From Demand Economy to Subscription Economy: The Changing Business Landscape

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  • April 20, 2016
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Subscription Economy has transformed the way businesses work and various subscription based companies are growing at an unprecedented rate. According to a 2014 report by The Economist Intelligence Unit, 80 percent of customers are demanding new consumption models including subscribing, sharing, and leasing — anything except actually buying a product outright. Subscription based recurring revenue business model is highly relevant to all the industries and it is one of the main reasons why this economy is in vogue. The success of diverse subscription based companies like Netflix, Google, Amazon, Hilton Group of Hotels further attests its popularity .

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The spending behaviour of consumers has shifted from buying products to subscribing to services. While earlier, the consumers preferred to own the product by making a one-time payment, they are now looking for long term continued relationship with the brand. As opposed to selling the product/service as a single item in demand model, the subscription model aims at selling a product or service on a monthly basis. The subscription model owes its success to the optimal balance of value it provides to both the company and the consumer. For consumers, subscription model not only provides an easy and convenient experience for them but also connects them with the brands, services and products they want and need over a period of time. For companies, as subscription model is based on retention versus conversion concept, it means better ROI on customer acquisition. Subscription model provides them the ability to forecast annual revenue through recurring sales. Also, since a high percentage of the revenue of a subscription-based business is recurring, its value is up to eight times that of a comparable business with very little recurring revenue.

subscribe_stamp-300x300[1]To thrive in the subscription economy, it’s not enough to start selling a product or service at a low monthly price. A lot of thought and work needs to be put into deciding what to offer and how to offer, because ultimately that is what is going to keep your subscribers engaged and loyal to you. It becomes imperative that the companies focus on providing the best services and experience to their consumers and targeted audience.  Qualifying very precisely the missing needs of your targeted audience is the key to design the right subscription package. The brands have to truly resonate with the consumers as they are willing to make recurring payments to avail them. If they don’t like the product or experience, the subscription cancellation rate will be too high.

The success parameters to thrive in the Subscription Economy are:

  1. Make it personalized: Consumers these days expect their business relationships to be more personalized. They are looking for real-time experience with immediate fulfillment. Subscriber behavior and needs have to be taken into consideration to provide on-going value and memorable service. Every subscriber relationship has to be constantly nurtured.
  2. Stay attractive over time: Keep moving, keep bringing new content to your offer. Consumer needs are dynamic in nature and keep on evolving with time. It’s very important for the companies to adapt themselves to the changing demands of the consumers and add or upgrade benefits to their subscription business as per their requirements.
  3. Make your service accessible on all platforms: Web, Mobile, Desktop, Tablet…
  4. Measure performance metrics: Companies must keep a track of consumer’s data such as purchases, products, local pricing, promotions, payment history, refund history, renewals etc. and then create performance metrics based on these data. Focus should be on metrics such as- subscriber health (subscriber growth and change), subscriber engagement (payments and declines), business finance (monthly and annual recurring revenue), and consumer retention (renewals, upsells, churn).

The shift to the subscription economy is now accelerating. Subscriptions should certainly be an option for consumers, regardless of the product type. Subscription model positively impacts the businesses by aligning consumers’ expectations with their own business goals. Companies that want to remain market leaders in their industries need to start their transition towards subscription economy and enjoy the plethora of advantages it provides.

Author & Co-Author: Mike Putman & Swati Jha
Contact Details:
Mike Putman
mike@customtravelclubs.com
+1 864 325 2379
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