A Guide to the Subscriber Business Model
According to a 2018 McKinseysurvey, 15% of Americans who shop online have signed up for one or more subscriptions to receive products regularly. The number of companies applying the subscriber business model is on the rise. That is why we see this model in almost every industry today. You can read a more detailed story about the subscriber business model below.
What is a subscriber business model?
When a customer periodically pays a company for a product delivered to him or a service he uses, then that company applies a subscriber business model. That is, the model provides continuous purchases over some time, instead of the traditional, one-time purchase.
This model is not new in the business world. It has existed for years and is taking precedence in an increasing number of areas. There are growing chances that this will continue in the future.
The era of subscriber models began with magazines and newspapers and continued
in almost all industries, from food and drink to gyms and IT services. The key
reason for this expansion of subscriptions is technology. The Covid pandemic
has also played a role in the last year.
Advantages of the subscriber business model
Customer loyalty is booming
Almost every customer prefers personalized products tailored just to his taste. In addition, if you offer different variants of products (or services) plus the personalization said earlier, expect greater customer interest in your offer.
It is this value that you provide that creates better, long-term customer relationships. To be able to personalize products, it is necessary to collect enough adequate customer data. By tracking customer behavior and needs, you can create more magnific value for products or services and thus improve the user experience.
Take, for example, the company IPSY, which, on a subscription basis, delivers sets of cosmetic products to customers' doorsteps. As its mission says, "Inspire individuals around the world to express their unique beauty," it successfully collects revenue at the expense of personalization.
For $ 13 a month, customers receive five cosmetic products at their home address. But above all, they need to fill out a survey for the company to determine what kind of cosmetic products they prefer and thus adjust the package exactly for them. The survey contains questions related to the color of hair and eyes of customers, skin tone, and the like. Customers can rate the products they get to improve the package's content.
The impact of brand loyalty on word-of-mouth marketing should also be
mentioned. Most people will listen to the recommendations of their friends or
influential influencers rather than the company's marketing messages. This
way, you gain new potential customers without marketing costs.
Income is better predicted
As the future potentially brings turbulence in business, this model generates continuous income that can save a company’s finances in times of crisis. The mere existence of revenue forecasting capabilities makes it easier to determine future demand. This makes inventory planning and management more comfortable.
In addition, if your products prove to be valuable to customers, they can order gigantic and more expensive product packages if, of course, you offer them. We should not forget about up-sell and cross-sell techniques. This generates revenue without the additional marketing costs of attracting customers.
Lower marketing costs
Acquiring the majority of new customers requires certain marketing costs. Some customers will unsubscribe, and some will not. Those who subscribe will not incur additional marketing costs and will generate revenue for the company for a long time.
Disadvantages of the subscriber business model
Although this model brings many advantages for buyers and sellers, we should not neglect the disadvantages.
Questionable customer interest
Customers may pay for your goods or service even if they never use them. Due to the Internet and television, we pay for a landline phone as part of the package, but we rarely use it.
Determine why customers are not interested in the product, for example, by sending a simple survey. This way, you can determine if there is room for improvement that would keep such customers from dropping out of the subscription.
The reliable monthly income you collect can be shaken by subscriptions being canceled by customers.
The reasons for canceling subscriptions are numerous:
- Complicated subscription system
- lack of transparency with customers
- poor or non-existent customer service
- poor quality of products or services
They are unavoidable, which is why you must continue to investigate what is causing so many unsubscribes. You can, for example, ask people why they unsubscribed via a questionnaire, email, or phone call and then figure out how to fix the problem.
The monotony of the offer
Imagine if Netflix would constantly offer the same content offering in its arsenal. You would probably get bored after two months and not be interested in continuing your subscription.
Therefore, it is necessary to periodically improve products and services to make the offer more diverse and keep customer interest.
Speaking of diversity, pay attention to adapting the offer to the seasons. Few people buy summer products in winter. But subscriber companies like FabFitFun are adapting their product to seasonal characteristics to avoid changes in sales.
