The Booming Subscription Economy
The subscription economy is on the rise, with ownership giving way to usership.
According to Juniper Research and Skyquestt, the subscription economy is projected to grow at a compound annual growth rate (CAGR) of 22% from 2022 to 2026.
This growth isn’t limited to digital goods or services; it’s also affecting the realm of physical goods and product companies, where significant growth opportunities await.
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We believe this growth is driven primarily by three factors:
- Users now expect ‘as-a-service’: The modern consumer increasingly values usership over ownership, preferring convenient, flexible access to products and services.
- Companies need stability: In turbulent times, businesses seek the stability that recurring revenue from subscription models can provide, offering a predictable income stream and enhanced financial planning capabilities.
- Societal sustainability: The subscription model enables the sharing economy, contributing to the more efficient utilization of resources and supporting a more sustainable future for society.
In this article, we’ll explore various subscription models, the challenges and opportunities of transitioning to a subscription model, and keys to succeeding in this new economy.
Four Types of Subscription Models for Product Companies
Product-based companies can adopt one of the following subscription models to cater to different customer needs:
a) Loyalty Clubs: Amazon Prime is an excellent example of a loyalty club subscription model. The drivers for this model are low prices and added benefits that incentivize customers to stay loyal to the brand.
b) Replenishment: Estrid, a razor subscription company, offers a replenishment subscription model. The primary drivers for this model are convenience and low prices, as customers receive their products at regular intervals without having to place orders manually.
c) Curation: Birchbox is a beauty product subscription service that curates a selection of products for its customers. The drivers for this model are novelty and community, as customers receive a surprise assortment of products and share their experiences with like-minded individuals.
d) Access: Agapi Boat Club offers boating as a subscription, providing customers with access to more expensive products than they would typically purchase. The drivers for this model are flexibility, hassle-free experiences, and value for money.
Challenges and Opportunities in Transitioning to a Subscription Model
Opportunities
- Higher customer lifetime values: Subscriptions encourage long-term relationships with customers, leading to increased revenue over time.
- Steady cash flows and predictability: Recurring revenue from subscriptions provides stability and allows for better financial planning.
- Closer customer relationships: Subscription models enable companies to engage with customers more frequently and build deeper connections.
Challenges
- Value proposition and pricing model complexity: Developing a compelling value proposition and pricing strategy for subscriptions can be complex and may require experimentation.
- Marketing operations and ROI calculations: Subscription businesses often require different marketing strategies and success metrics compared to traditional businesses.
- Financial risk and need for operating capital: Transitioning to a subscription model may require upfront investments in technology and infrastructure, posing financial risks.
- The mindset change: From conversion to retention: Shifting from a focus on acquiring customers to retaining and nurturing them can be a significant cultural change for companies.
Keys to Succeeding with a Subscription Business
To thrive in the subscription economy, product-based companies must develop strategies that cater to the unique demands and challenges of this business model. Here are some critical factors to consider:
a) The Customer-Centric Recurring Value Proposition: Design a value proposition that caters to your target customers’ needs and keeps them engaged over time.
b) Build a Sense of Community: Foster a sense of belonging and camaraderie among your subscribers by creating spaces for them to connect and share their experiences.
c) Focus on the Full Subscription Lifecycle: Pay attention to every stage of the subscription lifecycle, from acquisition to retention and churn management.
d) Building the Right Enablers: To succeed in the subscription business, you’ll need a robust subscription management platform, data-driven insights, and the right competencies within your organization.
Outro and Conclusion
As the subscription economy thrives, product-based companies have a golden opportunity to capitalize on this trend and unlock exciting growth potential.
By exploring various subscription models, tackling challenges and opportunities, and focusing on essential success factors, these businesses can smoothly transition to the subscription model.
Embracing this business model may require adaptability, creativity, and commitment. However, the potential benefits include not only improved customer relationships and steady cash flows but also greater sustainability for society as we use physical products and resources better.
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