The New Era of the Subscription Economy
Insights from Subscribed Institute Executive Breakfast London
Zuora’s Subscribed Institute Executive Breakfast in London was a confluence of data, strategies, and discussions focused on the next stage of the Subscription Economy. The event highlighted the remarkable growth of subscription models, underscored by a 17% Compound Annual Growth Rate and a market valuation reaching $1 trillion by 2022. This growth, while impressive, brings forth challenges in saturation, customer acquisition, retention, and expansion, necessitating a strategic reevaluation for sustainable development. This conversation outlined an undeniable shift: traditional subscription models are no longer sufficient, highlighting the necessity for total monetization for continued success.
In this article, we delve into the critical discussions and insights shared during the event, with a focus on the shift toward total monetization as a core strategy for growth.
The Landscape of the Subscription Economy
Michael Mansard, Principal, Subscription Strategy & EMEA Chair of the Subscribed Institute, kickstarted the dialogue by emphasizing the evolution of the Subscription Economy from subscription-only, towards the importance of incorporating consumption-based pricing models, particularly in the B2B sector: “Consumption-based pricing models are growing faster than flat pricing models, especially in B2B sectors.” This strategic pivot, seeing adoption rates soar from 30% to 61% between 2019 and 2022, underscores the economy’s dynamic nature. Mansard pointed out, “The leap towards consumption-based pricing models is not just a trend but a strategic shift in the B2B sector,” highlighting the necessity of adapting to market demands.
The discussions then delved into the challenges and opportunities presented by these consumption models across various industries. Examples from AWS and Xerox, along with innovative B2C models like pay-per-wash washing machines, showcased the innovation and potential for customer-centric flexibility. The concept of “product-led growth” was highlighted as a pivotal strategy, allowing customers to consume products in a way that works for them, thereby reducing barriers to entry and adapting to macroeconomic conditions. “Product-led growth focuses on allowing customers to consume products in a way that suits them best, which reduces barriers to entry.“
With the landscape set, and the current challenges and opportunities outlined, the discussion then turned towards key strategies for growth…
Strategic Imperatives for Growth
Hybrid models:
A notable part of the conversation revolved around the ideal balance of usage in revenue contribution to avoid stifling growth. The benefits of hybrid models, which combine commitment with consumption flexibility, were discussed as a solution to this challenge. Michael explained:
“You have a level of commitment, and you have a level of consumption. A bit like back when we had a phone plan in which you had minutes included, but you could spend overage of minutes.”
These models integrate the predictability of traditional subscriptions with the dynamism of consumption-based pricing. This strategy is central to the concept of total monetization, enabling businesses to tailor their offerings to diverse customer needs. By providing flexibility and value, hybrid models not only enhance customer satisfaction but also drive significant increases in ARPA and reduce churn rates. This approach enables companies to align their offerings more closely with customer usage and value perceptions.
Fraud protection:
The discussion also revolved around fraud protection, with Michael highlighting the growing importance of secure and reliable payment systems within the subscription economy. “Fraud for our customers represents about 0.56 percent of transactions. But media overall has increased 4x in terms of fraud.”
With the rise of digital transactions, ensuring the security of payment infrastructures has become paramount to maintaining subscriber trust. The integration of Artificial Intelligence (AI) in detecting and preventing fraud was emphasized as a key innovation, not only for safeguarding revenues but also in enhancing collection rates. This focus on AI and advanced security measures is essential for supporting overall business growth, demonstrating a proactive approach to the challenges posed by digital fraud.
Net retention rate:
A key focus was the stark contrast in the costs associated with customer acquisition compared to retention. With acquisition costs soaring to 3-8 times higher than those of retention and expansion, the discussions underscored the importance of focusing on nurturing existing customer relationships to maximize lifetime value. This approach is exemplified by “Super Retainers,” companies that excel in launching new offers and iterating on their subscription models to embody total monetization. These entities have demonstrated agility in adapting to market demands by introducing new rate plans, payment methods, and subscription changes, thereby achieving greater customer acquisition, satisfaction and revenue growth.
“84% of the fastest growing businesses in our database have a net retention rate which is higher than a hundred percent.”
Customer journey:
In expanding on consumption models, the discussion turned towards the broader customer journey and why it’s crucial to consider the unique value proposition of each business model, particularly in sectors like publishing. Consumption models alone don’t always make sense for all businesses. Some executives in the discussion mentioned that paying per article is not entirely conducive to their subscriber relationships, where users pay for the ongoing experience. As noted by James Henderson, SVP, GTM Innovation, Zuora, “The essence of subscribing to a publishing service transcends the individual value of paying for one specific article; it encompasses the broader experience and anticipation of future content- The next article, the next month, and the experience for the year.” For consumption models to be truly valuable to customers, businesses must think about the bigger picture, adopting hybrid models, segmenting for relevance, and looking at the whole user experience.
Looking Ahead
We hope you enjoyed this event to define and discuss the future of subscription businesses. As the subscription economy enters a new era, the call to action for businesses is clear: embrace flexibility, foster innovation, and remain customer-centric.
Stay tuned for more updates and join us in our mission to redefine modern business and help subscription companies embody total monetization.
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