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BizReport : Ecommerce archives : April 18, 2018

What the subscription economy means for marketers

Zuora's recent $100 million IPO filing raised new questions about the future of the subscription economy. Once considered a passing trend, such a robust offering indicates investors are confident subscriptions are here to stay. BizReport asked Jason Nyhus, VP of Global Marketing and Communications at ecommerce leader Digital River, to give his thoughts on the evolution of the subscription economy and what it means for brands entering the subscription landscape.

by Kristina Knight

Kristina: What is driving the subscription economy?

Jason Nyhus, VP of Global Marketing and Communications, Digital River: It really comes down to access over ownership. Modern consumers realize that when they buy products, they really only use them a fraction of the time. As a result, they now place increased value on access to products, rather than ownership. The subscription model caters to these new consumer values and gives them the flexibility and service they want from these relationships. Brands have been happy to offer this purchase method because it affords companies better forecasting and increased stability, putting the emphasis on retention rather than acquisition.

As for the question of why we're seeing the shift now, it's really a confluence of factors. Improved social and mobile connectivity capabilities have enabled subscriptions to flourish. Companies are leveraging data and stitching together new technologies that simply weren't available before. These factors, along with changing consumer demands, have all contributed to the rise of the subscription economy.

Kristina: What impact are subscriptions having for traditional retailers?

Jason: To put it simply, I believe that subscriptions are, or at least they have the potential to be, a thorn in the side of traditional retail. Consider what happened to the software and music aisles of major electronics retailers in the 1990s. Digital software distribution and iTunes wiped them out. Retailers fought back, choosing to compete on service and offering better warranty protection. But while they may still win a few battles, it's clear they lost the war.

For today's top brands, retail serves as a strong acquisition channel. And for the savviest brands, after acquisition, service runs completely through the subscription model. Retailers are right to be scared of subscriptions and those that fail to adapt will miss a vital opportunity.

Kristina: What can merchants do to counteract the subscription craze?

Jason: They can try to improve the customer experience and offer better service, but in the end, you can't stop progress. Brands must adapt to the market and allow customers to buy how and when they want. Those who are not able to make the turn will no doubt struggle against more innovative competitors. You read about companies regularly that are filing for bankruptcy because they've failed to react to changing consumer preferences.

Toys "R" Us is just one example. They had multiple missteps with their ecommerce, grew too slowly, didn't change the store environment, and neglected to make the most of their baby business. Had TRU innovated in its baby business with subscriptions, more white-glove services and other value-based offerings, maybe the big-box retailer's fate would have been different than it is today.

Kristina: Conversely, do you feel it's time for more merchants to get in on subscriptions?

Jason: I recently read some research by McKinsey that said, "The subscription ecommerce market has grown by more than 100 percent a year over the past five years." With growth like that, the short answer is a resounding yes! But the bigger point that brands need to recognize is that we are in the Age of the Customer. It's about giving customers the products they want when they want them, how they want them, and offering their preferred methods to pay for and access them. Brands and retailers are now playing by the customer's rules. Customers are going to pick the successful model. No matter what part of the value chain you're on, companies need to adapt their strategies for this dynamic.

So it doesn't really matter if you offer subscriptions specifically, what's important is that you adapt monetization models to cater to consumer demands. Brands that can adapt will thrive, while others will die.

Tags: DigitalRiver, ecommerce, retail trends, subscription box commerce, subscription commerce, subscription service trends

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