Subscription Models: The Future of Consumer Relationships?
- Subscription services are very different to traditional one-time purchase models. They bring a whole unique set of customer expectations and concerns.
- Businesses providing subscriptions should tailor their marketing strategies to accommodate a range of different goals and approaches that are relevant to this sector.
- Subscription models have taken the world by storm and have been adopted by several different industries. This trend has changed consumer behaviour significantly and may continue to in future.
What are subscription models?
A subscription model is a business strategy that charges customers a recurring fee — typically monthly or annually — to access a product or service.
This model stands in contrast to the traditional one-time purchase approach where the transaction is a single event.
Subscription services have been around for centuries, initially popularised by newspapers and magazines. However, the modern age has seen a significant rise in subscription models, which has several impacts on consumer behaviour, marketing, and commerce.
The shift towards subscription models
The rise of subscription services in the last decade has caused a dramatic shift in the way that consumers shop. So, what has propelled the ‘subscription economy’ into such success?
One significant factor is the growth of the digital world. With the use of the internet and mobile devices exploding so rapidly, companies have found it much easier to offer and manage subscription models. Since they’re not physical products, subscription services can be provided through this digital medium.
The consumer’s liking for digital products comes with a preference for convenience – something subscription models can easily provide. Users can access a wide range of services with a click of a button and the flexibility to cancel anytime. Automatic renewals and deliveries make subscriptions an easy choice over more long-winded purchasing processes.
Businesses have also favoured subscription models because they provide a predictable revenue stream. This financial stability means that they can allocate resources elsewhere more confidently, whether it’s in product development or marketing.
These contributing factors lead us to where we are today, a world where the entertainment, software, and education sectors, to name a few, are saturated with countless subscription models on offer. This change has been so huge that it has transformed how consumers relate to media, cooking, shopping, and more.
Pros and cons of subscription models for customers
So, is this shift towards subscription models actually a good thing? Let’s consider the pros and cons for customers to further examine the life expectancy of this enormous trend.
- Subscriptions reduce the upfront cost for customers, making them more accessible.
- Automatic renewals and deliveries make subscriptions highly convenient for customers.
- Many subscriptions are highly flexible because customers can scale up and down based on their needs.
- Subscription providers typically ensure customers have the latest updates, features, and security enhancements without additional fees.
- Customers don’t need to pay for ownership to gain access to a wide range of products or content.
- Subscriptions are an ongoing financial commitment that adds up over time.
- Customers may become overwhelmed by the number of subscriptions they’re paying for.
- Some services make it difficult for customers to cancel or opt out of their subscriptions.
- Customers don’t have access to a permanent license for things such as software and may be resentful about a ‘rental’ model.
- Some customers may have concerns about their privacy as customer data is often needed to personalise subscription services.
Pros and cons of subscription models for businesses
Businesses must also reckon with the benefits and drawbacks of subscription models:
- Subscriptions provide businesses with a steady and predictable revenue stream.
- Long-term relationships are built with customers who pay for subscriptions.
- Strong relationships with customers give businesses more opportunities to upsell.
- Businesses get access to valuable customer data, enabling them to target their marketing strategies more effectively.
- Subscription models are scaled more easily without substantial costs.
- The rise of subscription models has increased the market’s saturation.
- It can be expensive for businesses to acquire new subscribers due to crowded marketplaces and costly marketing efforts.
- Subscription offerings must remain compelling to keep subscribers from cancelling their plans, requiring continuous efforts.
- Subscriptions can drop when there’s an economic downturn, which is problematic when businesses are reliant on renewal rates.
Evidently, there are both deterrents and incentives for customers and businesses when it comes to subscription models. Nevertheless, their popularity prevails and there are likely to be many newcomers to the trend as time goes on. This doesn’t just have implications for companies and consumers but for the industries themselves.
Impact of subscriptions on various industries
The popularity of subscription models has occurred across several industries, changing them significantly. Let’s examine how each of these industries has been transformed since adopting subscription models:
Software and tech
The tech industry has fully embraced subscription models, moving away from one-time sales of software packages to cloud-based, service-oriented offerings. While this gives subscribers access to free and automated software updates, some would prefer to own these products fully. Adobe Creative Cloud and Microsoft Office are some of the most popular examples of this.
Entertainment and media
Streaming services have revolutionised media consumption, turning viewers towards on-demand digital content. This model offers a vast library of content at a fixed monthly cost, changing how entertainment is accessed, consumed, and valued. Netflix, NOW, and Amazon Prime are the largest streaming subscription services.
