) such as food or cosmetics, but also more expensive products on a rental basis, such as car or bike sharing. This is because it often involves products that may not be affordable for all customers at first glance. Introducing a subscription model can make your product more accessible to the market and at the same time reach a much broader target group.
In practice, there are hardly any limits to the product selection, because there is already a range of services in the digital area that are offered in the subscription model. The advantages mentioned above are the same here as well.
How Has Subscription Behavior Changed?
As a retailer, it pays to consider the subscription economy in the long term, because this is precisely where the purchasing behavior of future target groups is headed. Generation Y and Z and their purchasing behavior in particular fit perfectly into the world of subscriptions: instead of having to commit to one product in the long term, a subscription offers significantly more flexibility, which is of immense value, especially in the current on-demand generation.
Of particular interest to retailers: subscription models can result in up to 20 percent higher shopping baskets and a three times higher re-purchasing rate. By the way, subscription is already one of the top 3 payment methods for retailers who already use subscription models.
Are Subscription Models as Flexible as the Needs of Customers?
The short answer: Yes! For example, subscription models are great for combining with other services that you can also include in a monthly price. For example, consumers often had to take care of their own insurance for larger purchases or technical equipment – with a subscription, you can compress such additional services directly into an attractive offer that can also set you apart from the competition.
The option of pausing the subscription also offers customers attractive flexibility. Particularly in the digital sector, for example in streaming, companies offer their users the option of suspending their subscription for a few months. This keeps the cancellation rate down and ensures higher satisfaction.
A Sticking Point: the Billing of Recurring Payments
An important cornerstone for companies that already offer or want to offer subscription models is controlling – because the more agile they react to market and customer needs, the more flexible the management of cash flows has to be. For example, is the subscription time-based or usage-based? How are paused subscriptions handled? Are there differences between annual memberships and models that can be canceled monthly?
The requirements are demanding. Retailers are therefore often well advised to turn to a professional partner when it comes to controlling.
When Is a Payment Service Provider and Recurring Billing Provider Required?
A recurring billing provider offers a billing and administration system that can be used to automate all the necessary work steps for the administration of subscriptions, the so-called subscription handling. These providers specialize in subscription models, can assist merchants with expertise and operational workload reduction, and are often linked to a payment service provider.
A payment service provider (PSP) takes care of all aspects of payment transactions – whether individual purchases or subscriptions is irrelevant. PSPs provide the technical infrastructure for the many relevant payment methods on the market, such as SEPA direct debit, credit card payments, Paypal or purchase on account. The advantage for merchants is that customers have more security and payment options when shopping online, which will ultimately increase the number of orders.
Subscription Management: nexnet.cloud Subscription Billing
The subscription billing of nexnet.cloud is equally suitable for simple billing models as well as for more complex subscription models and offers everything that merchants need for a fast, secure and convenient start into the subscription economy. The all-in-one solution can be easily adapted to the individual wishes and requirements of a wide variety of business models, is flexible and scalable and GDPR-compliant.
For demanding, larger merchants, nexnet’s enterprise product also offers all the features of a full-service provider and can draw on 20 years of market experience as a billing service provider.
The nexnet.cloud for All Things Subscription
The subscription economy is complex; it’s about much more than just billing fixed monthly contributions. A specialized partner is needed to implement the extensive tariff models of the most diverse business models – from tariff changes to pausing to consumption-based or usage-based calculations.
The nexnet.cloud offers merchants a flexible and professional solution to save time and money when billing subscriptions. Still uncertain? Companies can try out the nexnet.cloud test environment free of charge and permanently – with the full range of services.
Discover the nexnet.cloud now.
