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Subscribing to a new way of shopping

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Subscribing to a new way of shopping

Subscription-based direct-to-consumer (D2C) startups promise to revolutionise the shopping experience through seamless doorstep delivery of products and services. While this offer of convenience, cost-savings and even customisation may appear to be a winning proposition, it still hasn’t found enough takers in India.

Not surprisingly, the sector is struggling to retain investor interest, with funding declining to $27.4 million in 2023 from $254 million in 2022, according to market intelligence platform Tracxn.

However, brands in categories that involve repeat purchases like food, beverages, and personal care products have been able to buck the trend, particularly those that have cultivated brand loyalty, as subscription-based models entail long-term commitments. 

In the last five years, 156 subscription-based startups were launched, with the segment pulling in $635.4-million funding; about $89.9 million has flowed in so far this year. Globally India ranks fifth in funding raised for D2C subscription-based startups. The funding raised so far in 2024 has pushed it up to second place.

Direct approach

Indian users are warming up to subscription commerce after the boom in over-the-top (OTT) or streaming media services. The hindrance so far has been the limited payment option for monthly auto-charging, since every transaction requires a one-time password (OTP).

Brands will need to offer flexibility in subscription timelines and the option of cancelling at any time to make it hassle-free for customers, industry executives point out.

Shashi Kumar, co-founder and CEO of dairy startup Akshayakalpa Organic, says, “We’ve faced challenges with implementing a subscription model, particularly for products other than milk. Milk, as a daily consumption product, naturally lends itself to high subscription rates and broad penetration across the country, but it’s not so with the other products.”

“To address this challenge, we focused on enhancing our app to provide greater flexibility in how consumers can subscribe to our products. They can tailor it to suit their needs and preferences, and receive the desired products exactly when they want them,” he adds. 

Industry insiders also point out that not all products lend themselves to a subscription model. For D2C subscriptions to succeed, businesses need to offer long-term value, good products, and strong brand experience, besides investments in the right technology. Categories must be inherently suitable for subscriptions, and the companies must choose the correct subscription model, such as a replenishment model, which offers flexibility without the need for a long-term commitment.

Ravi Ramachandran, co-founder and CEO of women wellness brand Nua, says, “Unlike traditional annual subscriptions, we introduced the ‘replenishment model’, allowing customers to get what they need when they need it, without long-term commitments. This flexibility and personalisation makes our subscription model successful.”

B2B’s leasing route

Business-to-consumer (B2C) and business-to-business (B2) leasing models have long been popular options in the purchase of fast-moving consumer goods (FMCG), but now electric vehicles (EVs), too, seem to be selling well through them. While outright purchase of EVs can be costly, leasing offers an attractive alternative, especially for businesses, with the promise of flexibility, lower upfront costs, and access to the latest technology without the burden of ownership. 

Commercial fleets largely run on a rental leasing model, but through an unorganised entity, explains Dev Arora, co-founder and CEO of Alt Mobility, a platform for EV leasing and lifecycle management. 

“There is certainly a category of users that prefers subscription-based options. The objective is to offer smarter financing — not plain vanilla loans. The next generation wants more flavour, flexibility, predictability, and control over decisions. If a company can provide all of this, users will be attracted to this value proposition,” he says. 

He, however, adds that the company uses a D2C model to lease EVs to corporates, for use by employees.

But since D2C marketing can prove costlier for most EV startups, given the need for advertising budgets to take on rival products, the B2B space proves more viable for subscription or rental models, ensuring sustainability and scalability for the venture, says Vishwajeet Singh, VP marketing, Zypp Electric, a startup that manages EV fleets for delivery firms and bike taxi operators.

“Most of our revenue comes from client businesses rather than delivery partners. For startups focusing solely on renting EVs to delivery partners, profitability and scalability are challenging. However, catering to businesses can be more profitable. ,” he says.

Investor-speak

The decrease in funding and new startups in the D2C subscription space hints at a move towards consolidating services into super-apps that offer everything in one place. The fatigue of managing subscriptions on different platforms is leading to a pushback from consumers.

Anirudh A Damani, managing partner, Artha Venture Fund, says, “Unless a startup offers something truly innovative and distinct, like aggregating subscriptions across platforms to enable selective content consumption, growth in the sector seems limited. Consumers are reluctant to adopt new subscriptions unless they significantly enhance convenience. The challenge lies in convincing users that a subscription is worth the cost and that it integrates seamlessly into their daily lives.”

Subscription models can be game-changing for a startup because they capitalise on habit formation. If a company can incentivise repeat transactions through subscriptions, it can eliminate customer acquisition costs and secure a steady income stream in the form of returning customers — a proven formula for sustained growth.

(With inputs from BL intern Vidushi Nautiyal)

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