Have you wondered why subscriptions as a business strategy have become so popular? It seems like a new idea that so many industries are using but do you know why it works so well? And do you have any idea why it might not always work? Read on and I will do my best to answer all your questions and more.
Can you stand a little history?
Subscription is definitely not new. A little forgotten maybe – but not new. It was started by publishers in the 17th Century as a way of getting books (which were really expensive) into the hands of more people. You could subscribe to receive just one chapter at a time to spread the cost out and keep the interest going for much longer.
A few other industries embraced it – in my young years buying vinyl records was often done by subscription but books and magazines (including National Geographic) were the mainstays.
That has changed remarkably in the Internet era and now you can subscribe to huge numbers of services and products with more opportunities opening up every month as more and more businesses use subscriptions as a business strategy.
What is subscription exactly?
Subscription just means charging customers a recurring fee (usually monthly or yearly) for a regular delivery of products or access to services.
A survey by McKinsey and Company shows that 46% of Americans pay for online streaming and that 15% have subscribed to an online service in the past 12 months. I would imagine that the figures are likely to be similar for other wealthy nations too.
Subscription may start as what is called a “Freemium” service where you can sign up for free but if you want more features you pay a monthly fee. Dropbox, Survey Monkey, Mailerlite and WordPress are all examples of this.
Then there are subscription boxes such as Hello Fresh, Graze, Stance and Dollar Shave Club who deliver products to you weekly or monthly. And the huge growth in just what you can buy via subscription will probably surprise you enormously.
You can also subscribe to membership sites which can educate you in everything from playing an electric guitar to building your own robot.
Or you can subscribe to businesses which make air travel cheaper, offer you the use of cars without the ownership, allow you to use power tools for DIY or ensure that you look the sharpest every morning in the gym. Subscriptions as a business strategy are everywhere.
Why would you bother to even consider it?
The reason that they are becoming so popular is that they are valuable in getting repeat business from your customers and allowing you to grow your revenue without having to find all new customers every month.
If your customer is satisfied with your service or product and sees value in what you are offering them it is a way to keep them buying regularly. And most people like the automatic way that subscription works so most of them will stay as on-going customers for as long as they continue to see the value in what you offer.
When you incorporate subscriptions as a business strategy you are ensuring that you make the most of the life-time value of each customer rather than constantly finding new customers or offering incentives to get them to buy again.
What kind of subscriptions are there?
A common form of subscription is based on access. You go to a website and can view some of their content for free but if you want premium content then you have pay to join. These membership subscriptions work for many different types of industries including newspapers and education.
Then there are service subscriptions where you receive new products weekly, monthly or yearly. Think food boxes, razors, clothing, books and many other items.
The streaming subscription has become very popular. It used to be that you had to have a special box on your TV to watch subscription programmes but now you can take your subscription anywhere via your laptop or phone.
There is also a mastermind model where you can receive coaching to improve any aspect of your life from a mentor and also where you can network with others to increase your opportunities of making positive changes.
Sometimes subscriptions come as an add-on to a product that you buy. This works particularly well if the item is a big-ticket item and the subscription offers you even further value and may be the reason you decided to make a buying decision.
Other subscriptions allow you to join with a large group of people which allows you to benefit from economies of scale and the fact that not everyone will need to use the service at the same time. Think medical insurance, pet insurance and computer protection services here.
And some subscriptions allow you to join a very small, elite group which can be very appealing to some people who like the idea of being part of select few.
So, subscriptions as a business strategy cover anything and pretty much everything that you can think of and may already buy.
Getting the price right
If you decide to delve further into this strategy you will find that pricing your offering is going to be a very important consideration.
Many businesses using subscriptions as a business strategy use tiered pricing as a way of satisfying more customers long-term. They may offer a lower price for a more basic service or product and add value to a more expensive offering with better quality or added-on services.
This allows them to target a range of different customers who see value at different price points without under or overselling their products or services. I am sure you can immediately think of examples where you have decided between basic, medium and premium offerings when making a buying decision.
Pricing can also be an important strategic tool which you can use to reward regular customers. Don’t you just hate it when you subscribe to something and then you see an offer which is for new customers only. If only they were smarter they would see that rewarding existing customers as well as new customers will work so much better to maintain their business over a lifetime.
But don’t imagine that your pricing will be set in concrete – far from it. As you grow your customer base you can develop and change your pricing to match the changes that occur in the market. Any price increases will need to be matched with increased value or customers will be tempted to look elsewhere. In fact, many successful businesses only increase the price for new customers never existing customers.
