This is a shortened excerpt from an article originally published in Verdict UK by Lucy Ingham.
In the early days of consumer electronics, when prices were high, renting your radio or TV was a commonplace occurrence. But as technology advanced, prices dropped, and paying a monthly fee for something you could afford to buy outright became less and less appealing for consumers.
But now the idea is returning, wrapped in exciting new branding and an air of disruption, after taking a wildly circuitous route on its journey back to mainstream acceptance.
Several years ago, companies began to increasingly embrace the software as a service (SaaS) model, buoyed by lower upfront costs for customers, widespread connectivity and predictable income. But its success did not go unnoticed by other industries, both in the consumer and business to business (B2B) spaces.
Initially, it was largely digital products that saw benefits in the subscription model, with multimedia products such as Netflix and Spotify on the consumer side, and Amazon Web Services on the B2B side, taking their respective industries by storm. Then physical goods joined in, with brands such as Birchbox in the beauty space quickly followed by services catering to almost every interest imaginable.
Now, the range of goods as services available via a subscription is vast. Clothes, furniture, electronics, vehicles and even food can be accessed via the subscription model, and almost every week a new startup or product launch widens the pool further. Meanwhile in the business space, you can not only access office infrastructure, equipment and software on subscription, but even your employees, thanks to the emergence of labour as a service.
“The subscription model has really taken off over the past five years or so, with some brands – such as Netflix, Amazon and Naked Wines – really cornering the market and setting the standard on how to make it work,” says Mel Tymm, industry principal at Maginus, a company that provides e-commerce software and technology solutions to businesses.
“The subscription economy has grown more than 350% in the last 7.5 years,” adds John Phillips, general manager, EMEA at Zuora, a cloud-based subscription management platform.
“While the idea of paying a recurring fee for a product or service on an ongoing basis is nothing new – gyms, magazines and clubs have been using this model for decades – we’re now seeing a global economic shift towards subscription business models across all verticals.”
BEYOND MULTIMEDIA: PROLIFERATING RENTAL ACROSS VERTICALS
While there are some verticals that are far more prominently embracing subscriptions, across the board they are “transforming traditional business as we know it,” says Phillips.
“Goods spanning from food, clothing and transportation to gaming, music and technology are being reimagined as utilities for consumers to leverage where and when they are needed. Just look at Hive’s smart home solutions, Quip’s oral care packs, and ClassPass’ fitness and wellbeing offerings – all of which operate on a subscription basis and add over-the-top service offerings,” he adds.
However there are some industries, he says, where “the shift from products to services” is proving to be particularly effective.
“For example, in the manufacturing industry, Caterpillar has on-boarded over 180 dealers globally launching new bundled services that include GPS location, machine utilisation, fuel burn analysis, engine monitoring and overall maintenance management per machine.
“In the mobility space, Mobility-as-a Service (MaaS) is disrupting the traditional transport sector, integrating various forms of transport services into a single mobility platform accessible on-demand.
“An example of this is Radiuz, a Dutch company which saw the need for ownership-based mobility solutions disappearing and instead offered travel as a usage-based model. The platform integrates mobility solutions, such as public transport, bikes, taxis and even parking, in the form of a pay-as-you-go subscription and enables customers to plan, book and view all journeys directly online.”
“Goods spanning from food, clothing and transportation to gaming, music and technology are being reimagined as utilities for consumers to leverage where and when they are needed.”
For Scruby, there is also growing potential for “any capital item that wears out”.
“White goods, TVs, sofas could all be sold in this way. It’s similar to the old hire purchase system except the customer never purchases the item and gets a new version periodically,” he says.
“Another industry I’m personally involved with is art leasing. Subscription paintings can be swapped out for new ones to keep up interest, rather than owning them forever.”
WHY THE SUBSCRIPTION MODEL IS TAKING BUSINESSES BY STORM
One of the biggest reasons businesses have so readily embraced the subscription model is that it provides a far greater level of predictability than traditional sell-to-own approaches.
“Subscription business models help drive predictable, linear revenue and can help companies differentiate from the competition – benefits that make them uniquely attractive for companies across the globe,” says Phillips.
“It helps with demand and supply,” adds Tymm.
“Knowing how many members will receive services or goods that month helps to ensure correct stock levels, or shift excess stock if they know that subscribers will like the end product.”
“Subscription offerings not only help differentiate a company from its competition, but provide companies with rich customer data.”
However, there is more to it than that. Subscription models provide the chance for companies to transform their relationships with their customers, gaining levels of insight that would have been impossible in the pre-digital age.
“Subscription offerings not only help differentiate a company from its competition, but provide companies with rich customer data to gain a better understanding, and a clearer picture of their customers,” explains Phillips.
Then there is the economic reality: companies using this model are out out-performing their rivals by impressive amounts. According to Zuora’s Subscription Economy Index, companies using these models are seeing revenue growth at five times the rate of the S&P 500.
“With the incredible opportunity to scale, it’s no wonder all of these companies are turning to subscriptions,” he adds.
WHAT’S IN IT FOR CUSTOMERS
While businesses are seeing the benefits, customers are also getting value out of the model.
“A subscription model can provide the convenience, simplicity and flexibility they are craving. There are also added benefits to the customer that come with offering subscriptions – for example cost savings like with Amazon Prime’s free delivery, or convenience like Graze, which delivers healthy snacks to your door,” explains Phillips.
According to Tymm, simplicity has also played a role in the unstoppable rise of the model.
“This simplicity has no doubt contributed to its success – make people happy and they won’t go elsewhere,” she says.
“It’s also the ability to take away the decision-making process from the customer. If they get what they want on a monthly basis, and perceive that they’re saving time or effort by not having to go and purchase it themselves, then retailers or businesses are able to build a loyal fanbase.”
“In 2020, people aren’t interested in having more possessions. A lot of this thinking has come from a shift in how we measure success.”
However, for Phillips, it goes a step further, reflecting a transformation in how the goods we own relate to our wider identity.
“In 2020, people aren’t interested in having more possessions. A lot of this thinking has come from a shift in how we measure success. Traditionally, success was materialistic – a big house, expensive car and the latest wide-screen TV,” he says.
“However, today we’re increasingly chasing experiences instead. There are a number of factors driving this shift, including social media platforms like Instagram driving an increased desire to show off our unique experience, as well an increased push for sustainability and living more minimalistic lives.”
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