What you need to pay attention to if you apply the subscriber business model
Value of a product or service
Customers will continue to subscribe to your product or service only if they believe the value you provide is greater than the price they must pay for it. To know what value you need to work on it is necessary to research the market and determine what your customers want or need.
By continuously collecting and analyzing customer data, you can adjust the value of products and services according to their needs. By improving the value you further strengthen the trust of customers in your offer.
First of all, there need to be several different product or service offerings. For example that there is a basic and improved version of the product, and therefore different prices. Each customer decides which product or service he wants to subscribe to according to individual needs and possibilities.
In addition to including the cost of producing products or providing services in the total price, it is also important to continuously analyze the market. That way you can track the prices of competing products. If you develop a product or service in such a way that its value increases, the price will increase.
One of the common strategies that companies use is freemium. It means
that the company offers a basic product or service for free. It can then
attract people who would eventually become long-term,
loyal customers and who would at some point switch to a
paid version of a product or service.
For example, Skype offers the possibility of free video calls over the Internet. But if the user wants to call another person on a mobile or landline phone, he will have to pay for that service.
Another example is Dropbox. The user has 2 GB available to store images and documents for free, but if he wants more space, he has to subscribe.
That is, freemium attracts clients who, if they find a product or service valuable, can upgrade to a paid subscription.
Whether it's through a website, phone, or something else, customers need to be able to subscribe in a variety of ways. The subscription application process should be automated and simple.
It is also necessary to choose the appropriate system that will manage subscriptions and charges for products and services that the company offers to customers. In this case, the collection is more complex than a one-time sale of the product. That is why a reliable and automated system is very necessary. As the number of subscribers grows, so does the need to improve the infrastructure.
Some companies try to hide payment policies, unsubscribe, and other important information from customers. Therefore, transparency regarding the terms of the subscription is necessary for your customers to feel safe when signing up for the subscription.
Follow the indicators
They can tell you a lot about whether your company is growing or stagnating. How many new members do you have? What are current revenues and expenses? Can you predict future income and expenses? How much do you spend on gaining new customers?
Good examples subscriber business models for practice
Dollar Shave Club
It is one of the most famous subscriber companies, which has been delivering quality barbers to their home address since 2011. They broke into the market at more affordable prices compared to the competition. To date, they have included various care products in their range, as they say, "from head to toe."
Customers who want to have a personal stylist who will choose the right pieces of clothing instead and deliver them to their home address should think about this company. When applying, a potential buyer goes through questions that determine his style, taste, and price range. When the clothes arrive at the customer's address, he can try them on, buy what he likes, and return the rest for free.
This company offers users to do a short quiz to get an insight into their preferences. According to the results of the quiz, they compose the contents of the box that customers can change or not accept. They work with different brands, and quality comes first. The contents of the boxes are diverse, so customers can get different tools, products, and clothes.
Enjoying wine should be as simple as getting a bottle of specially selected wines at your home address. The team that creates over 100 wines believes in that. First, customers need to fill out a questionnaire about their preferences, after which the selected wines are delivered to their home address.
Quality and comfortable socks of interesting designs, customers can get once a month, every 3 or 6 months, and even once a year. A design arrives at their home address that they don't know what it looks like before. This surprise factor further contributes to the user experience.
If we could understand dogs, we would get good reviews for this company. Each of their boxes contains treats and toys for dogs. They currently number over 2,000,000 satisfied dogs and their owners.
This company delivers culinary recipes and fresh ingredients for meals to your home address. Customers can choose whether they want recipes and ingredients that include meat and fish, or they want to make exclusively vegetarian dishes. At the request of customers, 2 to 4 recipes a week arrive at their door with ingredients for dishes for two or four people.
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The market has never been richer in products and services than it is today. For a company to beat the competition, it is necessary to know well the needs and problems of its customers and accordingly create a valuable product or service.
It is this value that attracts and keeps customers subscribing and strengthens the relationship between the company and customers, and this, in turn, affects the growth and development of the company. Innovation significantly helps to create value that will differentiate you from your competition.
Therefore, if you have not yet switched to a subscriber model and plan to do so, consider why you want to establish one and what value your company has to offer.