The Growing Influence Of Subscription Business Models

This article was originally published in D/SRUPTION by John Phillips, General Manager, EMEA at Zuora.


For excellent customer service, loyalty and engagement, many businesses are signing up to subscription

In today’s ever changing digital world, businesses are always looking for ways in which to achieve success. According to Gartner’s 2019 predictions, business models will continue to evolve for competitive advantage, in a time of ‘continuous chaos.’ However, the outlook is not negative. Gartner also proclaims that organisations can turn continuous change into an asset if they sharpen their vision.

To do this, many notable technology companies including Spotify, Uber, Apple and even Google have changed their business models to adapt to evolving customer demand – moving from a static and linear product offering to a subscription-based model to encourage recurring, predictable and stable revenue.

However, this model can be applied for its associated customer loyalty, choice and increased revenue and benefits by all companies – not just the Ubers of this world.

A subscription based model can transform business

Zuora’s recent bi-annual Subscription Economy Index (SEI) found that the Subscription Economy – an era marked by a broad consumer shift towards on-demand services – has grown more than 350 per cent in the past seven and a half years. The study analyses the growth of subscription models in specific sectors, such as Software as a Service (SaaS), Internet of Things (IoT), manufacturing, publishing, media, telecommunications and business services. There is an upward growth trend in all sectors, with growth outpacing predicted industry benchmarks by two to five times.

Football is another industry successfully implementing a subscription business model. A recent programme broadcast by the BBC – the Cost of the Game – delved into the value of a traditional season ticket, fan growth and turnout of the Scottish Football clubs who have shifted to a subscription model.

Danish club FC Copenhagen introduced a subscription model in 2018 and, as a result, saw season ticket dropout rates decrease from 10 to 3 per cent. Meanwhile DAZN, owned by Perform Group, launched its live and on demand sports streaming service using a subscription model. The service can be accessed across multiple connected devices and gives consumers across Japan, Germany, Austria and Switzerland the opportunity to watch live and exclusive sports such as boxing, NFL, tennis and football for as little as €9.99 per month.

The satisfied customer

Yet, the benefits of a subscription model extend way beyond stabilising and growing revenue streams for businesses. Research demonstrates that customers are more loyal to a brand when they have the choice to subscribe. Rather than needing to pay an up-front, one off, hefty cost for a product, they are able to pay for access to the product or service in smaller instalments, and are often offered various perks and services alongside the consumption of the product.

Additionally, customers enjoy simple and convenient purchasing and returns, as well as continued improvements and upgrades. This, in turn, increases customer loyalty and helps businesses to focus on continuous service innovations in order to keep the service fresh and appealing for subscribers.

A new outlook

However, implementing a subscription based model must be planned with consideration. For businesses, its adoption requires a shift in mindset, culture, and a new way of doing business. For example, Phillips, who have made their name providing consumer and healthcare electronics, have moved part of their business to a subscription based model. In doing so, they soon realised that because they were offering a tailor made service, they had opened up a more direct relationship with their customers.

Delivering excellent customer care therefore becomes the cornerstone to driving a sustainable subscription based model. At Phillips, customer care turned from offering refunds for single transaction purchases to building a longer term relationship with customers. In a recurring revenue model, businesses must maintain a continuous level of quality of service. To do this, some businesses have created exclusive events for subscribers, offered 24/7 customer support service, and launched customer success outreach programmes.

Enabling product innovation

As businesses move from linear transactions to a circular and relational, repeatable revenue model, this also has a direct impact on culture and talent. The Subscription Economy enables businesses to feed customer insights directly into product innovation through a test, learn and iterate approach.

For example, website creation tool Wix wanted to move from a reactive customer support strategy to one of anticipation. To do so, the company realised that a subscription based service should underpin its products, with live customer support built in to answer any customer query.

From this the company built a feature to feed customer insight back to Wix development teams to use as inspiration and feedback for products. Ultimately, this was so successful that it was also able to provide its customers with the same feature, which they could use to offer subscriptions and insight gathering through their own websites.

Building a subscription based model: it’s more than technology

As businesses streamline and improve their processes and business models, there is an opportunity to use the subscription model to thrive. However, if companies do choose to move to a recurring revenue model, it’s about more than just changing technology.

Its adoption must drive an operational mindset shift – one which places customer care as the foundation of the business, to inspire loyalty and prevent churn. From there, the opportunity is great: businesses can enable innovation to be built based on customer needs and requirements, leading to a successful subscription business.

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