Why direct-to-consumer (DTC) subscriptions are thriving
Dec 3 2020
Direct to consumer brands are nothing new, but with the rise of e-commerce businesses and online shops, DTC subscriptions have never been easier to fulfill. In recent years, the subscription box model has become popular among direct-to-consumer brands. Pioneered by companies such as Blue Apron meal kits, Dollar Shave Club, and Fix personal styling, subscriptions are now a fast-growing strategy in e-commerce.
In 2019, the Subscription Trade Association (SUBTA) released the Subscription Commerce Economy report. Data from the report indicates that the subscription commerce economy will experience a compound annual growth rate of 17.33% over a five-year period.
From startups to large corporations, many businesses are embracing DTC subscription models. This is because they allow them to have long-term relationships with their customers. Consumers, too, have found value in the subscription model as it offers them value and cheaper prices.
It's much easier for brands to connect directly with the end-user of their products in the digital era. This, along with users' increasing desire to purchase directly from manufacturers, is the spark triggering the subscription service sector's astronomical growth.
Subscription model of e-commerce grew by more than 100% between 2013 and 2018
According to a Mckinsey report, subscription services grew by more than double between 2013 and 2018. In the process, retailers benefited with an increase in sales. In 2016, the largest retailers using the direct-to consumer subscription model generated revenues exceeding $2.6 billion. Comparatively, the same brands only managed highs of $57 million in 2011.
This sector's fast growth is expected to carry on for at least the next decade, signifying the value that d2c subscriptions offer.
55% of consumers prefer buying directly from a brand as opposed to retailers
To capitalize on this, DTC brands must offer unique and engaging digital experiences. Nonetheless, touching and feeling products is still crucial. Therefore, an excellent in-store experience is just as important.
The billing management market will be worth $10.5 billion by 2025
How DTC subscriptions differ from general subscriptions
As the DTC subscription becomes more popular, it's differences with general subscriptions become more evident. Here's how they differ:
Manufacturers have the ability become subscription retailers
In most industries, the role of manufacturers is often at the periphery. They make the products and distribute them to retailers who then interact with consumers. This, however, is changing. Manufacturers have become more connected with consumers, who also desire to purchase products from the source. This now gives manufacturers an excellent window to add subscription retail in their catalog of products and services.
Policies can be more flexible
In a bid to assure consumers and retailers of the quality of products, manufacturers often put in place return policies, money-back guarantees, as well as cancellation procedures. However, since there are many players between the manufacturer and consumer, the risks are significantly higher. As a result, such policies are usually strict and rigid.
By working directly with consumers, manufacturers have more control over their products, and the risks are lower. This affords them the luxury of being flexible with policies.
Can SaaS be direct to consumer?
Software as a Service (SaaS) is a delivery model where customers access a centrally hosted software through a subscription plan. In most cases, SaaS companies are white-label as they lease software produced by other companies and rebrand it as their own.
Even if that's the case, SaaS brands can also employ the b2c model, which is likely already happening.
You may be using a DTC subscription brand without realizing
The DTC subscription model has gained popularity in a relatively short amount of time. In the process, many businesses have adopted. As such, there are high chances that you may be using a direct-to-consumer subscription brand without knowing it. Some of the DTC brand you may be using without knowing include:
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Dollar Shave Club
When it comes to DTC subscription model success, the Dollar Shave Club is an ideal benchmark for most organizations. The brand was propelled to success courtesy of a simple one minute and 33-second video showcasing their razors. Within the first two days, the video had garnered 4.75 million views, with 12,000 people subscribing to get their razors.
Instead of using the traditional retail channel to get to customers via stores, they opted for the DTC service model.
Shopping for eyeglasses can be a hassle. This is exactly what Warby Parker set out to do from the word go. Instead of customers going out to shop for eyeglasses, Warby Parker sends them multiple suitable options to choose from, in the convenience of their homes.
Their simple solution, coupled with creative marketing ideas, has seen the brand gain customers in thousands.
Buying a mattress may seem like an easy task but wait until you hear all about the things you need to consider. Even before you get to the price, you should know whether you need a soft, semi-firm, or firm mattress. Other considerations include size and whether you want gel, memory foam, or a hybrid.
This process can be long and tedious, which is why Casper, a mattress company that relies on non-traditional marketing methods, has become a popular choice for buyers. Instead of going toe- to-toe with the sector's big boys, Casper elected to target a millennial audience in urban areas. For their marketing, they used social media influencers such as Kylie Jenner, which helped double their sales.
Your furry little canine friend may be a full-fledged member of your family, but taking care of them can be challenging at times. This is especially so when it comes to buying pet food, treats, and toys. BarkBox is an innovative company that addressed this challenge by adopting a DTC subscription model.
Through their subscription service, customers have pet products and services delivered right to their doorstep. Each month, a pre-packed assortment of dog food and treats are sent to the customers.
5 benefits of choosing a DTC subscription model
If executed well, a direct-to-consumer subscription model can yield astonishing results. A perfect example of this is Amazon. Before the launch of its Prime Subscription Program in 2005, the company was struggling against online retailers such as eBay.
Some of the advantages of a DTC subscription model include:
One of the primary benefits of the DTC model is that there are no markups as there are no middlemen involved. This means that goods can reach consumers at more affordable prices, making it a win-win situation.
As a manufacturer, you have a responsibility to your consumers to ensure that goods are high quality, accessible, and are delivered on time. Such factors were hard to control with the traditional model as goods are handled with several parties before reaching the end-user.
Wider array of pricing
When products are distributed through retailers and other third parties, manufacturers are forced to sell at low prices to ensure goods reach the market at competitive prices. A DTC approach eliminates markups, allowing you to charge more per product without passing on the burden to consumers.
With a direct-to-consumer model, you can eliminate such unpredictability with your income. Not unless your churn rate is high, it will be easy to project income as you know the number of active clients you have. From this information, it will also be easier to make accurate growth plans.
Increased customer lifetime value
Customers who make a one-off purchase are great, but they're not dependable in the long run. The best way to build a stable and scalable business is by creating a pool of loyal customers. Adopting the subscription model allows you to create long-term relationships with customers, maximizing their lifetime value for your company.
However, for you to capitalize on such relationships, they must be based on trust and reliability, which then becomes loyalty.
Growing your DTC subscription with confidence
There are a lot of benefits that come with a direct-to-consumer subscription model. However, they are not automatic. All your efforts must be driven by strategy and insight. This is where ProfitWell comes in. We give businesses access to the right metrics to help guide their pricing and overall strategy. Get started with ProfitWell Metrics—for free—to ensure your DTC model is driven by reliable data.
By Danette Acosta
Editorial Lead at ProfitWell, helping ProfitWell take its content to the next level. When she's not busy creating dope content, you can listen to her on the radio.