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09 December 2022

Subscription business model: is it the future for fashion?

Can the subscription business model provide consumers with what they want?

It seems that every day a new start-up is announcing a subscription-based business model. But what exactly is this type of business, and is it right for your company? Subscription models have been around for centuries, but they have really taken off in recent years. There are pros and cons to using this type of revenue stream, so let's take a closer look.

What is a subscription business model?

A subscription business model is one in which customers pay a recurring fee for access to a product or service. And that’s the key thing to remember: most of the time customers are paying for access, not ownership.

There are different types of subscription models:

  • Access to content: This could be a magazine, a website, a streaming service, an app, a video game and so on. Customers pay a monthly or annual fee for access to the content.
  • Access to service: This type of subscription gives customers access to a service, often with some kind of physical product included. For example, a customer might pay a monthly fee for a laundry service that includes pick-up and delivery.
  • Access to a product: This type of subscription provides customers with a physical product on a regular basis. Subscription boxes are the typical example: this is a fairly new type of subscription model in which customers pay a monthly fee to receive a box of curated products. This could be anything from makeup to clothes to books.
  • Product rental: This is where customers rent products instead of buying them outright. For example, they might pay a monthly fee to rent a designer handbag or a piece of exercise equipment.

Who uses subscription models?

There are a number of different industries that use subscription models, including:

  • Media: Newspapers, magazines, and online content providers often use subscriptions.
  • Service providers: Subscription models are also used by a number of service providers, such as gyms, spas, and even dating websites.
  • Software: Apps and other software programs often use subscription models, especially if they offer a free trial period. They are common in the software-as-a-service industry (SaaS). Another examples are online gaming platforms, such as World of Warcraft, which allows players to subscribe to the game on a monthly basis.
  • Retail: Products like clothing, jewellery, and handbags can be rented on a monthly basis.
  • Artisans and artists: Subscription boxes are popular among artisans, such as jewellery makers, potters, and woodworkers.

What are the pros and cons of using a subscription business model?

There are both pros and cons to using a subscription business model. Let's take a look.

PROS:

- Subscriptions can provide a steadier stream of revenue than other models, such as one-time purchases. This predictability can be helpful when planning for things like marketing and product development. Moreover, they can be scaled up or down easily as your business grows.

- Subscriptions can help you build customer loyalty, customer retention and customer engagement. In fact, they have a high level of personalisation: you can offer different levels with different perks, or allow customers to subscribe for just one month at a time. If customers are happy with the service, they are more likely to stay subscribed, which leads to long-term relationship.

CONS:

- It can be difficult to acquire new customers, as they have to be convinced to sign up for the service and keep paying month after month. This can be a challenge if there is a lot of competition in the market.

- The churn rate could be high. There is always the risk that customers will cancel their subscriptions, which can lead to fluctuations in revenue.

- It can be difficult to change pricing without losing customers. This means that companies need to be careful about how they pricing strategies.

One thing to remember is that the subscription business model needs the same care as other business models. The customer experience is fundamental, for this reason brands must invest in customer service, they must be present on social media, find their own pricing model and check the fundamental key metrics to find out what works and what doesn't.

Pros and Cons of a sustainable business model

Pros and cons graphic list

Is the subscription business model suitable for fashion?

In many ways, yes. A lot of the same advantages and disadvantages apply to fashion brands as any other type of subscription business.

There are a few different ways that fashion brands can take advantage of this business model:

  1. Subscription boxes: This is where customers pay a regular fee to receive a box of curated products. This could be anything from clothes to accessories. The content of the boxes can be the same for all subscribers or customised. An example is Hermès Tie Society, which delivers to subscribers new ties every month.
    An interesting element of subscription boxes is that they could be a great way to enhance past collections rather than dispose of them, or used garments, giving the brand greater presence on the second-hand market of its products. this is excellent in terms of sustainability and also in the fight against counterfeiting.
  2. Product rental: In this case customers rent products instead of buying them outright. They might pay a monthly fee to rent a designer handbag. An example is The Lauren Look by Ralph Lauren, which allows subscribers to “rent, try, keep for a while, or buy and have forever” the latest.
    As with the subscription boxes, this form of subscription business model is also in line with sustainability and circular fashion.
  3. Personal styling: Many customers might be willing to pay a fee to have a personal stylist -even online- help them choose clothes and accessorise their wardrobe.
  4. Accessory services: fashion brands can offer garment repair and customisation services.
  5. Loyalty programs: This is where customers pay the fee to join a loyalty program to receive loyalty points that can be redeemed for discounts or free products. They could also have access to a VIP section of the brand’s website, where they can get exclusive content.
  6. Subscription-based shopping: Similar to the previous one, in this case customers pay to have access to exclusive sales, early access to new products, VIP perks, and free shipping.

So, is this the future of fashion?

Today's consumers value sustainability and personalisation of exclusive products at an affordable price. In addition, the experience of the pandemic has accustomed them to receiving all kinds of products directly at home.

The subscription business models respond to new needs and new habits. In fact, even McKinsey reported that 15% of online consumers have signed up for at least one subscription service to receive products from brands on a recurring basis. Fashion is not excluded.

However, which of the options we saw above will work best for your fashion brand will depend on a number of factors, such as your target audience, your product, and your current business model.

If you're not sure where to start, it's a good idea to experiment with a few different options to see what works best for you. For example, you could start with a freemium model, or if a monthly subscription is too demanding, consider a quarterly subscription.

There is no one-size-fits-all approach, but the key element is that your customers must see enough value in the product or service you offer to justify the recurring payments.