Why the subscription model is a win-win for customers and ecommerce startups

Subscription businesses in India are growing exponentially. The market size for the subscription businesses in India was around Rs 1,200 crore in 2017-2018. The global subscription ecommerce market is expected to reach $478.2 billion by 2025.

But the business has changed.

Geetansh Bamania, Founder, Rentomojo, says, earlier subscription-based models were only for products like newspapers or milk. Over the years, subscription commerce has grown in India due to the fact that it is “a recurring revenue model where companies don’t have to continually acquire new customers”.

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He adds that Rentomojo grew by 6-7 percent in FY21 because of the recurring revenue and that most businesses these days are turning to subscription models as marketing cost is the biggest downer on their Profit and Loss (P&L).

“Rather than reacquiring the user multiple times, binding the consumer over a longer period improves the LTV (Life Time Value) and CAC (Customer Acquisition Cost) drastically,” Geetansh says.

Abhijeet Kumar, Co-founder, RainCan, feels, milk especially is a significant product as “this model points to an Indian way of buying milk”. However, the sector was very unorganised, which led the subscription-based service provider to try and organise it.

Popular Indian online grocery delivery service Bigbasket acquired RainCan in 2018 and rebranded them as BBDaily. BBDaily’s growth and reputation is quite high. Abhijeet says the “market is very huge” and that people have started subscribing to more products “such as tomato or coriander leaves”.

Most companies are trying to find more ways to lock customers so that their LTV goes up. During the pandemic, the CAC came down for the company as demand started getting rising.

“Even the elderly citizens are learning how to use the app to create and order from subscription-based brands,” he says.

“This whole subscription business is working very well.”

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Personalisation and other new hacks

Geetansh says that subscription models help to increase customer loyalty. The recurring nature of the business leads companies to give discounts in the form of cashbacks or so, which helps increase the repeat rate in terms of customers. This is why ecommerce companies are trying to incorporate a subscription model so that they can look at LTV over a period of 24 months or more.

“Consumers are coming back over and over again. It plays a huge part in reducing the marketing expense for an ecommerce company,” Geetansh says.

He adds that rental platform Rentomojo is a combination of lending, subscription, and ecommerce. The startup collects a huge amount of data from the customer, which they use to deliver a personalised outlook of products.

Abhijeet feels that in the subscription business, the customer takes “a conscious call” while subscribing. Trust is an important factor, the lifetime of the customer is high, and leakages are very low.

“Once you come into this model, it’s hard to shift,” Abhijeet says.

He adds that during the pandemic, their CAC hit rock bottom and the entire supply chain was disrupted, especially in cities like Pune or Mumbai. However, the company is looking into a lot of partnerships at the moment.

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The journey behind and the road ahead

Geetansh mentions that an ecommerce setup generates 1.5-1.7X the value compared to the customer acquisition cost. The LTV in the subscription business is 3-4X the marketing budget, which works out really well as marketing budgets are the primary reasons for the bleed of any company.

He says the first lockdown was the best period for Rentomojo as even though they couldn’t deliver due to operational restrictions, customers didn’t cancel subscriptions. Also, work from home products saw a huge demand as did bar cabinets.

Cities like Kolkata and Jaipur are performing very well as a result of the reverse migration caused by the pandemic. Rentomojo’s core focus right now is to “be in as many cities in India as possible”.

Abhijeet also says that the pandemic led to an uptake in demand for almost all products, especially the ready-to-eat segment and fruits and vegetables. The brand was recently launched in Patna, Indore, Kochi, and Lucknow.

“We see very good traction on the D2C variable and are growing very fast,” Abhijeet says.