From streaming services to clothing, subscription services have become increasingly prevalent (and popular). But why exactly are subscription businesses enjoying popularity amongst both consumers and business owners and how can you adopt the model for your business? We find out.
What Is A Subscription-Based Business?
Instead of forking out a large upfront fee, small, regular payments are made to enjoy a particular product, where the lower price point is likely to encourage more patronage. The business model also comes with greater flexibility – more often than not, allowing consumers to enjoy customised services that better cater to their needs. For instance, a snack subscription box that allows consumers to opt for their preferred snack types or flavours, or an apparel subscription that curates a series of clothing for the user.
There is also the rise of SaaS companies or Subscription as a Service companies that have growing business-to-business model. Companies such as Slack, Shopify, Zoom, Salesforce and other have clear services they offer to businesses. Other companies such as Microsoft have also added or pivoted their business models to offer subscription services.
To be clear, subscription-based businesses have existed for a long time, with gym memberships, monthly newspaper subscriptions and for access to courses. As digital technologies touch more aspects of human life and create new types of businesses, subscription-based businesses are not only here to stay, but may also be much more prevalent.
Types of Subscription Business Models
#1 Access Membership
A popular model adopted by businesses who create and publish exclusive content, an access membership limits access to your content to paying consumers. Examples include streaming services such as Netflix and HBO for consumers, as well as ecommerce platforms like Shopify for businesses.
#2 Open Membership
Unlike the access membership, an open membership does not exclude anyone from the platform’s services. However, exclusive perks are usually offered to encourage subscription. These include members only discounts, as well as updates on the latest products. This model is usually adopted by online retailers and ecommerce platforms, including giants such as Amazon (Prime membership) and Nike.
While the basic subscription product is complementary and available for all, additional features or add-ons requires a fee. A great example would be Spotify: users can access songs, but are required to pay for Spotify Premium should they wish to skip commercials or have access to more songs when offline. Dropbox also offers a free service, and as businesses grow or have a greater need for cloud storage and other tools, have to subscribe to the professional service.
Tiered subscription fees can also be adopted under the freemium model, where consumers are granted different access levels to the features within a service for different fees.
#4 Subscription Boxes
A service that has been enjoying increasing popularity, subscription boxes are essentially automatic renewals that provide consumers with the products without having to make recurring orders or payments. This model also allows greater flexibility and customisation of orders, and are adopted by brands offering products.
Such subscription services are great for monthly healthy snack products such as from Box Green in Singapore or just to receive really cool apparel like different (and funky) pairs of socks each month.
Why Business Owners Adopt A Subscription Business
#1 Increased Affordability & Convenience
In addition to paying a relatively low fee, consumers and businesses are able to terminate their subscription after a limited time, or for some, at any point of time. Not only will this lower price point encourage more consumers to purchase/try out your product or service (like a trial), but the flexible payment mode also provides customers the convenience of uninterrupted service without the need for ad-hoc payments.
Of course, this also means that you’re more likely to enjoy a steady stream of revenue, while consumer retention rates grow as the usefulness/value of your product is realised. The predictability of demand will also allow you to have more control over inventory with less risk.
#2 Building A Community Through Customised Services
Another key benefit of subscription services is the ability to provide consumers with customised services that better cater to their needs. Further engagement through various platforms (subscription emails, social media channels) can help with creating a community where consumers feel more connected and valued, resulting in an increase in brand loyalty, recurring patronage and even referrals.
Beyond building long-term relationships with consumers, the flexibility of subscription services also allows you to launch seasonal or thematic products, to make the business more relevant.
#3 Increased Earnings
Going beyond the basic service, one can look to up- or cross-sell products to expand the business. Drawing reference to the previous point of building strong customer relationships, existing subscribers are likely to be more receptive to purchasing upgrades, new features or add-ons should they trust your brand and the potential value it can provide.
At the same time, once subscription fees have become part of an expected expense, there’s a higher likelihood for consumers to view the complementary products as more affordable.
While there is certainly value in adopting the subscription model such as predictable cash flow and stable consumer base, do remember that sufficient preparation such as flexible technology systems are required to support the model.
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