Why Subscriptions are the Future of B2B

The subscription economy has taken commerce by storm. From music and television to beauty and groceries, consumers have grown comfortable with storing their credit cards on file to receive products and services from brands they love on a recurring basis.

But what about B2B companies? The B2B e-commerce market may be estimated to reach $6.7 trillion by 2020, but complexities inherent in B2B operations have hindered branded manufacturers and distributors from fully reaching that potential – and from innovating on the customer experience at the same strength as B2C brands.

Enter subscriptions, which have fueled success for Netflix, Spotify, BirchBox and Blue Apron. With the right investments in subscription models, it’s time for B2B companies to learn from leading B2C brands and secure customer loyalty for the long term.

Put Customer Loyalty First

B2C companies were the first to remodel around customer behavior, garnering repeat customers through subscriptions. Dollar Shave Club revitalized the grooming industry when they boldly set out to sell bargain razor subscriptions online at a monthly cadence. With their model, Dollar Shave beat Gillette in the game of brand love and ultimately sold for $1 billion to Unilever, the largest ever M&A deal for a privately-held e-commerce company. More recently, GM launched a subscription-based concierge service in which users pay a flat fee for on-demand access to Cadillacs, bringing a fresh luxury spin to the world of driving.

Can the subscription model bring the same kind of magic to B2B brands? B2B companies notoriously struggle to compete for brand love – in many ways, an industrial dishwasher just doesn’t have the same allure of the hottest new iPhone.

But sometimes, loyalty has nothing to do with brand love. Instead, it can simply come down to the pain of switching who we buy from. From accounts to authorizations, B2B buying is generally more complex than that of B2C. Once a customer has identified a merchant that knows their needs and makes a product that works, the prospect of vetting and switching is all the more overwhelming.

Subscriptions alleviate that anxiety by simplifying the customer experience. In a way, B2B purchases already resemble subscription models – customers usually buy products from branded manufacturers and distributors on a regular schedule and in bulk. B2B vendors have the opportunity to automate those repeat transactions, solidifying customer relationships to make them “sticky” over the long term.

Take, for example, energy management and industrial automation company Schneider Electric. Instead of the traditional model where one big sale is monetized and maintenance fees are thereafter charged as needed, the company tried a subscription billing system to automatically charge for management services on a monthly basis. This is the type of investment that not only streamlines the customer’s buying experience but also creates a recurring, more predictable, revenue model.

Others have similarly caught on, including companies that have both B2C and B2B customers and extend subscription services to both. I particularly love Graze, a subscription snack service that’s largely thought of as a B2C company but many businesses use to keep office snacks in supply – a B2B business component. This B2C-B2B crossover is a disruption to keep our eyes on. Once established, well-run subscription services will allow B2B brands to reach the same achievements as their B2C peers – loyal, repeat customers – by ensuring that the “pain” of leaving the vendor who knows and serves their business outweighs any urge to purchase elsewhere.

Invest Where it Counts

So why haven’t more B2B companies hopped on the subscription bandwagon? For legacy companies, making the leap can be costly – both financially and culturally. On the flip side, companies that rally around subscriptions from the beginning will establish a uniquely loyal customer base from the get-go. Marketing and advertising price tags add up quickly, often so high that it’s not until the second, third, or fourth purchase that any one customer even becomes profitable. But once a regular cadence of purchasing has been established, that customer relationship is built to last. In today’s cutthroat commerce landscape, customer loyalty is worth the upfront investment.

In the age of sky-high expectations, B2B companies feel the pressure as much as their B2C counterparts to innovate on customer experience. B2B leadership is ready to invest, but they haven’t all landed on where. Subscriptions are the strategic, pragmatic, forward-looking choice. Those that make this fruitful investment can turn one-off purchases into subscriptions that build customer loyalty and lifetime value for the long-term. It worked for B2C, now it’s B2B’s turn to step up to the plate.

Bob Moore is Head of Business Intelligence for Magento

Leave a Reply