Digitalization Requires New Business Models - Tips and Tricks to Offer Subscriptions in Your Shopify Shop

Digitalization is changing consumer behaviour as well as the way we buy. Whether it is music, films, clothing or razors, successful companies in these industries are convincing with new consumption models - rent rather than own. In addition to the well-known SaaS success stories, subscription models - when cleverly used - offer numerous advantages, including customer loyalty.

The sale of a subscription in the Shopify shop presents retailers/merchants with challenges. In particular European / German merchants. There are, however, interesting solutions and apps for Shopify. The aim of this article is to highlight the challenges and possible solutions for merchants.

Key Facts - Answers to new consumer models are in demand

Digitalization leads to new needs. A study conducted by the Economist in 2014 showed that 80% of those surveyed wanted new consumption models. The fact that subscriptions are booming also reveal our personal day to day life. We have numerous points of contact such as Amazon Prime, Netflix, etc., and we are also very pleased with the results. Zuora have compiled this information in a Subscription Economy Index. This shows that the revenues from subscription sales have increased eight times faster than the sales of companies in the S&P 500 (Source: Subscription Economy Index).

A look into the past shows that a clever combination of subscription models is also worthwhile for merchants with traditional products. For example, complementary products (coffee capsules for the coffee machine) can be sold as subscriptions or additional services can be sold for members (e.g. Amazon Prime, Kellersports Premium Membership), for which customers pay a monthly fee and in return receive access to special offers or better services.

Success Factors and Challenges for (Shopify) Merchants

There are many additional success factors to consider when selling subscriptions. In addition to optimizing the checkout, which is already part of the daily bricks and mortar business of many retailers, there are other points to consider when selling recurring services:

• The most important point is the offer of suitable payment methods. It is important to understand that many payment methods are not suitable for selling subscriptions. For recurring orders, it is therefore essential that the sale is made with a means of payment that enables debits to be made without the retailer being present. In addition to the possibility of recurring debits, it is just as important to match the payment type mix to the country of sale. In Germany, the majority of payments are made via direct debit, invoice or PayPal[1]. The annual EHI study provides an exact breakdown of the relevant payment methods.
• Furthermore, as a merchant you have to store the payment information securely. Here are numerous regulations to be observed when doing so. For your own peace of mind, it is advisable to store this data securely with your payment service provider.
• In addition to the signup and growth rate, as a merchant who sells 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 services. It is your duty as a merchant to convince the customer of the excellent service quality. With the right partner, you can also reduce customer loss on the technical side, which occurs due to technical problems, by dynamically adjusting the load cycles. Data shows that favorably re-try strategies can 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 point. The analysis of data shows, depending on the respective markets, that it makes sense to carry out so-called hopeful runs at the beginning of the month.
• In addition to the general challenges, there are other points that need to be considered in Shopify. By default, Shopify does not provide the ability to sell subscription products. For all Shopify Subscription Apps there is the restriction that the external gateway fees have to be paid (see Shopify Pricing). Furthermore, most of these apps replace the Shopify checkout and thus prevent the merchant’s applications / adaptations 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 will not be able to charge your customer's PayPal account without their login. This usually requires an in-depth review of your business model by PayPal.

Shopify Subscriptions Apps - A Comparison

As already mentioned, there are already a number of solutions that can be used to sell subscriptions in Shopify. Finally, we try to compile and compare a complete list as possible of all available products for subscriptions in Shopify.

Overview about the different Subscription apps

Bottom Line

Digitalization affects all areas of our lives and has a major impact on our consumer behavior. It may therefore be interesting for many merchants to take advantage of these trends and combine them with their existing offer. Shopify already offers a handful of interesting apps.

The comparison shows that there are a number of solutions for Shopify that are simple to integrate. Differences can be seen on the one hand in the technical integration. For example, most apps replace the Shopify Checkout completely and then automatically create the order via API. This has the disadvantage that existing applications and settings are not available in the Shopify Checkout. On the other hand, taking the time to compare the different solutions is particularly worthwhile, especially in regards to costs. As shown above, most providers charge a hefty percentage of additional fees, which are then 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 e-commerce and subscriptions. However, this also means that local payment methods such as direct debit or secured invoices are not offered here.