Trend Report: The Subscription Economy

The business of subscriptions is hardly new.  Long established businesses like newspapers have been managing subscribers since the 19th century in one form or another.  A newer trend is the practice of products in the traditional pay-per-item space moving their business models towards a subscription based business.  

The term “subscription economy” was coined by software as a service (SaaS) provider Zuora to describe this practice.  As business leaders or marketers, it’s likely we have a range of SaaS products in our toolkits. Some very successful New Zealand businesses have made names for themselves  in this space, from accounting software provider Xero through to inventory management software provider cin7. Chances are your social media monitoring tool, marketing automation software, payments provider and more are all part of the subscription economy.

Warc.com, monitors advertising and marketing best practice from across the globe looking at the world’s leading brands. In their Toolkit 2017, they picked out the move for brands to go direct to consumer as one of the key trends for 2017.  We’re all familiar with brands using mobile as a direct to consumer disintermediation strategy with wildly successful examples like Uber and Airbnb but they also picked out the innovative use of subscription services as a key trend to watch in 2017.  Part of the appeal of subscription based models is the access to a new stream of customer data, a competitive advantage to businesses over traditional retail models where the brand has less access to customer information.  That global giants are recognising this can be seen in UK based Unilever’s $1 billion acquisition of challenger brand Dollar Shave Club, giving it a 5% market share in the US razor market.

Not relevant to your industry?  How about Cadillac, who has launched the Book by Cadillac subscription service. For $US1,500 a month the manufacturer says they can eliminate the hassle that comes with owning a car.  Subscribers can swap between the current year’s models up to 18 times per year allowing them to have a vehicle to fit their needs be it around town driving or a weekend ski trip.  Vehicles are delivered by white glove concierge service, all driven (excuse the pun) off another feature of the new generation of subscription economy innovations, a convenient mobile app.

Traditional subscription service providers, and not just the media, can expect to feel the pinch as new and innovative subscription services models find new ways to deliver services to consumers.  Take the example of innovative fitness technology company Peloton, who has established a $US150 million dollar business providing internet connected fitness bicycles into people’s homes.  The bikes themselves are not cheap, costing a cool $US2,000 with a subscription model to go with it.  While similar to what’s on offer at a spin class, for consumers that don’t want to battle traffic to be in a room full of other sweating exercisers, Peloton offers an immersive experience from the comfort of your own home.  And like the best subscription models, the bike’s onboard computer collects a myriad of data on users’ workouts allowing them to create a better experience for their subscribers.  Not content with the home bicycle market, they are looking at a commercial model giving them access to gyms and even other exercise forms, as improbable sounding as yoga.

In New Zealand, the poster child for a successful direct to consumer subscription service launch is My Food Bag, which needs no introduction.  With more than 50,000 subscribers, it would rate as probably New Zealand’s most successful subscription service launch to consumers in recent history, attracting venture capital investment in late 2016.

For business owners and marketers, what does this mean?  All of these businesses are able to acquire vastly more information about their consumers than traditional businesses, which they can use to deliver better customer experiences, better retention and business ROI.

Best practice subscription businesses like My Food Bag and Fairfax Media’s Stuff Fibre are so confident in their offering that they have broken away from the traditional model of term contracts.  Instead these businesses, give their customers the convenience and flexibility that they want, and now expect in every aspect of their lives.  On the other hand, the subscription model does allow for businesses to test a variety of pricing structures and plans to optimise business outcomes and customer satisfaction.  With strong digital offerings, businesses are able to test price points and offers in real time.  Advances in conversion rate optimisation offerings through businesses like Optimizely and Adobe Target allow real time marketing to consumers at the instant they hit your website or app.

Many of the most successful subscription businesses are also first movers in the customer experience space, recognising that the subscriber is at the centre of their business.  Smooth, consistent customer journeys to sign up, renewal, exit and reacquisition result in better business outcomes.  This includes providing channels and talking to customers in the way that they want to be spoken to.  With the data available to subscription businesses, they can have remarkable power to control and optimise the customer experience and personalisation to customers.

The last key success factor that nearly all of these businesses have in common is that they have been built to be able to scale quickly, while maintaining a great customer experience.  Companies like My Food Bag have been able to deliver the same great experience to customer number one as they have for customer number 50,000 and more.  The same SaaS companies that are early adopters of subscription technology are the same ones enabling businesses outside of this space to be able to automate processes and marketing activity, across CRM, social media, marketing automation, content management and ERP, among other functions.

Brand to consumer subscription service is leading business innovation nationally and internationally. A myriad of businesses, across as many industries, continually prove that subscriptions are sustainable and dynamic, offering them for everything from car-hire to grocery shopping. While SaaS technology continues to grow exponentially, it may be time to ask how your business can adapt to this new service or if you can expect to be disrupted.

 

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Grant Torrie is Fairfax Media's acting Chief Marketing Officer and Audience Growth Manager.  He and his team are passionate about looking at new ways to engage with audiences and the best  use of technology to do it.

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