Retail and e‑commerce
Retail subscriptions provide convenience, fostering brand loyalty and customer retention. They’ve turned sporadic in-person shoppers into repeat online customers, transforming the traditional shopping experience. Amazon Prime is the largest e‑commerce platform offering a subscription, whereby users can get repeat deliveries of their favourite everyday items.
In fitness, subscription models offer access to online workout classes and wellness apps, providing flexibility and variety for users. This has brought fitness into the home and put
pressure on gyms and fitness clubs. Peloton and Strava are successful examples of this type of subscription.
E‑learning platforms utilise subscriptions to give learners access to a broad range of courses and materials, facilitating continuous education and skill development. This has democratised learning, allowing anyone with internet access to learn at their own pace. Coursera and MasterClass are two of the most popular providers.
Subscription models are being tested in unconventional sectors such as agriculture, with farm subscriptions, and utilities, where energy-as-a-service models are emerging. The food sector is also getting involved, with the popular HelloFresh delivering weekly meals to people’s doorsteps. These reflect the versatile application of the subscription model to a variety of customer needs and lifestyles.
Impact on marketing for one-time purchase models
Marketing is just one thing that’s affected by the change from one-time purchase models to subscriptions. If you’re interested in offering your customers a subscription service, your approach to marketing will have to evolve.
Methods that worked for traditional one-time purchase models may no longer be effective. So, consider the following:
Marketing methods will change
One way your marketing will need to change is its value proposition. Marketing messages must pivot from selling a product to selling an ongoing service or experience. The messaging needs to highlight the continuity of value, convenience, and the evolving nature of the service, rather than just the features of a single product.
This may require introducing educational content because consumers may need to be educated on the benefits of subscription models over traditional purchases (cost-effectiveness, convenience, and added value that subscriptions offer over time).
You’ll also need to introduce content marketing if you haven’t already. This will keep subscribers engaged and reduce churn. Make sure you’re creating high-quality content regularly that adds value beyond the core offering, whether that’s through informative blog posts, engaging videos, or exclusive insights.
Goals will be different
When marketing a subscription service, your focus will be different. It’s important that your efforts aim to build long-term relationships with customers – investing in customer service, community management, and engagement strategies to maintain a dialogue with them. Your mindset must view the customer journey as something with long life – from acquisition to retention, and to loyalty. This means your targeted messages must be designed to maximise retention and customer lifetime value.
It must make use of customer data
Subscription services have the unique advantage of having large amounts of customer data. It would be foolish of marketers to not make use of this, as it can be used to create highly targeted and personalised messages. This data is accrued continuously, always giving businesses more and more information about use patterns, preferences, and customer feedback.
It must tackle issues specific to subscription models
The nature of subscription services gives rise to a couple of issues that aren’t present in one-time purchase models. For example, marketers must be sure their messages answer common concerns subscribers may have about these kinds of services. For example, they could emphasise transparency and build trust by being honest about their costs and cancellation policies.
Another issue unique to the subscription model is cancelled contracts due to changing preferences. Subscriber preferences and market trends inevitably change. As a result, it’s crucial that marketers of subscriptions are flexible. They must regularly test and update offers and pricing models, as well as the promotion of different types of content. This will ensure marketing strategies keep up with these constant changes and keep users engaged.
Future trends for subscription models
So, what can we expect from subscription models as we move into the future? Well, the current trajectory seems to suggest subscriptions will continue to be popular. They’re likely to penetrate new industries such as healthcare and transport, making consumer lives even more convenient.
Customers may also see the rise of micro-subscriptions, where they pay smaller amounts for highly specific services. Perhaps we’ll see a return of the early morning milkmen deliveries!
Businesses are likely to try and combat subscription fatigue. One such answer to this is subscription layering, whereby customers pay for several services in one package. Companies may also give more flexibility by offering ‘a la carte’ subscriptions. They may also offer ‘pause and resume’ features for customers looking for more control over their contracts.
And finally, what’s a discussion about ‘the future’ without mentioning AI? Advancements in this field are likely to enhance subscriptions, being used to personalise experiences by adapting to user behaviour in real time.
These predictions suggest a future where subscription models are more nuanced and customer-centric, reflecting broader economic, technological, and societal shifts. As with any forward-looking perspective, these trends should be taken as possibilities rather than certainties, and businesses will need to remain agile and responsive to actual market developments.
If you’re enticed by the many benefits of subscription models, it will be crucial that your marketing efforts are adapted. This field is unique, bringing with it a whole different range of customer expectations and concerns.