What do magazines and Netflix have in common? You should probably read the title if you do not know the answer. The answer is subscriptions. A subscription model involves regular payments by a customer for continued access to a product or service. Did you know we can trace subscriptions back to the 17th century? Around the 1600s, newspapers and magazine businesses used subscriptions to fund and plan large printing. The printing industry saw a steady decline due to digital progress, resulting in a dip in subscriptions. However, SaaS has revived this model really well.
The primary reason for the increased popularity of the subscription model is the digitization of services. The world has gone from Blockbuster to Netflix. From shopping in malls to retail therapy on Amazon. Even the automobile industry is giving the model a go with Care by Volvo and Porsche Drive. With digitization and subscriptions, business has never been easier. Such a shift has created a “membership economy”. It means that customers are prioritizing access over ownership.
The newer generations prefer experiences over material possessions. For example, buying a Ford is ownership. Material possessions can only offer a singular experience. Whereas, a subscription can offer varied experiences. Such as access to newer Ford models every month without the hefty price tag. Which one would you choose? A car that goes out of fashion at the end of a year. Or a new car whenever you want. Consequently, businesses that focus on providing experiences perform better in the new economy.
Subscription models also benefit businesses greatly. A subscription business has recurring payments, stronger relationships with its customers, better performance, and excellent revenue forecasts. But the model also has a few drawbacks, like with most things. However, it is safe to say that the pros far outweigh the cons.
Benefits of subscription business:
Predictable recurring revenue
Since the business runs on a subscription model, steadily generates revenue for a set duration. This duration can be monthly, quarterly, or annually. Additionally, most companies reduce the monthly price if you buy the quarterly or annual pack.
For example, you have $5 as a monthly fee, $17 for a quarterly pack, and $55 for an annual subscription. This way, customers save $3 on the quarterly and $5 on the annual pack. Plus, it results in long-term payments for the company.
Plus, customers are required to provide their credit card or checking account details when subscribing. The subscription fees are debited automatically and renewed at the end of each cycle. It saves the customers’ time since they do not have to take time out to pay a bill. Plus, the company gets regular payments.
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Accurate revenue forecast
Since most companies deduct the subscription fee monthly (irrespective of the package), their monthly sales are steady. Therefore, projected sales are more accurate for such businesses. Of course, this does not consider the customers on a free trial.
Drawbacks of subscription business:
High churn rate:
It is the biggest factor that affects revenue stability. Now, customers expect excellent customer service. Moreover, it takes a single bad experience for a customer to cancel their subscription. This bad experience can include low-quality products/service, slow customer support, etc. In addition, it takes a lot of effort and capital to convert a free trial user. A subscription business needs a long time to develop relationships to promote growth. Plus, it is easier to keep a customer than gain new ones for such businesses.
Higher service expectations:
When a customer buys something upfront, the expectations for after-sale service are far less compared to the subscription business. Since it’s easy for customers to shift to a different platform, they hold the cards. Subscription businesses need to invest heavily in customer success endeavors or else the business may sink because of high acquisition costs and high churn rate.
How to grow and boost your subscription business?
1. Simplify your subscription process
Imagine you have to fill out a form. There are a lot of questions and you can’t see the end. The process is time taking and you’ll probably keep off from filling it out. Subscribing to a service should not feel like applying to a university. You want your customers to spend a long time on your platform, but not at the wrong places. Focus on speed and ease of use of navigation, because this is going to help you gain new subscriptions.
The easier the platform is to navigate, the better the experience your customer will have. Your subscription process should be as easy as selecting the type of subscription and providing payment details. Any more than these basic two, and your customers will get annoyed. Any less and you are missing out on critical data. Hence, it is up to you to find a balance between convenience and data.
2. Develop great experiences instead of great products
Netflix replaced Blockbuster due to several reasons. Initially, it had nothing to do with the range of products Netflix provided. Additionally, Netflix did not have excellent UI and UX back in the day. So why did Netflix thrive? Netflix was easy to access, had no last return fee, and did not have to leave your room to watch your favorite show. Netflix provided convenience and a new experience. Even though Blockbuster had the range, it did not have the UX that Netflix did. This is a prime example of developing great experiences instead of great products.
3. Prioritize customer retention instead of customer acquisition
You can entice customers to try out a platform for two reasons. One, you have an incredible product that can make their life easier. Two, you have a free trial for the excellent product. However, new customers are not a big growth factor. A subscription business runs on capital generated by long-term customers since they are the biggest reason for recurring revenue. Short-term customers might affect monthly financial reports. However, they do not contribute to long-term growth or capital management. Therefore, such businesses focus on retaining customers over acquiring new ones. To paraphrase a well-quoted phrase, “it is better to keep old customers than to gain new ones.”
4. Integrate storytelling marketing
Storytelling marketing is a powerful tool for brands in the new age of marketing. It involves crafting a story with the brand as a hero. Each campaign runs on a storyline that ties into the overall brand image. By integrating storytelling, you are humanizing the brand. It immediately makes the brand more approachable and easier to connect to. Hence, enabling you to form genuine and strong connections with your audience. For example, Spotify extensively uses storytelling marketing and is a prime example of the same.
5. Quality and customer experience
There is a reason search engines prioritize the customer experience. Excellent customer experience results in repeat customers. That is, aside from a great product and customer care. About 86% of buyers are ready to pony up more money for a better customer experience. Therefore, you should have CX strategies in place to improve on feedback. It is because better customer experiences lead to higher customer satisfaction. Additionally, it goes a long way to decreasing customer churn rates.
Moreover, positive experiences with a brand can convert a customer into a loyal advocate. Customer advocacy and word of mouth have a direct impact on referral subscriptions. It is one of the best ways to drive up brand awareness and free marketing without breaking the bank. Loyal costumes can do more for your brand than any marketing strategy. Therefore, every subscription business should invest in improving customer experience.
6. Be transparent
Transparency is key to building strong relationships. And like in any relationship, you do not deceive, lie, or omit important information. Long-term subscriptions can be a daunting commitment for a customer. Yet, it is what keeps a subscription business in business. Therefore, your terms and conditions should be clear and easy to understand by anyone. Additionally, you want to highlight the clause that deals with cancellation of subscription or auto-renewal. Customers will feel better about subscribing if they know they can get out of it later.
7. Incorporate feedback in your subscription business
Collecting feedback shows that the brand cares about its customers’ opinions. However, it is not enough to collect. You must also act on the feedback given to you. Aforementioned, you need to build a relationship carefully. So you should collect feedback and incorporate it for the relationship to last. Additionally, it makes your customers feel heard, which consequently leads to high levels of customer satisfaction.
Plus, you can use feedback to gain insight into customer satisfaction. Most companies use the Net Promoter Score (NPS) to measure satisfaction. The NPS methodology asks a single question: “how likely are you to recommend this product/serve to a friend?” This sole question is an excellent indicator of customer satisfaction and level of customer advocacy.
Since a brand’s financial performance ties into customer satisfaction, your brand must work on customer feedback. It holds truer still for subscription businesses, its sustainability hinges on long-term customers.