Leveraging Subscriptions to Recession-Proof Your eCommerce Shop

With a recession looming, we're discussing how implementing subscriptions can act as strong protection for eCommerce brands during uncertain economic times.

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    With a looming recession, over 70% of businesses are preparing for an economic downturn this year by shifting their growth strategies, pricing, and more to remain competitive in the market. One huge opportunity is investing in retention by strengthening customer loyalty through subscriptions–a win-win for both brands and consumers. Returning customers, on average, are more likely to spend more money, refer friends, and try new products, making them 22 times more valuable than non-loyal customers. Here’s how leveraging subscriptions with your most valuable customers helps recession-proof your eCommerce store

    Appeal to price-conscious consumers with flexibility

    In today’s economy, consumers are becoming savvier and are looking for ways to save money–and there’s no better tool for the savvy consumer than a flexible subscription program. Subscriptions make it easier for price-conscious consumers to budget consistently for their necessities and must-haves while getting more product for their money with subscriber discounts. With inflation, many brands are framing subscriptions as the best way for consumers to cut costs, some even locking in subscription pricing, whether that be for the year or some even forever, to entice consumers to subscribe. 

    Subscriptions appeal especially to price-conscious consumers who are looking for that added convenience, so as a best practice, brands are offering free shipping and exclusive discounts on subscriptions to attract customers. Commonly, customers will opt-in for subscriptions if they feel like they are getting a valuable deal and can adapt the program to their changing needs, making it crucial to offer a high level of flexibility. 

    Consumers do not want to feel locked into their purchases, and instead appreciate the ability to adapt and manage subscriptions as they see fit, even scaling back if need be to ride the waves of a recession. Building trust with your subscribers by allowing them to change the quantity and frequency of their subscriptions decreases the probability of losing them just because they needed fewer products during a certain month. With a program moldable to each consumer’s specific lifestyle, consumers are less likely to unsubscribe altogether and can instead skip a month or pause their subscription, ultimately reducing churn rates. Focusing on delivering a superior customer experience and giving consumers the ability to decrease their spending when needed will help retain them in the long run and increase customer lifetime value (CLTV).

    Further reward these customers for their loyalty the longer that they are subscribed by offering tiered discounts. Tiered discounts incentivize subscribers to stay engaged and purchase more, reinforcing the value of the subscription program and boosting lifetime value to a greater extent. 

    Lean in on customer loyalty 

    During a recession, or any time for that matter, your most valuable customer is the one you already have. Returning customers spend, on average, 67% more than new customers. Subscribers are the most loyal, and more likely to stick around during hard times, so treat them as such and reap the long-term benefits of retention. Plus, the more they purchase, the more insight you gain into your customers, allowing you to continuously improve the customer experience through personalization–and 71% of consumers are expecting companies to deliver more personalized interactions.

    Give your customers a reason to come back and incentivize them to stay longer with exclusive discounts, special promotions, subscriber-only gifts, and early access to products, all directly in the customer account portal. Customers truly appreciate being rewarded for their commitment to a brand and resonate with feelings of exclusivity, so show them that you appreciate their loyalty with these incentives. For example, subscribers are 50% more likely to try new products compared to new customers, so when launching a new product, delight subscribers with early access and allow them to share their feedback! Or, after a certain amount of orders, surprise subscribers with an exclusive gift with their next order or a special discount code. 

    Use your subscriber’s loyalty to incentivize them not only to continue coming back to your brand, but also to spread the word about your brand. People want to support their loved ones during tough times, like a recession, making it a great time to leverage gifting orders. Make it easy for customers to treat their loved ones with a frictionless gifting option to allow customers to gift a one-time order or even a finite subscription plan. This is also a solid way to boost brand awareness in a more cost-effective way and flip your marketing funnel, as studies show that 82% of people who were gifted a subscription box ended up also subscribing

    Focus on retention over acquisition 

    Customer acquisition costs (CAC) are through the roof, skyrocketing 222% from 2013 to 2022, and will not be sustainable should the economy fall on harder times. During this time frame, repeat sales have risen by 36%, meaning that customers are coming back to buy more from their favorite brands. Loyalty increases a customer’s worth by 22 times, and loyal customers are also more likely to make purchases, with the probability of a sale for a returning customer at 60 to 70% (versus 5 to 20% for a new customer), making it crucial to prioritize your current customers.

    Strategies that drive repeat purchases and customer retention are more cost-effective than acquisition strategies, and investing in your most loyal customers pays off in many different ways–from increasing average order value (AOV) to flipping your marketing funnel. There are countless opportunities to increase AOV through subscriptions, especially because as you build trust with your subscribers, the more connected they feel to your brand and community. For example, offering upsells tailored to subscribers’ previous purchases directly where they manage their upcoming orders both personalizes the customer experience and increases AOV. Additionally, simplifying the gifting experience to make it quick and seamless for subscribers increases brand awareness and flips your marketing funnel.

    In addition to flipping your marketing funnel through gifting opportunities, also turn toward your most engaged customers with a referral option. Customers who make purchases based on referrals from their friends and family have a 16% higher lifetime value and 37% higher retention rates, so turn subscribers into micro-influencers with referrals directly in the customer account portal. Reward customers for being brand advocates with a subscription-led loyalty program that allows subscribers to exercise their credits on discounts on their next order, complimentary products, and more. With 76% of consumers saying that loyalty programs strengthen their relationship with a brand, causing them to spend 67% more, this is a great way to further boost retention.

    Find security in the business model

    Subscriptions strengthen your business as a whole with dependable recurring revenue. This recurring revenue provides businesses with higher levels of predictability, allowing for more accurate inventory planning and sales forecasting. Businesses can use data on their active subscribers, average order value, and previous churn rates in order to predict upcoming sales more accurately and forecast trends to help with long-term strategy and decision-making. 

    From an investor’s perspective, subscriptions are also a strong selling point. During hard times, you may be considering seeking a round of funding, and having a steady stream of income will go a long way in conversations with potential investors. In Shopify’s latest commerce trends report, TSG Consumer Partners is specifically focusing on investing in “businesses that are recession-proof, companies with revenue through subscriptions or memberships that are serving the customer’s need to make their lives easier.” 

    There are many different subscription models out there, so be sure to strategically implement subscriptions that are the most conducive to your end-consumer and how they intend to use your product. For example, brands like Jolie are implementing a sequential subscription model, where the one-time purchase of a showerhead triggers a filter replacement subscription at a 3-month cadence. Not only does this ensure that subscribers never forget to change their filter, but it also helps retain them longer–Jolie has seen less than 1% churn because of it!

    As a whole, direct-to-consumer channels have better margins than other channels. DTC allows brands to have full control over the entire customer experience, and achieve higher profits per item sold while capturing more data from its customers than in other channels. 

    Overall, subscriptions are an excellent tool for recession-proofing your business. They offer savings and flexibility for consumers, incentivize loyalty, increase customer lifetime value, and provide a dependable recurring revenue stream for merchants. In a time of economic uncertainty, subscriptions are a smart investment for both consumers and businesses alike.