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.

Pros

• 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.

Cons

• 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:

Pros

• 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.

Cons

• 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.

Fitness

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.

Education

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.

Other sectors

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.

Final thoughts

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.