The term “Subscription Economy” was first coined by Zuora to characterize the new business environment in which traditional pay-per-product (or service) enterprises are transitioning into subscription-based business models. This new business landscape is known as the “Subscription Economy.” And the premise that customers are better subscribing to the outcomes they want when they want them as opposed to purchasing a thing with the responsibility of ownership is at the heart of this subscription economy.
Since that time, the subscription economy has expanded, progressed, and in certain sectors even reached a level of maturity. Although the global digital subscription economy, which is driven by cloud computing and online shopping, may reach $1.5 trillion by 2025, there are still a few hundred billion dollars worth of opportunity available in other industries. This indicates that there is a potential for every firm to alter themselves in order to cater to the subscription economy and generate value for customers as well as the organizations that they work for.
When we think of subscriptions, everyone immediately thinks of Netflix and its competitors. But in recent times, a large number of companies operating in a variety of industries have either begun offering subscription choices to their clients or have stated their intention to do so. Lululemon, which is a shop that sells athletic clothing, recently introduced a membership club for its customers. The coffee subscription service offered by Panera Bread—which had been introduced just before the pandemic—has been expanded to include all 26 drinks offered by the company’s beverage program. There have been rumors that Elon Musk may provide a subscription option to Twitter, and WhatsApp is now looking at the possibility of implementing such a feature.
Another fascinating sector is the sector of personal electronic device use, in which subscription services are making a (re)appearance. It’s possible that Whoop’s early success and Apple’s genuine consideration of offering subscriptions for the iPhone are signs that the next jump in subscriptions for personal electronics is right around the corner.
Apple is mulling about the possibility of offering a subscription service for the iPhone for the very first time. Given that it would hammer at the core of Apple’s sales numbers – iPhone sales represent a little more than 50 percent of Apple’s total revenue of $365 billion – it is not a trivial adjustment for Apple. Apple has been successful in selling the iPhone for the full price or through carrier contracts, which has allowed the company to amass a market share of 54 percent in the United States but just 27 percent worldwide. It is possible that they will consider this as an option in light of the fact that the length of time between iPhone replacement cycles is increasing from 2 years to 3 years. If they do so, they will be able to replace phones more quickly for subscribers and employ refurbished phones in other markets. As is the case with Apple, where everything is kept under wraps, it is possible that we will never truly understand the game plan, but it appears that the iPhone has also been infected with the subscription bug.
Whoop had a device that retailed for $500, but in 2019, the company switched to a subscription model and began offering the device to its users at no additional cost. The significant increase in subscriptions is indicative of a favourable acceptance from the communities they are trying to reach. It has also broadened the target populations, particularly in areas where affordability had been a barrier prior to the introduction of the subscription plan.
I’m not sure if it is premature to say that “now is the perfect time to be a consumer,” but I can’t say for sure. Because of intense competition and the unwavering commitment shown by many businesses to prioritize the growth of their subscriber bases above all else, the terms of the deals are becoming increasingly favorable with each passing day. As is the case with any developing trend, there will be obstacles and openings for firms to overcome and take advantage of in order to generate value.
The following are some of the primary issues faced by the subscription model of doing business with personal devices:
- The customers’ points of decision could be every month for a monthly subscription, so it is imperative that the users receive value on a regular basis.
- A subscription plan might not be appealing to all of a business’s clients (yes, there are those who would still want to go the full hog and pay upfront)
- Customers will have higher expectations about the quality of the equipment as well as the services provided, such as the supply chain, warranties, and maintenance, and they will not want any downtime.
- Bridging the gap between the digital and the real worlds – In a world that is increasingly digital, the corporation has improved control.
There are a variety of approaches that businesses might take to handle some of these difficulties and emerge from such a business model in a stronger position, including the following:
- Instead of focusing on the outcomes for the company, critical metrics should be developed based on the outcomes for the subscribers. For a company that manufactures fitness devices, for instance, the key performance indicators (KPIs) can revolve around the percentage of users who are achieving their goals, the number of users who have not demonstrated any improvement in the past week, etc. This will allow organizations to continue pushing in the right direction and will make it much easier for subscribers to decide whether or not to renew their subscriptions. This is quite similar to the definition of marketing that Peter Drucker offered: “The purpose of marketing is to know and understand the consumer so well that the product or service suits him and sells itself.”
- Maintaining a degree of adaptability in both the services and the subscription packages – Companies can look at several price points with varied service offerings and product configurations by taking a page out of the playbook of the extremely competitive streaming services. For instance, Hulu provides its customers with the option of selecting either a plan that is supported by advertisements or a plan that does not contain advertisements, and they can base their decision on either preference or budget. Apple has been quite successful in expanding their consumer base by experimenting with different variants of its products, such as the iPhone SE. Creating bundled services that are very appealing to the target clients is another alternative that may be taken into consideration.
- To hyper-personalize something is much simpler in theory than in practice. When it comes to integrating a physical device with a digital service, the alternatives are restricted, despite the fact that doing so in a digital service is quite simple and straightforward. However, this is exactly the point at which businesses need to innovate and concentrate on developing the ideal value proposition for their target audiences. The well-known communication illustration provided by Simon Sinek in his book “Start with Why” may prove to be of great assistance.
As the economic model for subscriptions develops in various industries, it will become necessary for businesses to shift their focus from the consumer to the content, product, or service itself as the primary focus of their operations. Instead of focusing just on acquisition, the priority will need to quickly change to improving subscriber engagement and holding on to existing customers. In order to rationalize their own learning curves and gain a jump start on utilizing advanced analytics to drive their business choices, the organizations that provide subscription services for personal devices might look to examples in streaming services as a point of comparison. However, until such a time as this comes about, “the consumer will remain the king.”