We normally relate subscriptions to that of magazine subscriptions, such as the Harvard Business Review many of us may have signed up for. But, what was once limited to a specific type of industry, media, has now become a popular business model that is touching literally every industry: from groceries to cosmetics, from toiletries to toys, from mobility services to retail, from video streaming to music and last but not least, heavy machinery and financial services. To comprehend the dimension of this phenomenon, consider this number: 89% of Brits are subscribed to at least one subscription service and that doesn’t include utility providers.
Traditional businesses have been challenged by the rise of the subscription economy. Stories of Dollar Shave Club, Netflix or Spotify have already made it onto the business case studies shortlist for MBA students after creating significant pain for the executive board of their longstanding competitors.
“The reality is ownership is dead; now it’s really about access as the new imperative.”
Why consumers love subscriptions
People don't actually like subscriptions, but they do like a fulfilling end-to-end experience. Add to that, greater personalisation and a more meaningful set of benefits, and the subscription model starts to stand out as the better option in the consumer's perspective.
As the world of commerce is continuously changing, companies cannot afford to stand still. Thus, a great shopping experience becomes a must-have, not a nice-to-have, and in the subscription economy this can be achieved by offering consumers continuous value, memorable experiences, accessibility anytime and anywhere, instant fulfilment and, above all, a personalised service.
Top reasons why consumers love subscriptions
Fears that immobilise managers from making the subscription shift
Mastering the subscription model
Vying for consumer's attention is the ultimate difficulty, as a 2018 McKinsey study highlights, with only 53% of consumers being aware of just one of the top subscription services mentioned in the report. The percentage doesn't improve much for conversion, with only 55% of those who consider a service ultimately subscribing, and this probably relates to our human culture of reluctance to sign-up for long-term commitment.
However, the bigger challenge facing subscription eCommerce companies, as McKinsey points out, is churn, nearly 40% of eCommerce subscribers have cancelled their subscriptions at a given point. "Businesses depend on their long-term relationships to provide predictable revenue growth and deep insights into customer behavior to personalize the experience. Churn can dramatically undermine their viability, since the cost of replacing lost subscribers could not only make it difficult to meet their growth objectives but also quickly drain their cash reserves."
The equation to solve - what are the new KPIs
The subscription eCommerce market continues to grow quickly. Business managers must concentrate on developing great experiences, not just great subscriptions, if they are to avoid churn rates and accelerate business growth and profitability. New software tools are essential to create, manage and track subscription performance. But, what are the specific KPIs a true business leader must follow to achieve success? Based on the advice of Tien Tzuo, CEO & Co-Founder of Zuora and the person who coined the term 'The Subscription Economy', the following metrics must be tracked:
Actions that managers can take to start exploring subscriptions
A subscription mindset
As a first step, managers must adopt a subscription mindset, they must put the consumer experience first in everything they do, analysing the core consumer needs and meeting these in the most effective and efficient way. This is the cornerstone of the subscription economy if businesses are to ensure continued success in their industries.
Moreover, managers should be prepared that transformation is a timely process and business results will only start to show after a period of time, therefore, patience and perseverance are important characteristics to have as part of the mindset needed to drive the change.
Understanding the areas of change
Shifting to a subscription offering will require major key areas of transformation throughout businesses, management must embrace and champion the changes, both physical and mindset:
The subscription eCommerce market is growing fast, recent years showing a growth of more than 100% year on year. Every day, we see the evidence that more and more industries are being transformed by the subscription economy. A business model that was once accustomed only to media has now become a reality spreading across the entire business world, and growing almost daily. We cannot deny the importance of the subscription economy and its effect on the business of tomorrow.
In the words of Tien Tzuo: “If you’re not shifting to this business model now, chances are that in a few years you might not have any business left to shift."
This article was created and written by Luigi Matrone - CEO & Founder of the eBusiness Institute. It was originally published on the eBusiness Institute Blog on May 20.
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