The Harsh Truth Behind Retail’s Subscription Obsession
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Subscription programs are everywhere. From entertainment and groceries, to fashion, wellbeing, education, and certainly in retail.
Amazon Prime boasts approximately 150 million subscribers and Costco has 128 million. Walmart+ hovers around 25 million and could bring in an extra $160 billion in revenue by 2027 if it maintains its current growth. And Target has entered the fray with its new Target Circle 360, confirming that subscriptions continue to be a compelling business model.
Target, however, joins a long list of subscription providers. They're so prevalent that the average American has 4.5 subscriptions. But managing each one can be cumbersome. There’s even a term for it: subscription fatigue, and it’s contributing to the fact that a quarter of U.S. consumers have canceled three or more subscription programs over the past two years.
While retailers may be considering whether to follow in the footsteps of the industry giants, many businesses are seeing a general decline in subscription-based revenue flow.
The Subscription Landscape for Most Retailers
Operationally, subscription programs are great for retailers. They provide consistent monthly recurring revenue (MRR) while also steadily growing average order value (AOV) and customer lifetime value (LTV). Shoppers benefit, too. They get more value for their dollar and there are often perks that come from “opting in,” such as access to exclusive products and faster delivery options.
However, Target’s Circle 360 compounds the strain on most retailers. With Amazon, Walmart, and now Target going to market with these programs, it’s clear that the model works. However, it’s also likely that the “Big 3” will take up the majority of market share, with most retailers struggling to compete.
The retail industry already faces significant pressure. Retailers just beginning their subscription journey may consider how they can differentiate their model, leveraging their unique customer expectations and business needs rather than trying to directly compete with the top players.
Standing Out With the Right Subscription Model
Retailers that cut through the noise with uniquely differentiated programs stand out the most. Key subscription focuses include:
- Boosting demand for specific products. Sephora’s Beauty Insider does this well, with members accumulating points through purchases to unlock various benefits such as birthday gifts and personalized product recommendations — effectively incentivizing customers to join and remain loyal to the program.
- Creating unique experiences to maintain loyalty by giving customers access to items and services that aren’t available to the general market. For example, providing early, exclusive access to popular or limited products for members. Amazon employs this model through its Lightning Deals feature of Prime, where members get early access to limited-time discounts on popular products, often with smaller quantities available. This creates a sense of urgency and excitement for Prime members and encourages other shoppers to sign up.
- Providing shoppers with flexible delivery options, regardless of what they’re buying or when they’re buying it. The Walmart+ program offers members free unlimited delivery from stores, fuel discounts, and access to the Scan & Go feature in its stores, which ultimately provides convenience and flexibility for members.
Subscription programs aren’t going anywhere but retailers will start to diversify what these programs look like. As the extensive list of potential memberships continues to grow, retailers will only see benefits if they offer their customers something they really want.
It will be interesting to see how retailers continue to evolve and differentiate themselves from the competition. Leading retailers will use subscription programs to reinvent the last mile in their own way, managing to navigate around subscription fatigue and not getting overshadowed by retail giants.
Guy Bloch is the CEO at Bringg, a platform that helps companies scale up and optimize their customer experiences and logistics operations.
Related story: Building Trust on First-Class Delivery and Fulfillment in the Last Mile
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Guy Bloch is the CEO of Bringg, a platform that helps companies scale up and optimize their customer experiences and logistics operations.