What about the negatives of subscriptions as a business strategy?
When you look at going into subscriptions you need to be aware that many people will be concerned that it can be easy to sign up but very hard to sign out and quit the subscription.
Sadly, there have been plenty of unscrupulous businesses in the past who have made it really hard for their customers to unsubscribe. So, if your customers have ever experienced this then they may be wary of signing up with you.
To counter this you need to be very upfront about how easy it will be to defer or cancel the subscription at any time. By doing this you will reduce the perceived risk and are more likely to have customers return to you if they do defer or cancel and later regret it.
The food box subscription businesses are very good at doing this and certainly get more repeat business at a later date because of it.
Another negative is that it is very hard to predict what your customers will use each month if you are sending products. It is likely that many of your customers will receive too little or too much.
Again you need to be able to offer flexibility if you want to maintain a happy relationship with your customers. You might offer different sized packs and let them change the size they want easily or make it really easy to defer deliveries if they are over-stocked.
When you focus on the long-term value of each and every customer then building flexibility into the subscription should help you to retain them as a customer for as long as possible.
Some of your customers may become bored with what they are receiving from you. If they are simply receiving exactly the same products or services every month the pleasure of receiving it can diminish very quickly.
What some successful businesses are doing to correct this is that they offer a curated subscription. It will contain the basic same items or services but have selected extra items which the customer does not get to choose.
So a wine subscription service might send the same style of wine that you prefer but also the subscription will include a different wine which you might also like if you just gave it a try. Or the subscription could be for wine and cheese where you choose the wine but the cheese is selected (or curated) for you.
Another factor to weigh up is that of subscription fatigue. Are your customers simply getting too many subscription offers and are therefore not sure that they are interested in yet another one?
To overcome this you might want to consider offering a discounted starter pack which allows them to try without a large cost to them. Once they enjoy your particular subscription then it will be easier for them to decide to continue with you.
What do you have to be aware of when using this strategy?
Subscriptions as a business strategy will mean that you have to be above average in these two parts of your business – customer service and providing value.
Let’s start with customer service. To sign customers up will require a simple, accurate process and the invoicing must also be effortless and accurate. You will need to offer a great payment system or it will be hard to convince your customers to take your offer seriously.
This is so important that you should ensure that you have set it up, tested it, de-bugged it, tested it again and invited a few selected customers to try it before you let it loose on the digital world.
Nothing is worse than having potential customers give up during the sign-up process because it is “buggy”, slow or asks for unnecessary detail. Supreme customer service has to begin before they actually buy from you so you develop trust about the transaction.
If you are not prepared to really do a great job in this area then it is best that you don’t consider this business strategy at all.
When it comes to providing value you need to understand that what someone sees as of value today may not be the same tomorrow.
So you need to be constantly reviewing your offering and getting feedback from your customers. You have to be flexible and willing to change or you may find yourself losing ground to your competitors.
Value can be driven in a number of different ways but the easiest way is to ask your customers what they think and then make constant improvements from this feedback. Mention the name of the customer who made the suggestion too.
Be there when your customers need you – being accessible is an important value-added feature because so many businesses simply won’t be. We all hate hanging around trying to get hold of someone if a product or service has a problem. Stand out for your customers by being easy to contact.
You could also consider sending them something extra or upgrading them for free. Being thanked for being a loyal customer with an unexpected gift adds huge value to your relationship with that customer.
If you can, it is also great to include your customers in your social media posts. We all like to be in the limelight sometimes and again it will add much more value than the small amount of time it will take to action it.
Whatever you decide to do be constantly looking for new ideas and ways of making your customers happier and they will make you happier by staying around and buying from you.
Is this a business strategy that would work for you?
Having read this far you are hopefully seriously weighing up whether or not subscriptions could be a great strategy for your business. But before you go any further you need to check out other businesses that use this to understand what is involved.
If you don’t already you need to take out some subscriptions to find out how they work and what you like and don’t like about them.
You need to understand how they are changing your industry (this is likely to be overseas but could be here) and you need to understand what your competitors are doing.
Being the first to act in developing a business strategy in your industry can be very exciting but sometimes being later but better makes more business sense.
If you do decide to try subscriptions as a business strategy please let me know – I love to hear your stories.
©Robyn Forryan 2020
The Biz Coach NZ