Subscriptions are now common in almost every sector. Whether newspapers or books in print or digital form, streaming services, food, or theater tickets, the list goes on and can be extended to many other areas. A subscription may relate to a service, a work performance, or a product or tangible good.
The market for products that are delivered regularly to people’s homes or used on a regular basis is growing steadily. Consumers do not only subscribe to familiar products, but also enter into subscription agreements for the regular delivery of surprise boxes from their favorite brand.
There are hardly any limits to the variety of subscription products. In addition to well-known forms such as video and music streaming subscriptions, there are now also subscription offers for the use of cars, for example. According to a Statista survey, there were around 40,000 users of car subscriptions in 2020. According to Statista, experts expect this figure to reach up to one million active users by 2030.
Consumable Products (Replenishment)
This model is based on replenishing products and on user convenience. In this case, users subscribe to products they regularly have to repurchase anyway. As a rule, these products are offered at a discounted price as part of a subscription. Such products include, for example, food, pet food, or other consumables such as diapers or dietary supplements.
Surprise Subscription
With this subscription model, customers pay a fixed amount but only choose the product category rather than a specific item. For subscription providers, this has the advantage that they themselves decide which products are used for the surprise subscription. However, this type of subscription is associated with relatively high customer churn.
Content Platforms
Digital content on platforms (streaming services) is ideally suited to a subscription model. For this subscription model to work, new content must continually be added. As a rule, subscribers use these services over a longer period of time.
Access or Membership Websites
With this type of subscription model, subscribers or members pay a monthly fee for access and then benefit from lower prices or other perks that are available only to club members.
Premium Services
A complex product or service can also serve as the basis for a premium service. If, for example, there is good customer support, a subscription offer can guarantee faster response times for premium customers, among other things.
Premium services can also be used in the B2B field of Industry 4.0. In IoT services, for example, machines can be equipped with sensors that provide real-time data and, for instance, prevent downtime through predictive maintenance. Digital transformation makes it possible to collect enough data to successfully implement these business models via IT.
1. Predictable Revenue and Planning Reliability for Products and Services
For subscription providers, the greatest advantage lies in predictable revenue generated by recurring customer payments. If the subscription model is attractive to customers, the cancellation rate is usually low. Providers therefore have a certain base revenue that is generated every month. A certain portion of this revenue should be invested in marketing and similar activities so that the customer base continues to grow.
The subscription customer base also provides planning reliability for your products and services, since you know well in advance how many products, deliveries, etc. will be needed. Required goods can be ordered in the long term, and staffing can be planned proactively.
2. Greater Efficiency Enables Higher Profits
The planning reliability already mentioned offers advantages especially for business models based on the sale of goods. Knowing how many goods will be needed in the coming months may allow larger quantities to be purchased with higher discounts. The old merchant’s saying, “Profit is made in purchasing,” has lost none of its validity. Greater savings per item in procurement consequently mean higher profit. High efficiency is further supported by the use of suitable subscription management software. Suitable software also makes the up-selling and cross-selling of products or services easier.
3. Generate More Customers Through Trial Subscriptions
Another advantage of the subscription business model is the opportunity to acquire customers through trial subscriptions. Customers can try products or services without high risk and see the performance for themselves. These trial subscriptions may, for example, be completely free of charge or cost only 50% of the normal subscription price for the first three months. If everything is satisfactory for the customer, the likelihood of taking out a permanent subscription is very high.
This form of customer acquisition through trial subscriptions is particularly interesting for streaming services. As a rule, the media offering of a streaming platform is very extensive. Usually, not all of the content that interests the customer can be consumed during the trial period. The incentive to convert the trial subscription into a permanent subscription is therefore very high. If new content continues to be provided on an ongoing basis, the chance that the customer will not cancel the subscription increases.
4. Long-Term Customer Relationships and Sustainability
As a rule, customers take out a subscription for a longer period of time. These long-term customer relationships are another advantage of the subscription business model. If subscribers know all available subscription options and the subscription benefits are clearly presented, they are satisfied and trust the offering. When customers have trust, additional products can also be marketed, for example.
The subscription usage model promotes sustainability. Products such as machines that are used on a subscription basis should last as long as possible. The less frequently subscribed products have to be replaced, the less “new” production is required, which conserves resources.
Less personal ownership and more “use” continues to be clearly on trend. Subscription business models reflect exactly this trend and offer numerous advantages for both the subscription provider and the user. Studies and surveys show that companies with usage-based business models grow around 1.5 times faster than companies that rely solely on traditional business models with one-time payments. In addition to predictable, regularly recurring revenue, subscription models offer planning reliability, efficiency, sustainability, and growth.