Loyalty through Subscription Economy

We hear about it sideways and it may be that we sometimes see it as something complicated to establish. If we think about it, however, it is an economic model that has been around for years and has always played a key role in loyalty. From the gym that we pay for every month (or at any rate after Christmas) to Netflix for our evenings on the couch.

So what is it all about? And above all, what advantages and risks may lie behind Subscription Economy.

Subscription Economy the basics

Definition

Literally translated as 'subscription economy', it is a business model based on subscriptions, usually monthly, that allow you to enjoy services through an automatic withdrawal. It is a booming trend due to the increase in consumption through digital channels.

If we want to recall the origins, we certainly think back to publishing when we used to pay for our magazines by annual or monthly subscriptions because it would have been cheaper for us globally. And then? then we got to know all the services we can't do without like Netflix, Spotify, Amazon Prime subscription and so on.

Let's put the figures on the table to see where Italy ranks compared to its European neighbours thanks to the study by Advise only:

• 74% of Italians claim to have subscribed to at least one subscription, admittedly the European average is 85%, but this figure already shows us that our consumers are to all intents and purposes ready for this model
• The average number of subscriptions per Italian is 2.2, nothing if we think of the 5.4 in France, but it is still a huge margin for progress, especially since it would free users from annoying transfers.

Obviously, the sectors in which there could be the best developments in the future are also different :

The origins of the phenomenon

While traditionally the concept of ownership has always been stronger than that of membership, in the digital age it is clear to us that the situation has changed for an increasingly important number of sectors. Someone, however, who was able to anticipate a trend was Jeremy Rifkin who, in 2000, in his essay " The Age of Access" was able to highlight how the concepts that had governed the economy, such as that of goods and property, would be replaced by those of information and culture. In fact, the goal is to be able to offer services and experiences that create a lifelong relationship with the customer instead of a one-time big purchase.

Analysis of the Membership Economy

A concept very close to the Subscription Economy, if not a synonym in some cases, is the Membership Economy which is based on the concept of joining a membership programme. This other approach originated with Robbie Kellman Baxter who covered it in his book (a must for this industry) ' The Membership Economy: Find Your Superusers, Master the Forever Transaction & Build Recurring Revenue'. It is a system for creating long-lasting and stable relationships with the customer and, in this case, increases Customer Engagement by also leveraging the sense of belonging the customer may have with the company.

Advantages & disadvantages

If you have not yet switched to this business model, we can tell you that in most cases it is an almost obligatory step to keep up with the times.

1. It is easy: it is a tool that is appreciated by users because it simplifies steps for them. Even for you, do not expect excessive complications. Just install software and you are done with the reminders to users: automatic monthly payment= automatic performance.
2. Improves customer retention and lifetime value: obviously a subscription system will lead to much longer customer relationships. One reason is that obviously a simpler system improves the customer experience in every respect. From another point of view, sometimes users who want to cancel a subscription will procrastinate for a few months.
3. Upselling and cross-selling: obviously this type of strategy gives you time to get to know your user better and propose relevant content and offers. Also, do not underestimate subscription upgrades. Think of Netflix that convinced many to upgrade by leveraging quality and number of screens.
4. Email marketing: very similar to upselling and cross-selling, the information you will have on your customers will be crucial in order to be able to send more targeted and consequently more effective newsletters.
5. Better stock and sales forecasts: ensuring more stable sales flows implies being more accurate in stock management and reducing the risk of excess or out of stock.
6. Better cash flow: obviously fixed, stable and regular revenue solves a lot of treasury problems. In this way, you will not have large amounts of receivables to call in or for which you have deferred payment.

Disadvantages

1. Breakeven point: subscriptions often offer promotions or even trial periods. If the consumer cancels the subscription too early, it may not be as profitable as expected
2. More systemic problems: if there is a problem in delivery, it could impact an entire cycle leading to a 'standstill' in business and perhaps the departure of some subscribers.

Which direction for the Subscription Economy?

If you are still not convinced that this is not the right path for you, here are some figures presented by Fusebill:

• By 2022, 53% of the software world's revenues will be generated thanks to this model (based on industry evolution forecasts we are talking about $344 billion...).
• Probably your competitors have already switched to this model, in the software world alone 80% of the software already on the market have adapted and the newcomers are directly with subscription mode
• By 2022, it will be the car industry that will grow... by 71%
• 69% of owners are subscribed to at least one subscription streaming service.

A few examples to inspire you

FCA CarCloud

As crazy as it is, it is possible to do Car Subscription. All you have to do is pay a subscription and monthly fee to be able to drive your car without any hassle. If you then want to upgrade from a 500 to a Jeep, all you have to do is upgrade.

Playstation Now

If you remember when the first Playstation models came out, we needed to buy discs with our favourite games. With time, Playstation not only realised that we no longer wanted to have stacks of video games (same for CDs and DVDs), but above all adapted its model to the subscription policy. Today, therefore, by paying a monthly or annual (cheaper) subscription, users will have a library of more than 600 games in their hands.

Cortilia

Another good example is Cortilia, one of the Foodtech queens. It delivers products of BIO origin to your home. While allowing you to choose your own basket, it is also available as a subscription. On the one hand, we get rid of the thought of shopping. On the other hand, it is an immense advantage for Cortilia because it also allows for a more stable sales flow so that the different producers can be better coordinated.

Don't miss this opportunity

So far, this solution seems like a guaranteed Win-Win. Of course, you will have to be careful to adopt good software and be maniacally organised. Even one error in customer service could cost you your subscription.