This article first appeared in Digital Edge, The Edge Malaysia Weekly on January 18, 2021 - January 24, 2021

Loyalty, retention, engagement and repeat transactions are factors that can make or break a business. However, in a consumption-driven economy, where products and services are sold on a one-off basis, it is difficult to develop relationships and a nuanced understanding of consumer preferences.

This is where a subscription business model comes in, especially for companies that rely on recurring revenue and sustained growth to scale their business more quickly and easily, says Sean Leong, founder and CEO of PopWonders, the country’s first e-commerce marketplace specialising in product and service subscriptions.

Leong founded PopWonders last year to help businesses leverage on subscription business models so they can constantly attract and acquire customers.

The former IT consultant shares that he has seen plenty of brands and e-commerce marketplaces phased out or shut down due to a lack of brand recognition and customer retention.

“These companies and merchants couldn’t sustain their businesses because they operated in a very competitive environment. With this model, you offer customers the option of subscribing for what they need on a regular basis.

“For customers, instead of having to buy things you know you need on a monthly basis outright, and probably at a higher cost, you can just subscribe because you would get a better price and better service as a long-term customer,” says Leong.

And because subscription models are based on recurring payments, they offer a more reliable source of revenue. Businesses can rely on this for strategic planning and investment purposes, he elaborates.

With its better product and service proposition, the subscription business is well suited to this day and age, asserts Leong, especially since the coronavirus pandemic has resulted in drastic changes in consumer behaviour.

Factors such as remote work conditions, acceleration of frictionless and self-service trends and, most importantly, the quality of customer service are driving the emerging subscription economy.

Subscription-based businesses are not new. The publishing and media industries have been using this model for centuries.

It has, however, gained momentum in the last two decades with companies such as Netflix successfully replacing DVD collections, and Spotify taking the place of CDs. In addition, software companies like Adobe and Microsoft switched from offering perpetual licences to subscription models with monthly or annual subscription services.

Today, local companies such as PichaEats, ThoughtFull and Ellegra deliver everything from ready-to-eat-meals and bite-sized mental coaching to curated clothes straight to customers’ doors recurrently.

According to CIGP, a Geneva-based independent financial advisory group,  subscription-model businesses grew from US$57 million in 2011 to US$2.6 billion in 2016.

Citing data from The Economist, CIGP says companies with subscription models have suffered less during the pandemic compared with other businesses. Their revenue grew 9.5% in the first quarter of 2020 while the S&P 500 contracted 1.9% during the same period.

Additionally, services such as video streaming, news media and e-learning have grown tremendously due to the pandemic, says Zuora, an enterprise software company that enables businesses to launch and manage subscription-based services.

Market intelligence provider CB Insight points out that companies have historically found it difficult to adopt and implement new subscription business models mainly because subscription-based businesses have had problems collecting payments.

Nevertheless, the evolution of digital payments systems has made it possible to collect recurring payments without huge investments.

Moreover, companies like PopWonder have embedded tools such as artificial intelligence (AI) chatbots and marketing tools for merchants’ use.

“We understand the pain points of merchants. They might have their own e-commerce platforms but they don’t have recurring revenue because consumer purchases are often one-off.

“Merchants also have to continuously market and advertise their products or services. What PopWonders has done is to enable them to have a recurring income and revenue by using a subscription business model. 

“We focus on turning products that are consumed on a regular basis into subscriptions. Take pantry staples like coffee, for example. As a consumer, you know you are going to buy coffee every month, so why not subscribe and get a better price?”

Another challenge for businesses, especially dropshipping enterprises, is that they lack recognition and, consequently, customer loyalty.

“Say, you buy a watch through the big e-commerce platforms like Shopee or Lazada. You would tell me that you bought it from Shopee or Lazada, but they are not the sellers, they are just the service providers. It is the merchant who is listed on the platform that sells but people hardly recognise or remember the brand or name of the merchant,” says Leong.

To help overcome this, PopWonders offers merchants the opportunity to engage relevant influencers as ambassadors of their products or services.

Leong says this is because influencers are experts at brand building. They use their social media prowess to create awareness and direct traffic to merchants, which can then be turned into purchasing action, he adds.

Currently, merchants can list and access all of PopWonders’ tools, which provide data and insight into customer preferences, for free. The company makes money by charging a 5% fee for each transaction that a merchant receives.  

Leong says the fee is highly competitive and much lower than that of other e-commerce marketplaces.

“We have additional benefits like the influencers’ matching and we let them use our hybrid AI chatbot that serves as a personal shopping assistant for the consumer. 

“Nowadays, it is not enough to just sell a product. People want good customer service that is personalised. Our hybrid chatbot caters for consumer needs and curates products based on their interests.”

In the past, many of the local subscription businesses started independently. As such, it was difficult for them to draw a lot of attention or traffic.

“At PopWonders, we will gather all these businesses in one place and people will be able to discover a lot of different things.

“For example, for beauty products, we leverage on influencers. Influencers can be merchants as well. We will help them start their subscription business. A beauty influencer can start a store and convert followers into subscribers.

“We will use AI to curate the products based on consumer preference and perfectly match the contents of the box to their preferences,” says Leong.

As the marketplace was launched at the height of the Covid-19 pandemic, PopWonders offered subscriptions to boxes such as the Covid-19 Prevention & Protection Box for RM99 per month.

Now, it boasts a variety of options such as grooming and beauty products, beverages such as coffee and wine, self-care and wellness services and even those that focus on soft skills and personal growth.

Product boxes will be sent to the buyer’s doorstep every month, containing items related to the subscription as well as curated product samples for them to consider adding to their subscription the next time.

Because “subscription fatigue” can set in, PopWonders encourages merchants to mix things up or offer customers a variety of boxes to choose from.

Leong adds that every merchant listed is scrutinised to ensure that they are not selling counterfeit products.

He believes that with the right tools, the domestic subscription economy will grow by leaps and bounds as consumers realise the amount of time and effort they can save.

“We are actually saving you time. You are going to need toilet rolls and coffee every month, so why wait till they finish before buying?  With data and tools we have embedded into the system, we will provide you with the portion that you will consume for one month, not more, not less. And just before you run out, we will deliver the next box.

“To protect consumers, payments are processed and held by the platform for several days until the boxes are delivered and no complaints are raised.

“If you subscribe to something but aren’t happy or satisfied with it, you can convert it into credit to use for other subscription boxes. This ensures some stickiness instead of [the customer] just unsubscribing upfront. And, if there is nothing on the platform that entices you, we will issue a refund,” says Leong.  

According to corporate and investment bank Natixis, US consumers spent US$237 a month on subscription services in 2018. Meanwhile, in Europe, global financial institution ING estimated that consumers spent an average of €130 per month on subscriptions. CIGP says both numbers represent only 5% to 6% of total consumer spending in each respective region, which presents more opportunities for growth.

This shows that people are warming up to the subscription economy, says Leong. “We are comfortable with auto billing and subscribing to certain services already. It is just a matter of making a better offering to get consumers to consider other forms of subscriptions.”

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.