The subscription (r)evolution
The subscription economy is more than just the further development of existing business models. It is revolutionizing entire industries. It is making others superfluous. You used to find a video store on every third corner, but today there are virtually no more. Customers want to stream from their sofa and prefer to take out a subscription.
Like the industrial revolution, the digital revolution will continue to reshape our global society. The spread of high-tech innovations has raised buyers' expectations. Companies are forced to evolve their business models. Led by Generation Y, today's consumers prefer experience-oriented services. The decision is often made in favor of use over ownership. Subscriptions are preferred to one-off purchases. However, this also means that consumers are forming a lasting relationship with your brand or product. As a company, you therefore need to invest in customer loyalty to prevent subscribers from churning.
"The subscription economy is a game changer and is increasingly becoming a strategic success factor for companies. In a few years, it will be normal to have a subscription for almost all products and services. I am sure that everything that can be billed as a subscription will also be offered as a subscription."
To survive in this new customer-driven economy, agility is needed. Customers want immediate, lasting value and frictionless experiences. And they don't care how complex the implementation is for your company behind the scenes.
Away from ownership, towards subscription
Just a few years ago, subscription services were limited to print media such as books, newspapers and magazines. The music industry followed later. As digitalization grew, the subscription model exploded. Driven by customers' desire for greater convenience, there are now countless subscription products.
Netflix
With over 158 million paid memberships in over 190 countries, Netflix is the world's leading streaming provider. Members can watch as many series and movies as they like on any online-enabled screen at any time and without commercial interruptions.
Dollar Shave Club
The Dollar Shave Club delivers razor blades and grooming products to its members' homes at intervals of their choosing. Launched 7 years ago in the USA, there are now several imitators around the world.
Amazon savings subscription
Amazon offers subscription orders for a range of groceries, household products and drugstore items. Subscription items are generally offered at a lower price than the same product ordered once. The buyer decides on the desired delivery cycle and no longer has to worry about reordering consumables.
Box subscriptions
A popular form of subscription is the delivery of product boxes at pre-set intervals. Subscribers receive a box of goods conveniently delivered to their home on a weekly, monthly or quarterly basis. Well-known examples of this are providers of beauty products (Birchbox), pet food (BarkBox), toys (Hoppi Box) or food (Hello Fresh). Curated shopping service providers are a special feature. These are providers that put together clothing boxes (Outfittery) for their subscribers. The delivered box contains a selection of items of clothing. The customer keeps what they like. The rest is sent back.
The subscription model has evolved and is now an integral part of the marketing of products and services. Everything that can be subscribed to has evolved significantly over time. The way subscriptions work has also changed. They have become much more flexible and customer-oriented. The focus has shifted away from the product to the customer. And the customer is naturally pleased about the increased interest in him.
Status quo of the subscription economy
The subscription economy is booming. And not just in the pioneering US market. Start-ups in particular are increasingly targeting long-term customer loyalty through a subscription model. Customer acquisition costs can be reduced and revenues can be better predicted. However, established companies on the market also need to address the issue of the subscription model.
A study by McKinsey shows that 15% of online shoppers have taken out at least one subscription to receive products on a regular basis. Subscription services offer consumers a convenient, personalized and often more cost-effective way to buy things. However, churn rates are high. Consumers are quick to cancel services that don't offer a better customer experience. So it's more than just price or convenience that drives consumers to subscribe.
Opportunities and challenges
At first glance, introducing a subscription model seems simple: develop a monthly price for usage, repackage the product or service and get a software tool to invoice customers and process payments at regular intervals. However, the reality is different even for companies with low complexity. Companies that are successful with subscription models know the impact switching to a subscription model can have on the entire business and financial infrastructure. However, many companies underestimate this impact.
To be successful in the subscription environment, the new subscription-oriented strategy must be adopted by the entire company. It is also about understanding that long-term customer relationships require more work and attention. The primary challenge is a smooth transition to the subscription model. The following factors need to be considered:
- Subscriptions are relationships. The longer a customer is willing to pay for your services, the higher their lifetime value and the higher your profits. To keep customers happy as subscribers, you need to find the right balance of price and performance. You will succeed as long as you deliver lasting value and maintain a lasting relationship with your customers.
- Adaptability is key as subscriptions dissolve the boundaries between products and services. Innovative companies are developing subscription-based, experience-driven service models for everything. In principle, there are no boundaries between what you can offer in a rental model or as a one-off payment.
- Subscriptions should make life easier. Your subscription must therefore offer lasting added value with consistent and enjoyable experiences.
- The impact of moving from one-time payments to recurring billing cycles should not be underestimated. New technologies, business processes and revenue management practices are required to support such a shift.
- If you want to optimize your profitability by reducing churn rates and increasing customer loyalty, you need to know what customers expect from you.
What is the right subscription model for your target group?
Before introducing a subscription model, you need to make a number of decisions. Which subscription model will best appeal to the target group? Which subscription model suits the product? And which subscription model best suits your business objectives? In general, there are 3 types of subscriptions:
- Replenishment subscriptions provide consumables and offer your subscribers a convenient way to ensure that certain items never run out. The Dollar Shave Club or Amazon Savings Subscription are well-known examples of replenishment subscriptions. The subscribed product is sent directly at set intervals without the need to ask again. The advantage for your customer is that they do not have to search for the product every time. For you, it has the advantage that the customer receives goods from you regularly until they cancel the subscription.
- Curated subscriptions aim to surprise and delight by offering new items or personalized products such as clothing, care products or food. Examples include Hello Fresh for food, Outfittery for clothing or Glossybox for beauty products. Your customer makes a few settings or answers questions. You define the content of the boxes based on these parameters.
- With club membership, users pay a monthly fee to receive discounts or access to exclusive offers. This type of subscription is particularly popular in the clothing and food categories. Well-known examples include JustFab, NatureBox and Thrive Market. Paid access to selected products for a limited target group conveys exclusivity.
The individual beauty or fashion boxes of the curation services are by far the most popular with 55% of total subscriptions. This indicates a strong desire for personalized services. Today's customers want to receive products tailored to them. With 32% of all subscriptions, the replenishment subscription is still in second place, reflecting the convenience of customers who do not want to have to search for a product and the best provider again and again. At 13%, club access accounts for the smallest share of the overall subscription services market.
Article from: bevh from January 21, 2020
