The keys to subscription success
Published: 29 March 2021
The subscription economic model has existed in Europe since the 16th century. In the book The Automatic customer: Creating a subscription business in any industry written in 2015 by John Warrillow, he explains how already in the 16th century map producers invited their customers to subscribe to future editions. The difference between this model and the current one lies in the transformation of the consumer’s relationship with his service provider, facilitated by digital tools.
In recent years, the subscription economy has become the growth trend in all sectors and can be found in almost any sector where customers spend money. This model uses the technical advantages of digital transformation to help companies grow. Today we can have a subscription for almost anything starting from the traditional mobile invoice to make-up, food boxes or even toilet paper.
Gone are the days when a customer’s relationship with a company was a simple one-time deal. The new mindset for people is “why own a thing when I can subscribe to it?“. Having the freedom to use the service anywhere, anytime is what best defines the subscription economy and leads the path to subscription success.
And if you look at the numbers, over the past seven years, companies with a subscription model have increased their sales by 18.1% year over year. Even in 2020, in the wake of a global health and economic crisis, the growth trend for these companies remained the same.
The keys to success have changed for all companies and there is one crucial strategy: a business model based on recurring revenue or subscription. But it is clear that changing a company’s economic model is not as easy as you might think. The way in which the subscription service is priced, sold, invoiced or accounted for, is far more complex than in the traditional one product world.
In order to succeed in the subscription economy, the focus must be on the customer, offering them a seamless experience. It is crucial to find the best technology parters to always offer an excellent and frictionless service, to focus on payments and to have a range of keys to subscription success. Here are some examples of the most important keys and strategies.
Today’s companies not only need to have a good understanding of their customers, they also need to know the products or services that customers buy, the channels through which they interact, and any relevant demographic information. This requires a new way of thinking that goes beyond a particular customer, a single product or a single transaction.
Leading companies in the subscription economy are able to exploit existing databases, use advanced technologies such as artificial intelligence, machine learning or data analytics to deliver personalized content, products and promotional offers across multiple communication channels in real time and across the entire customer journey. Natural language processing (NLP), for example, provides insights into how the customer is really feeling and the nature of their problem. This innovative technology extracts contextual meaning from tone of voice, keywords and expressed sentiment to generate a much deeper picture of the caller and even predict their future actions. Perhaps ironically, AI is helping organizations engage with their customers on a more human level.
Companies that have a subscription-based economic model have to define a well thought-out catalog of services and products with a price that is profitable for the company and sustainable for the customer.
Each company has to find the right strategy and balance. Dynamically adjusting prices and presentation is the surest way to attract and retain customers, multiplying the value of their relationships. This dynamic can be very complex. You can set the price per number of users or capacity, for different periods of time: monthly, quarterly, yearly. You can even use promotional models or occasional discounts. The key is to start with basic models and iterate quickly as you learn from your customers. A proper billing engine is also key to mitigating the complexity of the system and providing correct billing.
Appropriate payment strategy
Two of the most common reasons for involuntary loss of customers are the inability to collect a payment from the customer and credit card expiration. Up to 7% of the total customer base can be lost per month due to payment problems.
Therefore, you should choose a payment provider that not only makes recurring payments possible, but also helps them minimize involuntary churn. SlimPay is a specialist within the subscription economy and facilitates both direct debit and card payments and can bundle the two together. However a company chooses to manage its payment strategy, the most important thing is that it is frictionless for the customer.
The motto of companies with this subscription-based business model should be “renew or die“. Subscriptions can involve complex customer relationships. So you have to try something new every day.
The nature of a subscription is that a customer can cancel at any time, so companies must have the organizational agility to innovate in a sustainable way. Research and development (R&D) teams need to work closely with commercial teams to secure new value and functionality to outperform competitors.
While some keys may be prioritized over others at various times, it is important to understand that they are all equally important to success. Subscription means delivering value in a sustainable way, so think about what happens after the first few months. How do you make the experience unique?
With more than 10 years of experience in the sector and a range of experienced partners in this field, SlimPay can assert itself as a specialist in the subscription economy. We will be more than happy to guide you on this journey and provide you with all the keys to subscription success.