Selling products is a thing of the past as consumers increasingly opt for subscription services. The founder of the world’s most successful subscriptions management company shares why.
Americans spend more than $420 billion on subscriptions each year, and it’s becoming clearer to business leaders that people want services over products. “This is clearly the business model of the future,” says Zuora CEO Tien Tzuo.
90% of the world’s digital data was created between 2014 and 2016, according to Perry Timms, Founder of PTHR (People and Transformational HR). He says it’s this exponential data growth and availability that is the key to how companies like Netflix, Spotify and HBO are growing revenues.
The Subscription Economy (a phrase that’s been trademarked by Tien Tzuo) is used to describe a new era of companies and business models.
“In the old world (let’s call it the Product Economy) it was all about things. Acquiring new customers, shipping commodities, billing for one-time transactions. But in this new era, it’s all about relationships. More and more customers are becoming subscribers because subscription experiences built around services meet consumers’ needs better than the static offerings of a single product,” he expounds.
1. Why subscription services are in demand
Pressure on consumers’ disposable incomes is driving their interest in subscription models. “In periods of economic downturn, people prefer subscription businesses,” Tzuo says. “Why spend all this money upfront to buy a product when you can simply pay a service to get what you need and then turn it off and on when you need to?” That’s the allure of the business model.
2. Pricing and packaging is key to success
If you’re considering offering subscription services, you need to know how much people will be comfortable paying and how to best-package your services to drive interest on an ongoing basis.
The challenge lies in deciphering customers for the various packages you propose to offer them. “To create the packages that people want, the leading subscription services businesses run deep-level data analytics on consumers. This means they not only need customer data, they need analytics tools and dashboards, which takes time to develop and can cost more than some companies can afford,” he adds.
3. You must look to the long-term
Making a switch to a subscription model will require you to re-engineer several internal systems and processes, because the way to deliver products or services to customers fundamentally changes. A long-term view toward customer engagement and retention is a necessity for success, because the more engaged you are with customers (gleaning their data), the more insights you can gather on their spending preferences.
“Subscription business models emphasise long-term relationships with customers. Since an unhappy customer can simply unsubscribe at any point, companies must invest in real customer service and listen to client feedback. If they do it right, they can profit from recurring revenue and a loyal customer base,” Tzuo adds.
Leading enterprises are no longer solely focusing on just shipping products at recommended retail prices. They are constantly striving to offer new services and experiences for their customers that deliver outcomes, not assets, according to Tzuo. This requires you to move from selling things to monetising relationships if you plan on staying in business in the future.