How the Subscription Economy turns businesses into friends

Subscription Business
From Monologue to Dialogue: How the Subscription Economy turns businesses into friends
By Sally Farrant and Oliver Viel

 

Imagine you are talking to a friend and no matter how hard you try to participate in the conversation, you keep being ignored. After a while you would grow tired of them because you were not being invited to converse. As humans we are conditioned to the understanding that communication is a two-way activity. In the business world, this sentiment is much the same and businesses which do not allow consumers to actively participate in communication will eventually start losing customers. Fundamentally, customers are only human and businesses must do all they can to ensure that they converse with their customers and make them feel valued. Yet, in a digital world where the consumer now demands more than ever before, how can customer relationships continue to be sustained and developed?

       Consumer expectations are ever-increasing as we continuously consume more, particularly in the digital space. Consumers are spoiled for choice and demand everything at once. As a result, business models must shift to accommodate with increasing demand in order to survive. Already every service leading provider has learned to be evermore customer-centric, but agile market players always seem to find a way to raise the bar even higher. An interesting example of this can be seen in a new Netflix feature that I read may soon be implemented as standard. The company is testing a speed-up capability which will allow users to adjust the play-back speed of shows they are watching to skip to the good bits. To me, simply the fact that this is being tested shows that customers are consuming at an alarming rate and Netflix is responding to this to further improve their customer-centric offering. Yet, if people don’t even have the patience to watch shows in real time, then what comes next? How will Netflix continue to develop their offering to please their customers? The answer to this boils down to continuous learning and adaptation.

       With all this happening, it’s easy to feel bogged down by the demands of 21st century consumers. However, businesses are developing strategies to accommodate these changing consumer needs. Across industries, up-front revenue models are slowly being converted to recurring revenue models, enabling companies to maintain regular communication with their consumers and learn more about their ever-changing wants and needs. This transformation is all part of the Subscription Economy, founded on the premise that customers are happier subscribing to the outcomes they want, on demand, rather than making a purchase and having to bother with the hassle of ownership. The modern day consumer wants ease of access and does not want to spend any more time acquiring and using products or services than absolutely necessary. Adding to this, owning products can bear many burdens; for example, If a product breaks, consumers don’t want the hassle of fixing it. Subscriptions remove this hassle altogether, because they sell the outcome, not the product. That is why Netflix is able to amend its offering to cater to the needs of the consumer so easily. Netflix provides a service and can adapt and react to the desires of their customers, increasing customer value and strengthening relationships.

       Another example of a brand which goes the extra mile to strengthen customer relationships can be seen in Nespresso’s coffee machine subscription offering. They allow consumers to become a Nespresso machine owner for an upfront fee and enjoy Barista-style coffee every day by subscribing to receive coffee capsules on a monthly basis. Subscribers gain access to their favourite coffee whenever they desire, without having to pay for an expensive coffee machine up-front. What's more, through usage-based tracking, Nespresso can learn a great deal about their subscribers’ preferences and coffee intake, which can all be used to optimise the future service and communication with their consumers. Companies which sell outcomes instead of product-centric models are able to continuously provide value for consumers over a much longer period of time because of the data they collect; as consumers and their preferences change, so too can the outcome offering develop. 

       Subscriptions and recurring revenue models do not only benefit consumers, but have significant benefits for businesses too. Companies are beginning to move away from offering one off transactions and are heading towards smaller, regular payments to smooth cash flow and enable predictable and recurring revenue streams. Adding to this, by nature, subscriptions are recurring and therefore require frequent communication and open the capability of creating strong and long-lasting consumer relationships. Through data collection and proactive marketing, businesses can engage with their consumers on a regular basis and create messaging that is relevant and meaningful to them. To illustrate this, let’s return back to our coffee example. Nespresso has incredible tracking capabilities and can understand a lot about the drinking habits of their consumers through the collection of data. For example, if a consumer switches drink or coffee bean preference, Nespresso will know about it. They can amend their marketing communications accordingly to cater to the needs of the coffee drinker and keep the consumer from churning. In doing so, the customer feels valued without even realising it, because their actions are being noticed and reacted to. The dialogue is in motion. 

       So what does all this mean for businesses? Well, at first glance, it may seem that the Subscription Economy is restricted to only some industries, such as media for example. But when you delve deeper, the diversity of the Subscription Economy unfolds. In reality almost anything can be a subscription; more and more we are seeing interesting and innovative subscription ideas, from fresh flowers, to portaloos to, plane engines, to razors. There is no limit. It will not happen overnight, but soon instead of owning things, consumers will mainly subscribe to a service and pay for the outcome, instead of paying for a product. And not only consumers, but also businesses too. For example, Heidelberg, the world's leading supplier to commercial, packaging and label printing company. They offer a subscription model which allows companies to print without investing in expensive machines. It opens the door to an end-to-end system for industrialized print production. They cover everything from service, ordering service parts, and selecting and providing consumables to continuous training for your staff for a fixed monthly rate. This enables reliable planning and frees up time so that businesses can focus on their customers. All this allows Heidelberg to maintain a strong relationship with their customers and tailor their offerings and messaging according to individual needs, building personal and reciprocal relationships.

       All that has been discussed leads to the obvious fact that retaining customers is essential when it comes to subscriptions. Churn is inevitable, as it is in all businesses, but keeping hold of customers and maintaining a positive net retention means that a business can flourish and grow. Retention stems from good service, as well as timely, tailored and relevant communication. By maintaining a constant dialogue with their customers, subscription businesses become life-long friends. Consumers value care and effort and companies must not ever forget this. Even when it comes to business, people are still people and want to be treated as such. In order to survive, businesses have to be a trusted friend, one who cares about the consumer, their preferences and lifestyle choices. Businesses must be adaptable and able to go on a journey with their consumers by conversing with them. By opening up the dialogue, subscription businesses will learn so much about the consumer, and be able to create value which benefits them both. Demanding consumers are a challenge any business has to face in competitive digital markets and there is no chance of it getting easier as time goes on. Right now, subscription business models are an innovative solution in delivering customer centricity and I am only too excited to see how this market develops and what will come next.

 

– Nov 27, 2019

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