There are few winners in a global pandemic. Among them, we find companies that focus on—or have recently shifted to—selling subscriptions. By and large, these businesses have fared better than traditional retailers.
Indeed, according to the subscription management platform provider Zuora, which released its annual Subscription Economy Index in September, subscription-driven businesses across a range of industries expanded at an annualised rate of 12%. This data point is based on second quarter figures for 2020. Importantly, it (starkly) compares with a contraction of 10% for S&P 500 companies as a whole. In the streaming industry alone, Netflix added 10 million subscribers in the second quarter of the year, while Disney+ signed up 60 million subscribers in just nine months—a feat that took Netflix years to achieve.
Subscriptions, with a forecasted consumer spend of $1.3 trillion in 2020, should be at or near the top of every boardroom debate on business models. For those who haven’t already made the leap, now is the time. Tomorrow may already be too late.
The logic is relatively simple: subscriptions allow people to access a product or service while providing businesses a steady income stream. It’s an approach that can be applied to virtually any context where a purchase is financially onerous, overly inconvenient, or a bit of both. A $50,000 car can be brought within budget by ‘subscribing’ to it rather than purchasing it outright. Few people have the capital to purchase a $2 million apartment, but a monthly subscription can make it feasible in keeping with your salary. Similarly, the dull necessity of remembering to buy razors, printer ink, or pet food on a regular basis can be cast aside by subscribing to a service that delivers them to your home or office at regular intervals such that you never run out again.
Subscriptions allow people to access a product or service while providing businesses a steady income stream
But, before we become too self-congratulatory with our subscription success, we need to take a step back, think of our customers, and ask ourselves where we go from here. While the ability to access previously unobtainable products and services is clearly a benefit for our dear customers, there’s a lot more that we—or some nimble startup, if we’re not fast enough—can put on the table.
Think about it: access is a necessary step for customers to benefit from the stuff we make, but it is certainly not the only one. In my new book, The ends game: How smart companies stop selling products and start delivering value, co-authored with Oded Koenigsberg, we explain that customers derive value from a product or service when they have access to it, when they consume it, and, finally, when the product or service performs as advertised. Together, these three ingredients are necessary (and sufficient) for customers to achieve their desired outcomes.
With this in mind, a subscription model is better than the old transactional model because it facilitates access. But is it good enough? The discounted gym membership we purchased in January isn’t that great of a deal when we realise later on in December that we only went a handful of times. And how many of those Netflix and Disney+ dollars have been spent on subscriptions that have never been used?
As mentioned, at the end of every purchase there is a desired goal or objective. In very simple terms, you buy a car because you need to get from A to B. Or, perhaps, you buy a fancier car because you want to impress your friends. You watch television because you want to be entertained. You listen to music because you want to dance or run. And so on…
Measuring these outcomes—or “ends,” as we call them in the book—allows organisations to charge for them too. And when a business sells proof rather than promises, the exchange with customers is much more efficient—the business finally puts its money where its mouth is.
When a business sells proof rather than promises, the exchange with customers is much more efficient
Within this context, we quickly realise that subscription models are great for access, but they don’t mirror consumption or guarantee performance. And, again, if customers have access to a product or service that they don’t consume properly or that isn’t performing as it should, then there is no value.
Businesses can start considering life beyond subscriptions once they have the right data at hand. To truly understand whether your offerings are providing value, you need to understand their impact on customers. In principle, this is nothing new. Since the ‘Mad Men’ days of marketing, we’ve been collecting information about customers.
We started with what the customer needed or wanted, so that we could design products people truly wanted to buy. Then we began to collect information on the customer “journey,” so that we could (re)engineer decision-making processes. Data technology has made marketing research increasingly more sophisticated, slowly replacing guesswork with real-time behavioural tracking.
Now is the time to take market research to the next level. The progressive businesses out there leverage modern technology to measure actual consumption and, in some cases, even performance itself—what we call “impact data.” They collect these data to unlock the otherwise wasted value in the exchange between customers and themselves.
At the more familiar end of the market, car insurance companies track driving behaviour to offer optimum premiums. In the slightly more futuristic medical realm, patients can ingest sensors to digitally track the medication they take, thus optimising their treatment. And, while there are valid privacy issues to address, the critical condition for organisations that want to use impact data to make commerce more efficient is that customers actually benefit in the end. Said differently, both company and customer must benefit from the larger pie of value.
Subscription models are great for access, but they don’t mirror consumption or guarantee performance
The subscription model’s current success is well deserved. But technology has advanced to the point that, in many sectors, we can dial up the efficiency. With impact data, we can work to guarantee that customers actually get what they pay for. If we convince customers that their participation will enhance their experience and introduce savings, then these are the models that will drive demand in the future.
So, how do we achieve this? On a practical level, now is the time to examine how much waste is inadvertently created by your current “way of doing things.” Ask yourself how much burden your business model is asking customers to bear. You have the opportunity to give your customers a better deal. If you’re not prepared to do it now, I can assure you that another company out there is planning on doing it tomorrow.
This article was originally published in Forbes.
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