Considerations When Starting a Subscription E-commerce Service
Subscription based e-commerce is not new; Netflix has been doing it for more than a decade. What is new is subscription-based e-commerce in the Consumer Package Goods (CPG) industry. E-commerce in general is accelerating with CPG companies at a very rapid pace. Here are three companies that made news in 2017:
- Dollar Shave Club: acquired by Unilever (more on the online shaving industry later)
- The Honest Company: an online first model
- PetSmart: acquisition of Chewy.com, which sells more pet care products online than Amazon
E-commerce in CPG is growing at a rate of 30%, while contributing 35% of all CPG growth. Most of the big to midsize CPG companies are either already online or planning to be, given the compelling reasons for doing so:
- Adds a direct line of access to shoppers, which increases opportunities for personalization and better customer service
- Drives higher margins to manufacturers and passes on discounts to shoppers
- Improves the prediction of volume and demand in advance, and helps deliver steady cash flow
- Brings convenience to the shopper
An Example: Men’s Shaving Industry in the US
Let us look at the men’s shaving industry as an example. The men’s razor market in the U.S. in 2016 was USD$516 million, of which Gillette held more than 50% market share. However, Dollar Shave Club, a pure e-retail men’s grooming company, was challenging this dominance. Procter & Gamble, parent company to Gillette, reacted by launching its own subscription e-commerce service for delivering razors and blades directly to homes. This made other industry players sit up and take notice, including one of Mindtree’s clients, which is a competitor of Gillette.
Mindtree worked with this large razor and shaving products company to build and enable a subscription-based e-commerce platform in 2017. The client was playing catch-up and we had to build the site quickly. For this particular engagement, SAP Hybris was the platform of choice, and Mindtree was able to build and launch the site in six months. The company plans to do half a million shipments in 2018 through the subscription-enabled site and significantly improve its market share.
Consider These Key Elements When Building a Subscription E-commerce Site
Guided Selling: Build your site to be intuitive and easy to navigate for the shopper. The selections should be personalized and suggestive based on the shopper’s previous selections. With razors for example, we started by simply asking the shopper the number of blades needed on a razor, and then whether a handle was needed or only razor blades. Next, the color preference of the handle was determined, and finally, the subscription frequency and quantity.
Building a step-by-step process helps reduce cart abandonment and increases conversions. Make the checkout process smooth and allow for guest checkouts, multiple payment options and the gifting of subscriptions.
Subscription Fatigue: You sold the subscription and now you want the shopper to maintain it. However, fatigue can kick in for various reasons. For example, the shopper might not have used what was delivered in the last shipment; perhaps they are out of town during the delivery or maybe they just want a change in style. The site should allow skipping a shipment, delaying a shipment, or changing the shipment intervals from, for example, every month to every other month. This way you do not force any shopper to cancel the subscription.
Promotions: Before you launch your site, you should always determine the variants of promotion strategies the site must accommodate. For our clients using this platform, we often utilize the SAP Hybris’ built-in coupon engine to generate coupons and distribute them to shoppers through email or social media. We also introduced a referral and rewards program through integration of third-party services with the SAP Hybris platform.
Do Not Alienate Your Brick and Mortar Retailers: Even in this day of omni-channels, roughly 88% of all purchases occur in brick and mortar operations. For CPG companies, a relatively modest portion of revenues currently come through a direct online channel. You still want your retail partners on your side to push your products on the shelf. To demonstrate the commitment to large retail customers, our client introduced a “price spider” service that shows online shoppers the location of local stores (like Walmart and Target) that are also selling their products. This may lead to some cannibalization of sales, but it goes a long way in fostering retailer-supplier relationship sustainability.
Last Mile Delivery: This particular client used a third-party logistics (3PL) provider for warehousing, which in turn used FedEx as the carrier for last mile delivery. Do not underestimate the effort to integrate orders on your e-commerce platform with your internal enterprise resource planning (ERP) system and then with the warehouse management system of 3PLs. Typically, the 3PL system should connect to the carrier API for shipment building and label printing. Make this decision early in the implementation because integration issues, planned and otherwise, might affect the project timeline.
A/B Testing and Analytics: We built A/B testing into multiple places on the site to test combinations of images, promotions, and even the products that would be shown in the carousel on the homepage. These tests were tightly coupled with Google Analytics to provide a rich set of metrics that help brand managers make informed change-of-course decisions.
Mobile first: We built the site reactive, which worked on all devices. Always take a mobile-first approach when building your site and cater to page performance, space management, and form-factor sizes. Mobile is quickly becoming the predominant channel in many categories.
Third-Party Bolt-on Contracts: Build your business and system architecture early in the game. This includes finalizing the list of bolt-ons needed to run the site. Include a PoC (Proof of Concept) and test alignment with your business model. Negotiate and lock in the contracts as quickly as possible, enabling the supply chain, finance and IT teams to work with their vendor counterparts. Bolt-ons that are often required for a commerce site are:
- Payment gateway service
- Ratings and reviews
- Rewards and referrals
- Address verification
- Sales tax service
- Price spider service
- Web analytics tool
- A/B testing tool
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