What Everyone Must Know About SUBSCRIPTION BUSINESS MODEL
Over 50 % of the fortune 500 companies have been vanishing not able to continue their success story since 2000. In the last 18 years companies had to adapt than ever before providing increased customer service and adding customer centric features to their products. Companies used to develop products in their hidden chambers hoping for one hit wonders when bringing to the market. That business model perspective is oldschool works probably on an individual basis but the general market has to change in order to manifest their market position.
Recent successful companies like Spotify, Netflix or even older companies like Adobe adapted to market trends and introduced subscription. This is due to the fact that our digital society is more and more asking for access of services and products instead of ownership. This is a problem for a lot of companies because this business model requires that the manufacturer or service provider knows their customers very well.
Walmart for example has 100 million clients, which equals nearly 50% of the US population, not knowing their desires, habits or routines offering individual goods and services. On the other hand Amazon has less clients for their Amazon prime product (the subscription model of Amazon), but can offer customer specific services and products steadily increasing their market share. The internal big data analysis and business intelligence investigates the user in depth to offer customers personalized bundles or products. One approach is that they analyze the clients search metrics suggesting the same or comparable products in recurring time frames via Mail in case the user did not bought already
The secret of increasing sales changed from a product point of view to a more customer first approach. Companies like DAZN ask themselves every day: What do we get hired for? What do we get fired for? Services and products in the subscription model can be seen as never fully developed goods since they nearly receive an update every day.
To successfully implement a subscription model the company has to analyze their customer base. What are customers looking for? Which features are missing? What are the values of my offer? What categories are not that popular? What is a top performer – and why is it a top performer? Based on well-structured analysis companies can steadily improve the user experience of its customer by steadily adding more value.
“Content is King & Distribution is Queen”
Easily accessing the product or service is state of the art for every successful subscription provider. The user experience for signing up should be an easy process across multiple channels e.g. online, mobile or sales support. Old system infrastructures and systems are typically not developed for a subscription based customer acquisition strategy. Those acquisition workflows have to be designed fast, simple and automatically across multiple customer touchpoints.
The payment transactions of old business models are relatively simple consisting of cash in advance, credit card payment or payment terms for specific time periods making future cash flows hard to predict. Subscription offers steady revenue making forecasts for companies a lot easier than a couple of decades ago. Note that subscription companies have to gather their receivables quickly since few subscription contracts are under easy credit card charges. Furthermore, payment should be available in the countries favorable payment method meaning that a company should at least offer PayPal, credit card payments and “Sofort Überweisung” in Germany and mobile payment providers like Alipay or WEchat in Japan. That makes it even more difficult for the subscription provider to plan a suitable work efficient technical infrastructure to provide all services failure free.
Above all, stable binding customer relationships are the essence of succeeding business models. Besides new customer acquisition departments have to intensively deal with current subscribers managing renewals, cancellation, up & cross selling, upgrades […] highlighting the importance of a good customer management set up. Therefore, the subscription model should be intuitive providing well developed tools so the customer can easily control his account through the subscription lifecycle. However, even if new customer acquisition requires a lot of resources, the majority of companies only gains 15- 25 % of their revenue with first time customers. This being said, growth requires a satisfied customer base.
In conclusion a triumphant subscription model requires amongst other things a good customer analysis, easy sign up process, domestic payment methods and an individual relationship to the consumer. The pricing model is also an important determinant which should be considered intensively by setting up this new business model.
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Greetz M.
I was debating a subscription based business model, but quickly realized that I didn't have a passion for it so moved on.
Subscription model tech businesses is the new buzz word, gone are trying to be the next social media or the next uber of something everyone now wants to become the subscription service aka netflix of the industry and just like so many Facebook for cats or Uber for sanwhiches many of them have no product market fit and will fail
There are very few subscription services that are B2C that have a low churn rate to keep it sustainable. If your product is B2B i'd give you a much greater chance of survival