Subscription Operations: How to Automate Subscription Payments

The subscription economy is experiencing large growth in the retail space. This is due to its focus on customer centricity for products that can be continuously provided, resulting in convenience for customers. Next generation retailers, such as Birchbox, have managed to gain close to a million subscribers due to its easy and accessible offerings. Becoming a subscriber-based retailer is based on the following business capabilities:

1. Suitable product offering

Your products must be based on usage- or period-based replacement cycles. In the SaaS industry usage models are key. Providing a pay as you use model with monthly pricing based on for example active users drive a subscription model. In retail, products that require replacement as they are consumed over a period are a must to have a subscription-based offering. In retail these are often based on product categories like food, cosmetics, health products, detergents, or toys.    

2. Contract based instead of a one-time order-based offering

When your customer signs up they engage under a contract with a duration, not on a one-time order. This means you require to capture duration, delivery commitment and payment per period. The contract usually drives a renewal approach to ensure the customer continues to use the products over time.

3. Customer centricity

Customers buy subscription to ensure that they don’t need to think about buying the same thing over and over. Over time the subscription requires to understand the customer behaviour to ensure satisfaction. An example that illustrates customer centricity is to offer a “pause” option, when customer do not require to use the continues delivery or use of products as they might be away from home.

So, let’s review the high-level business process of box subscriptions and how the payment element slots into the activities.

The process encompasses various process activities. A key aspect for success is to provide customer self service and capabilities to ask questions and providing abilities to change aspects of the subscription process by means of eCommerce or portals.

This generates a personal touch and improves loyalty. Check out LISA, fit for loyalty.

As shown in the business process model above, the payment is captured as an eCommerce transaction, however accompanied by a delivery schedule that the customer has indicated when setting up the subscription. The customer is not only buying a product, but a delivery schedule service as well. The terms and conditions required you to reflect this to the customer.

The payment is a subprocess itself in the overall business process and follows the below activities:

1. Customer provides payment details
2. Payment gateway validates payment details via payment processor
3. Once approved payment is processer charges payment to customer
4. Payment processer transfers payment to bank of the merchant or retailer

This process is not different than the usual eCommerce checkout, but in the back-end administration much more is required to settle the payment against the subscription agreement and fulfilment.

Let’s check it out.

Once the payment clear in step 3 above, a notification is triggered sending a create event to the subscription business application, resulting into a subscription agreement that stores the billing line item and the delivery schedule of the products ordered. Then is automates the billing engine to create the invoice which in turn is send to the customer. The customer payment is recorded as well into a payment journal and settles the invoice so that no outstanding balance remains open in accounts receivable.

Now the supply chain process fires up as indicated in the business process diagram above. The delivery schedule triggers timely pick, pack, and ship activities so that the goods are delivered to the customer as agreed in the subscription agreement the customer paid for.