The ins and outs of the so-called ‘Subscription Economy’

Looking closely at this subscription phenomenon, you could say that we are witnessing a strong summer storm because this trend acts just like a lightning.

Did you know that lightning follows the path of least resistance, going exactly where minimal resistance exists?

What’s your relationship with your customers? To put it differently, when a customer starts behaving in a way that might be less convenient for you, considering that you have certain goals to accomplish, are you going to resist and correct or start dancing on a new tune? Most likely, it’s option no. 2.

Don’t worry, we all do it. The client is our master. It’s always been like this.Coming back to the topic, it does appear that what seemed to be a trifle, choosing access over control, turned into a world widespread trend. This new pricing model has redefined our society, our customers and ultimately, our economy. We no longer sell products, but grant access. Why is this better? Wait, is it better? Should you be happy or sad? Well, it depends on who you are asking, but in essence, all voices tend to say a firm and powerful yes.

This is the age of subscriptions and we should all be rejoicing, with a few but’s, of course. So, let’s start with the good news.

Here are the pros

Subscriptions build loyalty

Economy goals are shifting. Profit remains a priority of course, and it’s safe to say that this goal will never be overthrown. However, the manner in which this goal can be accomplished has suffered changes. We are looking at the customer as the primary source of inspiration for all our endeavors. So, when hearing that a new pricing model is ready to strengthen the bond you build with your customer, you might wonder why companies are not in a hurry to capitalize subscriptions

It just seems like this is a goldmine and people are just saying no. Subscriptions are a different approach to servitization, as the focus of your business goes to improving, improving customer service, the product itself even, coming up with real solutions and providing the customer the opportunity to make better use of your service. The fact that through the subscription model you are in a permanent connection with your client is an incredible gain.

Time to grow, time to impress

There is something really attractive about the subscription model and that is time. You know how people are constantly complaining that there isn’t enough time, that time is passing them by? Well, these sayings are just as valid in the world of business as they are in your personal life. There is a product cycle. You have a concept, you begin to design it, turn it into an actual product, sell it to your public and move on to the next one. This was all fine and dandy, but what happens when you live in the age of speed and the life of your product is significantly shortened?

You might have the misfortune of being in a full-blown selling process when your competition releases something better, something that overthrows your product. Your sales are dropping and you just don’t have the time to make a huge comeback. That’s the queue for going towards subscriptions. Subscriptions offer you time and while you are busy creating, your customers are busy paying. You have one product and that product keeps up with time by means of its versions. This way, you are safe doing your magic.

Long-term revenues beat short-term ones

We know, seeing the numbers pile up in is a feeling hard to explain in words. When switching to subscriptions, the zeroes aren’t rolling up in such a large number. So at first, there is a disappointment in the air. Still, when you see a steady revenue source, when you notice that long-term income, a smile appears in the corner of your mouth.

Plus, you need to remember, always, that in terms of customers there is an undrained source out there that just needs to be reached properly.

As mentioned, according to the growth in terms of profit, since 2011, it’s pretty obvious that customers are inclined to choose subscriptions over ownership. So, really, even if you cannot fight this phenomenon called subscriptions, you could start enjoying the long-term, stable source of revenue they represent. And by the way, I think we have all learned our Gordon Gecko lesson on a fast track to profit.

We’ve been hearing the term subscription economy and while it seemed a bit far-fetched at first, at a closer look, the concept does describe the current situation accurately. Why, you ask? Well, if we were to take into consideration what the people at McKinsey & Company are telling us (and why wouldn’t we?), it seems that the subscription industry is blooming. According to them, we’re seeing “more than $2.6 billion in sales in 2016, up from a mere $57.0 million in 2011”1. Obviously, this can be considered a significant growth. Surely, you agree. So, when hearing Tien Tzuo, the famous economist, name our society a “subscription economy” all lights turn on in our brains and we start to get ideas. That is in case we are part of the businesses which have not been riding the wave already.

Here are the cons

Switching can be such a drag

Switching to subscriptions can be a real drag indeed. While customers could not be more thrilled about the switch, developers can find themselves in rather complicated, complex situations. At first, the amount of work and cost behind this endeavor can exceed the revenue and for a brief moment, you start to question your decision.

However, you must not give up and when hard times comes, always remember this statistic: by 2020, all new entrants and 80% of existing players on the market will offer subscriptions.2

Being left behind is never a good option, so use all your weapons and push forward. Ensure flexibility, leverage analytics, educate your sales and customer service teams. Use the defining subscription features to engage customers and make the transition as smooth as possible: attractive pricing and feature diversity.

Pressure, pressure: when subscribers don’t come back

So, just when you thought that the switching chaos passed, another one is lurking behind the corner. Seeing the number of subscribers getting smaller is never a pretty sight, that’s for sure. While the subscription pricing model has increased in terms of popularity, responsibilities regarding customer experience increase as well. It is reported that 40% of e-commerce subscribers have canceled their subscriptions as a result of a faulty experience.3 No pressure, right?

It’s safe to say that when switching to subscriptions, you are not just getting ongoing revenue, but also a never-ending responsibility to improve the customer’s experience.

Yes, we are the subscription economy. Yes, there is no turning back now. Yes, there are plenty of advantages involved and it’s a pity not to enjoy them.

No, there is no reason to fight the wave, it’s definitely here to stay. No, you have nothing to worry about. Being part of the subscription empire is the only valid option you have and if that’s all you have on your table, you might as well make the best of it, right?

Notes:

1 https://www.mckinsey.com/industries/high-tech/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers

2 https://www.gartner.com/smarterwithgartner/moving-to-a-software-subscription-model/

3 https://www.mckinsey.com/industries/high-tech/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers