Last modified: September 7, 2017
This originally appeared in MultiChannel Merchant.
Many online shoppers today have a “thing” about commitment. Increasingly, their purchasing decisions are shifting away from a traditional “ownership” model where they buy a product and own it over the long haul to an “access” model where they pay for a subscription based on short-term access or actual use. To accommodate these evolving consumer preferences, industry analyst Forrester Research sees companies moving in a similar directions. “Firms are shifting from one-time perpetual sales or fixed monthly subscriptions to consumption models that blend onetime, subscription, and usage-based billing*.”
What’s driving this market trend? In three words: flexibility, convenience and value. Consumers want the flexibility and convenience of paying only for what they use, as they use it—with little or no up-front investment. And they want to extract even more value out of the products they do buy. The end result? A renewed interest in a longstanding business model — subscriptions.
You see evidence of the subscription trend everywhere today. Netflix singlehandedly buried the brick and mortar media rental business, moving the industry almost entirely to a subscription model. Likewise, Adobe has publicly led the charge in the software industry, transitioning away from sales of perpetual licenses of its applications in favor of subscription-based access. And some traditional branded manufacturers like NetGear are now evolving into services companies by selling add-on subscriptions to complementary services. For example, NetGear sells consumers subscriptions to video recording and monitoring services in-product to help them get more value out of their home security cameras.
The rise of subscription commerce is very good news for online brands that can pivot successfully and create new, recurring revenue streams, all while building and extending the relationships they have with their consumers. Want to add subscription commerce to your online business? Consider the following key questions.
Are subscriptions right for your product or service?
Subscriptions aren’t just for digital content anymore. The online subscription model is expanding to embrace a wider range of vertical industries, from consumer electronics to packaged goods. Just about anything that is consumable, repeatable or has a finite lifespan may be a candidate for subscription commerce.
Several mobile telecom carriers now offer consumers the option to lease and regularly upgrade their smartphones for an affordable monthly fee, rather than requiring them to make an upfront purchase. Even razor blades, refrigerator water and air filters, and dog food supplies can be replenished and delivered weekly or monthly to a consumer’s home for a nominal subscription. Regardless of the product or service, busy consumers enjoy a new level of convenience and value through online subscriptions.
Does it align with your business strategy?
There are a number of ways to deploy a subscription commerce model, depending on your online business goals. For some brands, it could be the key to opening new, direct-to-consumer online channels. A subscription model is ideal for building continuity programs that are well-timed for the delivery of specialty items. Or, subscriptions might make it possible to offer complementary services that enhance the use and functionality of products. For other brands, it may provide a solution for expanding their market by offering a lower price point option compared to the cost of purchasing the same product outright.
One deployment approach that can be extremely effective for some brands is the “freemium” strategy. This model, often used when companies first transition to a subscription offering, provides consumers the opportunity to try a basic version of a product for free while accessing additional features or services for a fee. This approach allows the user to “test drive” the product before committing to a subscription, lowering the barriers to entry for consumers and enabling the business to expand its user base. Consider the example of Spotify, which allows listeners to access its music library for free. To avoid advertising and listen offline, users must upgrade to the premium, subscription-based service.
Is your business infrastructure subscription-ready?
Depending on the type of service or product and the specific go-to-market plan, a subscription model may involve sophisticated strategies like time-based access, tiered access or metered usage. These introduce back-end complexities and a host of new infrastructure and management issues. How will you enable consumers to modify their subscriptions on the fly? How will you protect against piracy? How will you manage customer relationships? And importantly, how will you optimize renewals?
To address the new requirements of subscription commerce, brands need to invest in a business infrastructure that enables them to manage the complexities of this model while also providing the agility to keep pace with rapidly-evolving consumer needs and preferences. Companies selling physical products and a follow-on subscription to a complementary service also need to consider how to provide a seamless ecommerce experience both for the initial product purchase and the subsequent subscription.
Subscribe to the future
Subscription-based models are here to stay. The evolution in both consumer preferences and ecommerce technology is rapidly renewing interests in time-tested subscriptions strategies. Thinking strategically about your product or service, your business model and your ecommerce business infrastructure, will help guide your path toward a subscription-based future. Is your business ready?
Want to learn more about why smart businesses are implementing subscription business models? Read our white paper.