Rise of Subscription economy
Businesses are moving away from buying/selling products towards subscription economy. Market leaders from Salesforce to Amazon to Netflix completely changed how companies deliver services to customers.They also reinvented the Customer Relationship Management.Their obsession towards customer centricity not only improved the customer service but also provided a massive revenue opportunity that can be locked by companies.
In the 20th century, business models were focused on creating products for customers and then selling them to customers in as many channels as possible. These products were consumed mainly on an one off basis by an anonymous customer.The information about what product needs to be sold to which customer is generally obtained from a market survey that are generally undertaken by market research firms on behalf of the companies.
The subscriber model has changed this completely as they consider customers as subscribers. They establish an ongoing relationship with their subscribers and gather information on who they are, what they view, what they buy, how they spend their time and what products they like.
These companies aren’t selling only digital products.For instance, Caterpillar started enabling its tractors with internet enabled sensors that opened up massive revenue opportunities in predictive maintenance and management systems beyond their old traditional models of selling hardware.Companies in multiple sectors from Newscorp to AXA to Thermofisher Scentific use this business model.
An ideal customer in subscription economy
- A subscription economy is not about increasing the subscriber base.This is the mistake many companies do by providing services at a very low cost only to increase their subscribers count.In the subscription economy, It is important what you deliver and how you deliver.
- The whole business model needs to be rethought from the perspective of the subscribers because the shift to subscription economy is driven by these subscribers.
- Customers expect personalization and real time experience with immediate fulfillment. It is convenient for subscribers to switch to other service providers.Hence providers who are focusing on customer loyalty need to provide ongoing value and memorable services that improve over time.To be successful, service providers must be able to sell, market and deliver based on a clear understanding of the subscriber behavior and nurture each subscriber relationships.
New Tools needed
- Companies require new software applications to thrive in subscription economy. In the past, many companies have invested in ERP and CRM systems to support sales automation, customer service, inventory management, supply chains and accounting.
- CRM and ERP systems were designed for the products and not subscriptions.As the world is moving towards a subscription economy, companies need to use software applications that can manage the end to end subscriber life cycle from new subscriber acquisition, subscription management – This is enabling subscribers to upgrade, downgrade, renew and modify subscriptions, automating recurring billing and payments and measuring recurring revenues and subscription metrics.
Changes needed in subscription economy
After having the right software to manage subscriptions, companies shifting to subscriber based models need to transform themselves in the following four areas:
- The customer records should have all the details from contact information to purchases, products, local pricing, promotions, payment/refund history etc
- Service providers must create and manage the complete subscriber journey by focusing on personalization and deepening relationships from initial signups and purchases to upgrades, addons, renewals and new services.
- Every employee in the service provider from marketing, sales, partner, product specialist, customer service and finance who interacts with the subscriber needs to be focused on the subscriber relationships. They need to put subscriber first by responding and sharing knowledge with subscribers and adapt to evolving needs of the subscribers.
- Subscription services need to track new set of metrics to measure performance.The metrics for Subscribers health will be subscriber growth and change, for business velocity will be annual contract value and Total contract value, for subscribers engagement will be payments and declined transactions, for subscription revenues will be monthly and annual recurring revenues and for subscribers retention will be upselling, renewals and churn.
Subscription economy have shifted the focus from Customer relationship management to Relationship business management. As we continue to accelerate the shift to the Subscription based economy, companies need to transform themselves in order to enjoy financial, market, technology and customer loyalty benefits of deep long term subscriber relationships.