Will D2C Uptick In India Promote Subscription Economy?
Subscription commerce is still at a nascent stage in India. However, in categories that require repeat purchases, there may soon be more eagerness among consumers to subscribe and save
A niche business model till two years ago, direct-to-consumer (D2C) is today the talk of the startup town in India. However, even today, unlike the American D2C market, subscription is not yet an appealing way to sell D2C brands in India.
Grocery subscription services for daily essentials such as milk, eggs, bread from the likes of Milkbasket as well subscription memberships from Bigbasket and Grofers have gained a lot of traction in the last few years especially from customers in tier I cities. However, a D2C subscription is still uncommon. Only a few brands such as Nua, Sleep Owl coffee, Let's Shave, The Whole Truth foods and few others, are experimenting with it yet even though subscription as a business model can generate recurring revenue for D2C brands.
In fact, the D2C model is often synonymous with the subscription model in the US. Many D2C brands have found success with subscription boxes as it helps consumers avoid multiple trips to the store for regular use products. For instance, Dollar Shave Club in the US delivers razors to its customers every month along with razor blades and toiletries, The Noble Brewer has partnered with small breweries to offer a beer subscription box and The Bouqs Co. offers subscriptions of bouquets and flowers for every occasion in a family.
Why is subscription commerce still at a nascent stage in India compared with the West and will it take off?
According to Sandeep Murthy, partner, Lightbox, a subscription-based approach works well in the US because a lot of payments happen on credit which isn’t necessarily the case in India. “Your daily milkman and newspaper delivery are common examples of informal ways of subscription that are not directly accounted for. India as a market is fragmented and combined with lack of infrastructure, distribution challenges, low GDP per capita and consumer awareness; these inefficiencies hinder D2C brands in India to garner a loyal subscriber base,” he said.
“India is just waking up to subscription commerce after the OTT boom. The hindrance so far has been limited payment options that can auto-charge every month in India since every transaction requires an OTP input,” added Tamiesh Sood, a D2C expert and founder TAM Collective.
The overall consumer behavior in the US has been quite different as by default, customers are used to paying by credit cards. “They have had their electricity, utility, phone bills and more on auto-pay or subscription for years. So the only habit D2C brands need to change is getting customers to adopt the same behavior in new categories. In India, our preferred mode of payment is still cash-on-delivery which doesn't work great for subscriptions,” said Malika Sadani, founder and CEO, The Moms Co.
What strikes customers in subscriptions is either the price factor or the idea of never having to go to the store for picking up their basics or ordering from the website regularly. Brand trust and loyalty also play an important role as a subscription is a long-term commitment. “While the subscription model helps in building long-term and profitable relationships, it’s highly value-driven, price-sensitive and requires customization, i.e., subscription plans are tailor-made to meet customers' consumption preferences necessitating extensive supply chain management,” said Akash Sajith, founder and CEO, Living Food Company, which offers subscriptions across categories of its products including vegetables, microgreens, Kombucha, baked goods, among others.
Another reason is when D2C started, a large segment of Indians especially in tier II and III cities had been culturally using budget products from traditional FMCG brands. “Presenting such customers with a lock-in subscription model would have become a hassle vs the traditional products they were used to, where they can choose to buy or not every month,” Ankur Bansal, co-founder and director, BlackSoil.
Future Of Subscription Economy
Many D2C brands are open to the idea of trying out subscriptions in the future. For instance, The Moms Co doesn't offer subscriptions on its website at the moment as it believes that the ask for subscriptions is still low among consumers. However, the startup is exploring it with consumers and should launch it soon. “Thanks to the pandemic, there has been a substantial rise in the number of people who now shop online for personal care products and other goods. As people grow more comfortable with shopping online for their daily essentials, we will see a growth in the number of people opting to subscribe and save as well,” said The Moms Co’s Sadani.
One key aspect for the subscription economy to work is consumer trust in buying products online. “This has definitely increased multifold compared with five years ago. This could possibly help some of the current D2C brands in India, to provide their products on subscription,” said Rohit Krishna, general partner, WEH Ventures.
In the future, subscriptions are expected to be a significant part of consumer spend with digital subscription revenues in video and audio already at $57 billion in 2021 and growing. “The success of Amazon and Hotstar in India have proven that there is a massive market for OTT media services and we’ll see that play out in other essential sectors as we’re already seeing with platforms like Nua, Furlenco and Flinto,” added Murthy.
Categories Better Suited
According to experts quoted in the story, the categories that require repeat purchases, such as food and beverage and personal care products, the millennial and gen-Z generation will be eager to adopt subscription services from their favorite D2C brands. “Repeat purchases category will see subscriptions. But this will also take time to scale and cannot be the business model on Day 1. “To get higher traction, brands will need to give flexibility in terms of subscription timelines and option of cancellability to make it hassle-free for the consumers,” said BlackSoil’s Bansal.
Coffee, healthy snacks, shaving essentials, supplements and pet food are some of the examples that stand to gain from the subscription model. Nua's experimentation with the subscription model has today helped the brand garner close to 2 lakh subscribers. "We offer a pay-as-you-go subscription of sanitary pads and cramp comfort which provides customers with a zero commitment, flexible option that can be customized to their needs," said the startup.
Basically, any product that comes under a frequent purchase cycle or categories where people are not looking for many options works well for 'subscribe and save'. “For us, it's our baby care category while globally, we have seen categories like groceries, home care, oral hygiene work well,” said The Moms Co’s Sadani.
As D2C brands build trust among consumers, even though subscriptions are still uncommon, India is set to become one of the largest subscription commerce markets. However, it will become necessary for companies to balance their unit economics with the value they are offering to ensure it works.
Shanthi specialises in writing sector-specific trends, interviews and startup profiles. She has worked as a feature writer for over a decade in several print and digital media companies. She is also a mom who looks forward to playing a game of cards with her tween daughter every evening after work.