Are subscription businesses better equipped to handle a crisis?
The recent coronavirus pandemic has taught us quite a few lessons. One of them is that an economic crisis can come knocking on your door without warning, and there’s no backdoor for you to escape.
The world has moved into a recession. Companies are struggling to stay afloat. More than 30 million individuals have filed for unemployment in the US. How then, do you plan to keep the motor of your company running, given that the buying power of your customers has decreased tremendously?
Subscription businesses have a better chance of survival during a crisis, be it a recession, a depression, or a pandemic. Put yourself in your consumers’ shoes. Given the economic turbulence, you have decided to cut down on your spending. What would you rather give up- multiple one-time purchases, that end up being heavy on your pockets, or short-term subscriptions that turn out to be more economical?
Take the example of subscription-based OTT platforms. According to Thehindubusinessline, Zee network’s OTT platform, Zee5 witnessed a 100% growth in the number of its subscribers during the worldwide lockdown. Hungama Play saw an increase of over 20% in its viewership. The other major players like Netflix, Amazon Prime, Hotstar also experienced significant growth in their user base, given that users were looking for constant entertainment while stuck at home.
The same cannot be said about TVoD platforms, where revenue is collected on a pay-per-view basis. With limited resources to spare and an unlimited amount of time to kill, users were left with a tough choice between paying for every single piece of content separately, leading to a large cumulative bill, vs paying for a cheaper subscription that gave access to unlimited content.
Naturally, the subscription model emerged as a clear winner!
As a business, during difficult times, it’s a good position to be in if you predict your cash flows and plan accordingly. You wouldn’t want to be left with a long list of bills to pay and no money to do so, just because you didn’t know how much revenue you were going to bring in, and incurred expenditures irrespectively. Switching to a subscription-based model provides stability and helps sail through a crisis through planning and foresight.
Here’s why a subscription-based business model is better equipped to handle a crisis.
1. Customer Retention
When you’re not operating on a subscription-based business model, and focus on making one-time sales, you don’t really care about customer retention. Your aim is to get as many new customers as possible and generate revenue from them.
During the time of crisis, not many new customers have the resources to make one-time purchases. Repeat sales from regular customers are what keeps your business going. Since you share a relationship with the customer in a subscription-based business model, they are more likely to continue their subscription services even during an economic crisis.
2. Value For Money
Value for money is especially realized by customers when they have limited income streams and therefore, limited funds to spend. By providing a subscription-based model to your customer, you’re providing them with greater value than a company that offers a one-time service.
For example, customers will not buy a car when they are struggling financially. But they are likely to subscribe to a self-drive car-leasing company, that fulfills their need to commute by paying a nominal subscription fee.
3. Upselling and Cross-selling
While it is difficult to acquire new customers during difficult times, it’s comparatively easier to cross-sell and upsell to your existing customers. You already know what these users like based on the kinds of services they have subscribed to. You can take advantage of the data that you have about their preferences and pitch your other relevant products to them.
You’re indirectly acquiring new customers this way without spending a bomb on advertising.
4. Recurring Revenue & Cash Flow Predictability
Subscription businesses have an upper hand when it comes to recurring revenue during a crisis. You don’t have to worry too much about acquiring new customers as you still have income from your existing customers.
You know how many customers you have and what your churn rate is. Based on that data, you can predict your cash flows for the subsequent months and chart a course of action, with respect to your manpower requirements, operational expenses, and advertising costs.
Impact on Subscription Businesses During the Coronavirus Pandemic
While the entire world is reeling under the effects of the pandemic, witnessing a drop in their revenue, losing customers by the day, subscription-businesses are largely unscathed. About 53.3% of these businesses have reported no significant impact, according to a report published by a renowned CEO. The companies that did witness an impact, have seen slowing down of their growth rate, but they are still growing.
Here is the trend that subscription-based companies have seen during this pandemic in terms of the percentage of businesses.
The following sectors have noticed a growth of more than 25% :
1. OTT services
- OTT platforms experienced a growth of more than 7 times in March 2020 alone, as compared to the previous year
- People forced to stay at home were constantly seeking sources of entertainment and OTT platforms were an obvious choice
2. Online Education
- With schools and colleges shut all over the world, e-learning was the need of the hour. The number of subscribers in this sector grew by around 300%.
3. Digital Media and News
- With the constant need for up-to-date information about the happenings around the world, the digital media and news sector saw a significant rise of more than 25% in their subscriber-base.
4. Communications services
- While most of the world was working from home, the need for video conferencing and virtual meetings increased significantly. As a result, communications software like Zoom and Google Meetings saw exponential growth in the number of subscribers.
Your business may or may not have been impacted due to the pandemic. But it’s important to learn from the successful players and know what it is that they did right. If your customers are still loyal to you, there’s no saying how long they will remain so. It’s necessary to offer them something they value. It’s time to re-engineer your business to a subscription-based model to make it more resilient during a crisis.