Should I offer a delivery subscription?

Paazl
By Paazl
November 10, 2017

Delivery subscriptions are a hot topic in e-commerce. More and more retailers are offering unlimited ‘free’ delivery in return for an annual fee following the immense popularity of Amazon Prime. Sometimes extra perks are included, such as premium delivery slots or early access to discounted products. Is this something for you to consider? In this post, we will show you some examples from across the world, and dive into the business benefits.

Examples

Amazon (US)

Amazon is the godfather of delivery subscriptions. Their Amazon Prime service launched way back in 2005, and has since garnered 80 million subscribers. Besides free two-, one-, or sometimes even same-day delivery, the service includes unlimited streaming of music and video content. Membership is $99 annually.

Postmates (US)

Postmates is not an online retailer in the classic sense, but this subscription is still worth mentioning. The company is basically an army of app-powered delivery drivers that primarily focus on delivering restaurant meals. A typical delivery sets customers back some $5. ‘Postmates Plus Unlimited’ allows customers to say goodbye to these delivery fees for $9.99 per month. Still, a minimum order spend of $20 applies.

Deliveroo (UK)

Following the example of Postmates in the US meal-delivery service Deliveroo recently announced an ‘unlimited’ subscription for British consumers. For £7.99 per month you can now get an unlimited amount of food delivered to your door for free. The service also includes exclusive discounts for some of the UK’s favourite restaurants. Over the first two months of testing the service, Deliveroo says that half of their customers save almost £25 after joining Deliveroo Plus, with one in 10 customers saving over £75.

ASOS (UK)

British fashion retailer ASOS has been offering ‘Premier Delivery’ for a couple of years now. The service gets you unlimited next-day or nominated-day delivery with no minimum order value for a whole year, at just £9.95.

Boohoo (UK)

Female fashion retailer Boohoo.com offers unlimited free next-day delivery plus free returns for members paying £7.95 per year. Members also enjoy access to extra promotions and offers.

Oasis (UK)

Oasis is another British fashion retailer tapping into the popularity of subscriptions. For £9.99 a year, members get free next-day and nominated day delivery.


FeelUnique (UK)

FeelUnique claims it is “Europe’s first online beauty store to offer unlimited next-day delivery.” For £8.99 per year, customers get free next day and nominated day delivery. On the reasoning behind launching the service, their CEO commented: “in a world where rapid fulfilment is pivotal to successful online retail – and free and fast delivery services are increasingly being offered by world-leading e-tailers.”

Tesco (UK)

Supermarket chain Tesco provides an example of subscription services in online grocery space. Unlike non-food counterparts, Tesco offers two versions: one for mid-week deliveries only (£3.99 per month), and one for delivery on any given day of the week (£7.99 monthly).

De Bijenkorf (NL)

Dutch luxury department store De Bijenkorf offers an equally luxurious delivery subscription. Members of ‘ShippingPlus’ enjoy unlimited free delivery – 7 days a week for €9.95 per year. Extra perks include unlimited delivery in two-hour time-frame (€7.95 for non-members) and free evening delivery (normally €3.95).

Bol.com (NL)

Bol.com announced their ‘Select’ delivery subscription early 2017 at a €14.95 price-point. This price was later even dropped to €9.99 per year. For this, customers get unlimited free delivery (instead of only for orders above €20). Other perks include nominated day delivery, same-day (normally €2.49), evening delivery (normally €0.99) and free Sunday delivery (€1.99 for non-members).

Who subscribe?

According to a British study by Global Data 22% of online consumers are subscribed to a delivery scheme. This number is highest for young shoppers: 34.1% of online consumers between 25 and 34 are a member of a non-food subscription service. For online shoppers between 55 and 64, this number drops to just 9%. The high number of young members is in part driven by fashion retailers -offering the subscriptions: 70.6% members of fashion subscriptions are between 15 and 34. The most popular British delivery subscription is Amazon Prime, accounting for 82% of all subscriptions.

British carrier Yodel did similar research on subscription models and found out that three-quarters of UK online shoppers are aware of delivery subscription models, but only one-third have ever signed up to one. 40% are currently interested in a subscription for unlimited next day delivery. This number increases significantly to 68% for those under 35.

When it comes to pricing cheaper is naturally better. At £9.99 a year 34% of consumers say they would be very likely to subscribe to a free next day delivery service. At £12.99, this drops rapidly to just 17%.

But what are the results for retailers?

Retailers are naturally reluctant to share the results of their delivery subscriptions. Still, some figures are available. Way back in 2010 BusinessWeek reported that Amazon Prime reached a break-even point within 3 months, and not the estimated 2 years, because members spent up to 150% more at Amazon since subscribing to Prime. Not only did they buy more often, they also started buying things they did not buy before. Former VP of Amazon Prime Robbie Schwietzer commented: “In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines.” 

Spending more, more often

A 2011 study revealed slightly different numbers: Prime members ‘used’ $55 worth of delivery costs and $35 in digital content annually – $90 in total. That time, Amazon Prime was still available for $79 per year, suggesting that Amazon was losing money. This fee was later increased to $99.

It was estimated that Prime members spent $1224 on average per year, compared to $505 spent by regular customers. Purchasing frequency also increased for members: 22.5 annual transactions versus 13.9 for non-members. A quick calculation reveals that member thus spent more per order: $60 versus $47.

Clear path to profit

In 2016 Postmates cleared some concerns about their subscription fee, claiming it has been a smart move: “We see a very clear path to profitability and that is very different than some of the other businesses in this space. But we absolutely wouldn’t be charging forward with this if we didn’t have a very strong belief in the financial strength of the company and in our model.”

This graph from the research conducted by Yodel shows the number of consumers, for each 1000, that are likely to subscribe at a given price-point, converted to the revenue this generates for the retailer. It shows that a low price-point will generate most revenue.

Conclusion

Delivery subscriptions are a great way for online retailers to boost customer loyalty and encourage repeat purchases. Price points vary but typically hover around twice the costs of one ‘normal’ delivery. This seems like a recipe for losing money, but remember that keeping customers will always be cheaper than trying to convert newcomers – it is all about customer lifetime value. Are you going to give it a shot?

Looking for more inspiration on improving your delivery experience? Make sure to check out our new report including 18 delivery best practices found at leading online fashion brands:

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