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Choosing the right eCommerce subscription business model

May 2022

The subscription eCommerce model is convenient for consumers and helps retailers build more meaningful relationships. With recurring revenue retailers can achieve exponential growth when done right:

exponential growth for subscription ecommerce businesses.png

Rising customer acquisition costs (CAC) are increasingly forcing SME, mid-market and established large retailers to adopt a subscription business model. Subscription retail comes in several different shapes and sizes. Ensuring you adopt the most appropriate setup to suit your business is critical to giving you the best chance of achieving increased revenue, developing a more contextually-relevant customer journey and minimising your CAC.

Which are the most popular subscription business models?

According to Research by McKinsey titled 'Thinking inside the subscription box, the three most common types of subscription business models are Replenishment, Access and Curation:

different ecommerce subscription business models access curation and replenishment.png

While the majority of retailers adopt a single subscription model, some such as Huel deploy a hybrid setup in which they offer single, one-off purchases (traditional D2C eCommerce), a Replenishment subscription service and also curated ‘Bestseller Bundles’.

How does the Replenishment subscription model work?

Representing 32% of subscription retailers, with the Replenishment model, consumers can automate the purchase of commodity items so that they receive Replenishment deliveries regularly. This subscription model is best suited to retailers who deal with price-sensitive consumers, such as the food, nutrition, health and wellness categories. Examples include Lenstore, Graze and Dollar Shave Club.

How does the Curation subscription model work?

Representing 55% of subscription retailers, with the Curation model, subscribers receive a unique selection of items regularly, tailored to their personal needs and preferences. This model is popular for premium clothing, food and drink for less price-sensitive consumers with higher disposable incomes, who love to act on their impulses. Examples include personal shopping services such as The Chapar, Thread and Rent the Runway. Laithwaites adopt a hybrid subscription business model of Curation and Access, in which members pay a monthly fee to Access a carefully selected range of wines, that are curated by Laithwaites’ in-house wine experts.

How does the Access subscription model work?

Representing 13% of all subscription retailers, with the Access model subscribers pay a regular fee to obtain attractive member-only perks, such as exclusive discounts or early access to new products.

Popular in the fashion, apparel and food verticals, this approach appeals to consumers because it gives them the chance to be the first to Access new products, receive exclusive discount codes or be part of a VIP club.

One example of this is US-based arts, crafts and office supplies retailer Tombow. Their VIP Club allows their biggest fans to join an exclusive community, receive members-only deals and try their products before they're available anywhere else.

How do I know which subscription model is right for my business?

In McKinsey’s study of thousands of US shoppers they also found that different subscription business models had distinct impacts on consumer behaviour:

different consumer behaviours with the various ecommerce subscription business models.png

With Replenishment model businesses, consumers were more price-sensitive, whereas with Curation model retailers consumers were more incentivised by impulse purchases. Retailers adopting the Access model were more geared towards recommendations, due to the fact that the Access model, is often an exclusive, invite-only, limited run type of business.

Choosing the right subscription model for your business comes down to the following factors:

  • Identify your current most profitable and future ideal customers - By conducting RFV (recency, frequency, value) analysis of your customer base you will be able to identify key segments (deciles) to determine where there is the greatest customer lifetime value in terms of revenue, and more importantly, profit. Contrast this with your customer acquisition costs and you will begin to build a picture of which customers are the easiest to acquire and the most valuable over time.
  • Create customer personas - Once you have identified your ideal customer profiles, you can then survey them to determine their appetite for a subscription offering.
  • Analyse your product range - If you find that your key customer segments prioritise pricing and convenience then the Replenishment subscription model would be most appropriate. Whereas, if your product offering is a luxury item then your customers may prefer the Curation model. If your customers love giving you feedback, and being involved with the design of your product, then the Access model may be more appropriate.
  • Analyse your customer attribution - By tracking how your customers found you in the first place, you may find that lots of your customers were referred to your business by a friend. If you find that customers from this source are particularly profitable, it may be worth pursuing an Access subscription model.

Whistl helps subscription retailers with a variety of different business models

At Whistl we help subscription retailers in a wide variety of business sectors. Our services include subscription box fulfilment, contact centre services and eCommerce delivery solutions. Whether you adopt a Replenishment, Curation or Access model, Whistl has over 1.5 million sq ft of dedicated warehouse space ready to help you scale your operations.

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