Last modified: December 14, 2017
Brands should focus on direct-to-consumer channels and read the fine print for Amazon’s new offering
Amazon recently launched “Subscribe with Amazon,” a new service that allows companies to sell subscriptions to digital content through an Amazon marketplace. While at first blush the offering may look like a lucrative new channel to build a subscription business and tap into Amazon’s enormous customer base, brands should proceed with caution.
Under Subscribe with Amazon’s terms, the retail giant takes a cut of subscription revenue — 30% percent during the first year and 15% thereafter according to Econsultancy. While, those terms might not scare those familiar with traditional distribution deals, the longer term impact to customer relationships should not be dismissed.
Cutting Ties with Customers
Building your subscription business through Amazon will cost a brand more than just revenue — it also will affect consumer-brand relationships. By handing subscription services over to Amazon, brands give up the opportunity to connect directly with consumers on their own terms and create meaningful engagements that build long-term loyalty. By design, a subscription model encourages repeat consumer-brand interaction. Hosting that interaction on Amazon gives the lion’s share of promotion to Amazon, limiting the brand’s ability to develop an ongoing relationship with its customers. When a brand hosts the interaction through a direct-to-consumer channel, on the other hand, it controls the environment in which consumer interaction takes place. This approach ensures the company can continue to nurture the relationship, add increasing value during future touchpoints and manage the brand experience — critical aspects of building a successful subscription business.
There are other advantages to investing in a direct-to-consumer model. The data consumers produce as they shop online is a treasure of insights that can be used to guide future marketing efforts and ultimately influence brand loyalty. When this relationship is hosted on Amazon, brands handover this data and the insights that can be gleaned, reducing its ability to gain a deeper understanding of its customer. Through a direct-to-consumer subscription business, brands are able to guide the entire customer-buying journey and tap into this gold mine of business intelligence.
Weighing Financial Risks and Rewards
There is a fiscal argument that also suggests a measured approach to Amazon’s new offering is wise. Consider that 43% of people put off buying a brand’s product through another channel if they can’t buy it through the brand’s own website. When talking about subscription services, that barrier could translate into months or even years of lost consumer relationships, revenue and loyalty. The need to supply consumers with a direct channel to a brand’s subscription services then becomes paramount in driving conversions that will pay long-term dividends.
A Balancing Act
Despite important “buyer beware” considerations, savvy brands know that given the sheer number of Amazon users, it would be irresponsible to completely discount the role Amazon’s subscription marketplace could play in a channel management strategy. While marketplaces and other indirect channels should be part of a channel mix, they should not be used in place of a direct-to-consumer approach. Channels can and should co-exist. Amazon’s marketplace might look lucrative on first take but direct-to-consumer channels will be a brand’s most strategic route to market in the future. The direct channel is more than a selling channel; it’s the ultimate channel for building relationships with customers.
Is your business considering using Subscribe with Amazon to host their subscription business? What are the challenges you face in offering a direct-to-consumer offering?