Let’s start this article with a little exercise. Take a few moments and put yourself into the shoes of a consumer, someone with a basic pay scale and financial commitments to meet. Would you subscribe for a one-time lump-sum payment for a service or opt to start receiving it with a modest periodical discharge – which could be weekly, monthly, or yearly? Ponder that for some time.
The subscription business model, which initially began with newspapers and magazines, now extends to a range of products/services such as retail, fashion, e-commerce, the well-known OTT and streaming platform, the music industry, and many others. The model of business is attracting millions of people every year and boasts of an annual growth rate of 200%. This article explores this trend and the tremendous potential it has for businesses and society at large.
A Win-Win Proposition
It all started back in the 1600s, where subscriptions were a mainstream form of business for the publishing industry. It soon turned out to be an attractive option for a variety of companies and industries. To start with, we have cable TVs for which subscription models have been prominent ever since the 1990s. Fast forward thirty years, The OTT platform has made entertainment more alluring. The education of today is much more empowered thanks to the many platforms that make home-based self-learning a reality. Not all bachelors need to learn cooking, as meal box options fill the need. Getting back to the publication industry, the digital space affords instant access to quality publications through the many IoT devices. Apart from these remarkable forays, the business model has impacted many more avenues, doing all it can to make the world affordable and profitable. If that’s not a win-win. Then what is?
It Caters to the Foundational Need – Attracting Customers
Not all customers can afford to pay a lump sum payment to avail of a product/service. Exceptions apart, customers are more attracted to invest in something that they could immediately. By allowing people to make small periodical payments for the long term, subscriptions reduce one of the major barriers to entry – affordability. Once they are attracted to a product/service, purchases become automatic (and automated with auto payments), which builds a strong customer base. And at the end of it all, recurring payments mean regular business through Monthly Recurring Revenue (MRR).
People feel more and more valued when you give them that personal touch, the moment you make them feel that you understand their very needs. Subscriptions enhance consumer touchpoints by helping companies gather a wealth of valuable customer data, sourced through a relationship that already has an element of trust (example – Netflix, Spotify). A long-term relationship with a customer offers legal access to their preferences and dislikes, as the entire concept of data collection happens with the awareness of the customer. However, this does not mean that companies can use the trust factor to breach it as Facebook did with the Cambridge Analytica scandal, or like the way the FBI used facial recognition technology to target certain sects of protestors who marched the grounds in the aftermath of the infamous killing of George Floyd.
The line between consented usage of data and the breach of it is very, very thin. While data collection is quite imminent these days, companies must ensure that they stay within the judicial norms specified, or risk facing legal and reputational consequences.
The customers of today, at least the majority, don’t seem data-phobic. They are happy with the process as long as it is value-added, and as long as their data isn’t compromised in any inappropriate ways (a topic that is good enough for another day).
Return on Customer Acquisition Costs
One-time payments have a certain rate of return on Customer Acquisition Cost (CAC), but that’s not the same with the subscription model. While the CAC remains the same, the CLV (Customer Lifetime Value) increases as long as the consumers keep supporting your business. This is because subscription-based businesses are having a profound impact in terms of retention and management of ongoing relationships. The probability of a customer staying is much higher if they experience value, and as we saw, subscription-based businesses increase the value quotient.
Makes it Easier for Upselling
The subscription model creates numerous touchpoints to help brands cross-sell and upsell additional products and services. This again must be attributed to the strong base of rapport and trust that a subscription model can bring. Offers, promotions, and add-ons are valued by customers once they have a prior relationship with your business portfolio.
Affordable yet Lucrative
70% of businesses say subscription models are key to their growth strategy. The model of business is flourishing, though, with a flurry of companies introducing enticing value propositions. You cannot stand apart and retain the competitive edge without that aspect of innovation, that unique USP that only you can offer. Yes, the marketplace is flooded, but value propositions can still be unique. It has to be.
Take a look at the Athletic, a magazine for sports lovers that handsomely wards off any competition through its cutting-edge analysis and opinions. The Guardian is earning a chunk of money through subscriptions because of its commitment to quality journalism, so much so for a publication that does not mandate subscriptions. Netflix is probably the costliest streaming platform but the most-watched. Spotify is a free-to-access music app, but still has 165 million subscribers choosing to go ad-free. As is the case in any business, quality breeds demand, and demand leads to profitability.