What is the future for the subscription business model? Are subscription businesses going to grow or are customers going to avoid them? This article is going to look into the current trends and see what is likely to happen to the business model in the future.
The Current Status Of The Subscription Business Model?
In recent years there have been a number of traditional businesses that have moved from the old pay-per-use model to the subscription model. One of the best examples is Adobe, who has moved away from customers purchasing their software outright to a monthly payment scheme. Another example is the film rental company Netflix who offer customers unlimited rentals as long as they are subscribed to their service.
There are many advantages for these businesses. Firstly they can offer their products to a larger market as a small monthly fee is more manageable than a one off payment. Also, a monthly payment becomes less of a purchasing block in the customer’s decision making process increasing conversions and customer retention. Therefore, businesses can gain more value from their customers than they would do with a one off payment.
Another advantage is that a subscription business has more revenue stability; so businesses can accurately project their incoming revenue and determine what they can afford and what they can’t.
Customer’s View Of Subscriptions
Customers are continuously looking to improve their wealth and access to more luxurious goods while paying less for them and having fewer purchasing decisions. Subscription businesses are continually giving them these benefits. For example; Dollar Shave Club costs just $1 per month for a shaver and there is little decision making for the customer.
Likewise with online film subscriptions, the decisions for the customers are made easier. By having access to an entire library, customers are able to switch what they are watching if they are not satisfied with their choice. With the old pay-per-use model, the customer would be stuck with a bad decision and this would reflect negatively on their customer experience.
How Can The Subscription Model Grow
The movie rental experience can be replicated across many different industries. For example, if you sell food you could automatically package food for your customers and deliver it straight to their door. Customers can even give their preferences on what they prefer to eat so you can tailor each box.
This model could have several benefits for a grocer. Firstly, because demand is known beforehand, there is less product wastage. Secondly, products could be provided that are in season and therefore costs can be lowered. Thirdly, there is no need for large stores to display items – a website would be sufficient. This would again reduce running costs, giving the business greater profits.
The grocery market in the UK is already moving in this direction with some of their biggest grocers providing guaranteed weekly delivery slots that don’t need to be booked every week. The shopping list can even be put on repeat only to be changed slightly each week by the customer. Other food sellers do everything for the customer from choosing the food and delivering on a set day.
So What Does This Mean For The Future of Subscription?
The continuing growth of the subscription business model shows that there is a demand from customers for services that can be paid for on a monthly basis. Businesses are also showing that the model can work and grow the business’ profit, customer acquisition and retention.
The model is also applicable to a number of different industries from pet supplies to software applications. The only limit is the imagination of business owners. Therefore, the future is bright for subscription businesses and will continue to be so in 2015.
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