Seizing the subscription business model

More and more companies are joining the subscription market—shifting from a traditional pay-per-product model to recurring payments for ongoing goods and services.

Depending on the industry, subscription products can range from monthly subscription boxes to streaming services to software-as-a-service (SaaS). The subscription market has indeed seen impressive growth: by one account there has been more than 300% growth in subscribers in the past decade. IBM has also seen that many consumers intend to begin or add to their subscription collections.

Subscription revenues offer stability

Organizations that use the subscription pricing model are making gains: they’re accessing new customers (or even new customer bases), new revenue streams, and new insight from deep data on what they sell and to whom. They can look beyond one-time purchases, and even regular purchases, to see the customer lifetime value of subscribers. The subscription pricing strategy also provides predictable revenue and increased valuations, which can improve financial forecasting and sustain companies through lean times.

While the benefits of becoming a successful subscription business may be clear, adopting this revenue model begins with taking a different mindset. It requires rethinking organizational processes, people, and technology, as well as increased attention to customer experience and customer relationships.

Subscription pricing strategies provide predictable revenue and increased valuations—which can sustain companies through lean times.

Subscription providers are rethinking how they work

Subscriptions aren’t just operational add-ons. Underpinning these new products is a strategy that clearly identifies why the business wants to offer different types of subscriptions, and how it can continually improve its offerings. Companies will need to define new KPIs and success metrics upfront to measure the value of different subscription services.

Subscriptions often require technology and functionality enhancements, improved data integration, and redefined workflows and models for numerous areas. These include call center operations, AI-assisted support for customers and agents, order management, and supply chain operations. Organizations also need the talent to design and orchestrate the brand promise and interactions that can motivate one-time customers to buy on a recurring basis.

Companies need to define new KPIs and success metrics to measure the value of subscription services.

Customer experience leads the way

With subscriptions, it’s not about hitting targets for discrete unit sales, it’s about creating customer experiences that will lead to renewals and reduce churn rates. It’s less about selling products, and more about building long-term customer relationships.

Adopting a customer-centric approach is one of the first steps organizations need to take. A company is better able to design successful subscription offerings when it assesses its strategy through customers’ eyes. This degree of examination goes beyond determining the advantages of products or services to fully understanding what customers want and need—what is relevant enough for them to pay recurring fees.

Companies can design more successful subscription offerings by assessing strategies through their customers' eyes.

Designing for relevance and lifetime relationships

By delivering secure, relevant experiences that meet customers’ individual needs and desires with convenience, ease, and a sense of value and purpose, subscription companies can build the customer relationships that drive retention.

Because subscription fees offer recurring revenues on a regular basis, subscriber retention and customer loyalty are just as important as customer acquisition. Consider the customer lifetime value, the customer acquisition cost, and the cost of churn. The longer relationships last, the higher their value. The shorter the relationships, the more businesses have to spend to find and develop new customers.

Download the report to see how subscription services and pricing structures could help your company increase customer retention and build long-term relationships that stabilize cash flow.