Digitalisation requires new business models - tips and tricks to offer subscriptions in your Shopify shop
Digitalisation is changing consumer behaviour and thus also the way we buy. Whether in music, films, clothing or razors, successful companies in these industries are convincing, among other things, through new consumption models - renting instead of owning. In addition to the well-known SaaS success stories, subscription models - cleverly used - offer numerous advantages, including customer loyalty.
Selling a subscription in the Shopify shop poses challenges for merchants. Especially European/German merchants. There are interesting solutions and apps for Shopify. The aim of this article is to highlight the challenges for merchants and possible solutions.
Key Facts - Answers to new consumption models are needed
Digitalisation leads to new needs. A study by the Economist in 2014 showed that 80% of respondents want new consumption models. Our personal everyday life also shows us that subscriptions are booming: we have numerous points of contact, such as Amazon Prime, Netflix, etc. Zuora has also taken the trouble to map this in a Subscription Economy Index. This shows that revenues from subscription sales are growing eight times faster than the sales of the companies in the S&P 500(Subscription Economy Index).
A look at the past shows that a clever combination of subscription models is also worthwhile for retailers with traditional products. For example, complementary products (coffee capsules for coffee machines) can be sold as subscriptions, or certain additional services for members (e.g. Amazon Prime, Kellersports Premium Membership) can be sold, for which customers pay a monthly fee and in return receive access to special offers or better service.
Success factors and challenges for (Shopify) merchants
When selling subscriptions, there are numerous additional success factors to consider. In addition to optimising the checkout, which is already part of the daily bread and butter of many retailers, there are other points to consider when selling recurring services:
- The most important point is to offer suitable payment methods. It is important to understand that many payment methods are not suitable for the sale of subscriptions. For recurring orders, it is therefore crucial that the sale is made with a payment method that allows debitsto be made without the merchant being present. In addition to the possibility of recurring debits, it is of course just as important to adapt the payment method mix to the country of sale. In Germany, for example, the majority of payments are made by direct debit, invoice or PayPal1[1]. The annual EHI study provides a precise breakdown of the relevant payment methods.
- Furthermore, as a merchant you have to store the payment information securely. There are numerous regulations to be observed here. To avoid having to worry about this, it is advisable to store this data securely with your own payment service provider.
- In addition to the sign-up and growth rate, as a merchant selling subscriptions you also want to keep the churn rate as low as possible. The churn rate corresponds to the proportion of customers who leave your service again. As a merchant, you are obliged to convince the customer with excellent service quality. With the right partner, you can also reduce the loss of customers due to technical problems by dynamically adjusting the load cycles. The data shows that favourably selected carry strategies significantly reduce the loss of customers due to technical payment problems. In other words, it usually makes sense to retry failed customer transactions at a later date. Depending on the respective markets, the evaluation of data shows that it makes sense to carry out so-called hope runs in the middle/prospectively at the beginning of the month.
- In addition to the general challenges, there are other points in Shopify that need to be considered. By default, Shopify does not provide the option to sell subscription products. For all Shopify subscription apps, the restriction applies that the external gateway fees must be paid (see Shopify Pricing). Furthermore, most of these apps replace the Shopify checkout and thus prevent the merchant's applications/customisations from being used in the standard checkout.
[1] To sell subscriptions via PayPal, you as a merchant must have access to the Recurring API. Otherwise you cannot debit your customer's PayPal account without their login. This usually requires an in-depth review of your business model by PayPal.
Conclusion
Digitalisation touches all areas of our lives and has a major impact on our consumer behaviour, among other things.It can therefore be quite interesting for many retailers to use these trends sensibly and combine them with the existing range.Shopify already offers a handful of interesting apps for this.
The comparison shows that there are numerous solutions for Shopify that are easy to integrate. Most apps take the approach of completely replacing the Shopify Checkout and then automatically creating the order via API. This has the disadvantage that existing applications and settings are not available in the Shopify Checkout. A comparison is also worthwhile, especially with regard to the costs: most providers charge hefty additional percentage fees, which are added to the costs of the payment service provider. In addition, most providers are geared to the English and American markets, where consumers are already very advanced in the area of e-commerce and subscriptions. However, this also means that local payment methods such as direct debit or secured invoice are not offered here.
