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Subscribing to the Subscription World, a business model that’s here to stay.

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9

Sep, 2019

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What’s common to The Wall Street Journal, reggae music, meditation classes and healthy snacks? For a small recurring fee, you can get access to all of these wherever you are, whenever you want.

Welcome to the subscription world. A world in which businesses, even those in the services industry, are productizing their offerings by making them easier for customers to buy and use.

Take Netflix for example. To a customer, Netflix represents choice, content and a streaming video service. But what is Netflix actually selling? It’s not content, for a customer does not pay for a specific title, nor a service. Rather, it is the product of entertainment on demand: standardized and customized at the same time. And instead of a one-time all-access fee, Netflix gives you multiple ways to pay for viewing its content, where each way is in fact a product on its own merit.

“Don’t find customers for your products, find products for your customers.” Seth Godin

In the past 7 years, subscription businesses across North America, Europe and APAC have seen their sales grow by 300%. There are a number of factors fueling this growth: cost-effective digitization that has enabled electronic bookkeeping, making it easier than ever to buy, sell and settle online; mobility solutions and high-speed data networks that have enabled near-instant communication and delivery; advanced analytics that can identify underserved segments and discover new ways to sell.

What makes this model so attractive to businesses? Let’s take a look at some of the reasons.

#1 Increasing customer lifetime

The cost of acquiring a new customer can be 5 times as much as that to retain an old customer. The subscription model can help businesses focusing on retention by creating a closed loop with each customer. By splitting the average life-time value of a customer into small enough parts that the customer deems it more than justified by benefits, a well-structured subscription model can well be the cash cow organizations look for.

A number of SaaS businesses, from WordPress to Mailchimp and Shopify, work on this model. They offer subscription plans at different flat fees payable monthly, quarterly or annually.

Source: Mailchimp.com/pricing

#2 Getting repeat business

The subscription model works really well in situations where there is a repetitive purchase need for the customer. Grocery is one example; personal grooming is another. For customers who do not want the hassle, physical and mental, of having to shop for the same things every month, this is as close to a personal assistant as it gets.

#3 Understanding customers better

The world’s most successful businesses have developed a fine understanding of their customers by analyzing the millions of customer data points they capture. These insights help these brands build a deep and meaningful relationship with their customers across multiple touchpoints. By observing the behaviour of customers, they can also get early warning signs on whether the customer is losing interest or has changed his/her preferences; this gives them more time to entice them to stay on. It makes intuitive sense that the longer a business’ relationship with its customers, the greater its learning about them. A subscription model, by its very nature, helps the business extend this relationship and build brand loyalty.

#4 Finding new opportunities for customer delight

In 2018, 55% of all subscription boxes sold were curation-based; which means customers often had no idea which specific products they would find inside each month. Play! by Sephora, for instance, promises to send its subscription customers a selection of the ‘top products from the most buzzworthy brands’ in its monthly beauty box. Blue Apron, on the other hand, lets you select your meal/dietary preferences but also shows you what’s on the week’s menu.

#5 Tapping new customer segments

Launching a subscription line is a great way for businesses operating the traditional way to reach a whole new audience segment. Just recently, Walmart launched its own unlimited grocery subscription service to cater to the customer segment that preferred the convenience of shopping from home, and might therefore never walk into a Walmart store.

The next big thing…is here.

Despite being a multi-billion dollar model already, the subscription world is still a long way away from realizing its full potential. As more and more industries discover ways of adapting their strategies to take advantage of this new paradigm, companies that do not fall in are at the risk of being left out of a new world order in which the customer is going to be truly spoilt for choice.

By : Yogesh Potdar

Yogesh Potdar has over 15 years’ experience in Pay TV & Media domain. He has works with operators globally to help them monetize their services, reduce churn and increase ARPUs. At Magnaquest, Yogesh heads the Business Development for Americas and Africa regions and leads OTT initiatives. Magnaquest is internationally acclaimed player in comprehensive end-to-end Subscription, Billing & CRM Solutions for Pay TV, OTT, Broadband and Cloud Computing businesses.