Creating Consumer and Business Value with Subscriptions

‍Subscription-based business models have proven to be effective in customer retention, thereby ensuring cash flow and low cost of customer access to products and services. Subscription businesses have grown 300% from 2012 to 2018. Research firm Gartner has predicted that by 2023, approximately 75% of the organizations directly selling to customers will offer subscription services. 

The subscription model ensures recurring revenue and cash flows vital for any business to sustain. It helps in developing better customer relationships and retention. Many companies offer deals and discounts for subscribers, thus enhancing the appeal of the products and services.

Business Value

For businesses, the cost of acquisition of a customer through promotions or lead generations can entail huge expenses, effort, and time. It is easier to do business with existing customers than trying to reach out to potential customers. Customer acquisition cost is measured by total spending on marketing and sales divided by the number of customers acquired. Average customer acquisition cost for B2B SaaS is $205, Business Consulting $410, Construction Supply $212, Consumer E-commerce/Retail $87, Financial Services $644, Higher Education and College $862, Industrial IoT $557, Point of Sale $680, Luxury Real Estate $660.

Customer surveys and ratings are easier done with subscription models. When customers don't opt for renewals, the company can find the reasons and make the necessary product or service changes. Hence, the subscription model greatly enhances business value. 

Traditional industries such as automotive and consumer products are also adopting subscription models. BMW, Mercedes-Benz collections, and Porsche Passport allow users to access the vehicles for a monthly fee.

Consumer Value

Subscription models help save the time spent by consumers researching new products and aid the discovery of new products. The model reduces the cost of acquisition of a product, and payments have to be done only on a monthly or annual basis. Consumers get to try a product offered by the company and cancel subscriptions within a trial period of one or two weeks.

Subscription Models

Various models have been tried out by businesses, including the Subscription as a Service (SaaS), subscription boxes, streaming services subscription, food service subscription, health and wellness, publications, and newsletters. 

Some examples of SaaS are Salesforce, Dropbox, G-suite, Slack, HubSpot, among others.  

SaaS helps users access software hosted in the cloud and is mostly self-service based, low on maintenance cost. Popular offerings on the cloud include Adobe, Zoom, and Dropbox, to name a few. 

The subscription box model helps consumers get additional products in a box such that the cover price of the package will be lower than the combined cost of the items inside it. Streaming services enable users to watch premium TV content, music, or movies for a monthly subscription.

Customer Relationship Management (CRM) tools will ensure sharing of data among teams, streamlining organizational workflow, which is vital for subscription-model businesses. 

The subscription-based services provide an excellent opportunity for customer retention and avoid increased costs on customer acquisition. Businesses need to evolve key performance indicators to measure the progress of subscription-based services. 

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