The rise of the subscription economy and the future of e-commerce

Saran Talasila, Exactly Payment Specialist, unveils the rapid development of the subscription economy and its potential to reshape the retail landscape.

In the UK alone, e-commerce accounts for over 30% of total retail sales, with forecasts projecting a growth rate of over 9.49% across the next five years (Statista, 2024). This unprecedented growth trajectory has disrupted established retail practices and shifted consumer preferences.

With the increased use of smartphones and tablets facilitating access to online shopping outlets, it has now become industry standard for consumers to receive unparalleled discounts and a vast array of choices. The transition to mobile-first shopping has caused two major shifts in retail dynamics: customer loyalty has become increasingly elusive and the convenient introduction of various payment methods has drastically streamlined the transaction process. As mobile technology continues to advance, the ease of access to online shopping has accelerated, making it more convenient for consumers to make purchases at any time and from anywhere.

In fact, the proliferation of mobile commerce- m-commerce – has enabled ‘shop-on-the-go’ practices, compelling businesses to adapt their apps and websites for mobile use. As customers grow more accustomed to shopping online, brands are urged to revise their strategies to meet evolving demand.

Credit and debit cards, digital wallets and buy-now-pay-later services have effectively engulfed consumers in the purchasing ecosystem. Amidst a retail landscape filled with choices, the ease of payment processing has left shoppers vulnerable to impulsive purchases. There remains brand switching. Even with their card details saved on their preferred website or app, consumers are easily lured by competitive pricing, further being swamped by the array of options available.

The silver lining in all of this for consumers and businesses? The subscription economy.

The subscription solution; a sensible strategic response
In response to shifting customer preferences, businesses are turning to subscription business models to enhance customer satisfaction and maximise customer lifetime value (LTV). The solution offered by subscription models allows businesses to offer consistent access to products and services in exchange for a recurring payment, enabling enhanced customisation based on individual customer data. In fact, the subscription model brings a wealth of data to drive business decisions aligned with consumer behaviour and preferences, as well as insights gained from marketing campaigns.

The benefits of the subscription business model extend beyond data forecasting. A key feature of this approach is the predictability of revenue streams generated through direct debit transactions, fostering a clockwork system that consumers can terminate at their discretion. This system minimises missed and late payments and allows for advanced inventory forecasting; transactions are streamlined and cash flow is sustained. 

With 43% of consumers switching brands based on lower pricing (Statista, 2024), it’s crucial for businesses to focus their efforts on building lasting customer relationships. Switching to a subscription business model enables the creation of a community – a hub – to foster regular communication, personalised content and exclusive offers that transcend transactional interactions with consumers. The breadth of subscription programmes is vast; businesses can implement point-based initiatives to reward subscribers, effectively discouraging brand switching. Meanwhile, businesses are securing regular revenue streams, and are redirecting investments on retaining loyal customers. Subscriptions offer unparalleled convenience to customers; no more repeated transactions, it is all automated, and fits seamlessly into customers’ fast-paced lives.

The downside of subscriptions 
With the staggering amount of subscription options available, customers are becoming increasingly disenchanted. It is imperative for businesses to ensure their offerings are delivering substantial value to customers, upholding the ongoing subscription investments and resonating with subscribers.

Innovation and transparency should be at the forefront of business strategy. Providing consumers with a clear breakdown of the benefits embedded in the subscription – avoiding overreaching – attracts even the savvy customers that expect to understand the value of products and services. 

The future of retail: subscription models
As we look ahead, the advantage of combining e-commerce with personalised offerings from subscription data streams presents businesses with the opportunity to fully cater to the needs of today’s consumers. Loyalty is invaluable for businesses, and implementing a carefully devised subscription model is key to maintaining market salience.

As the retail landscape continues to evolve, embracing a subscription model and delivering genuine value will equip brands with a competitive edge. The future of retail is not just about transactions; it’s about the meaningful experiences and benefits that businesses ingrain within their service offerings, keeping customers engaged and loyal.

Saran Talasila, Exactly Payment Specialist

Stay informed
Our editor carefully curates two newsletters a week filled with up-to-date news, analysis and research, click here to subscribe to the FREE newsletter sent straight to your inbox and why not follow us on LinkedIn to receive the latest updates on our research and analysis.