The past three years have brought about unprecedented challenges around the world--from the pandemic to the impact of climate change, a war and inflation. In fact, “Permacrisis” has been declared word of the year by The Collins Dictionary to reflect these far-reaching disruptions. How can companies thrive in these challenging times?
Consumer buying habits have shifted from one-time purchases of products towards paying monthly subscription fees for the right to access a product or service. The average US subscriber now has five retail subscriptions, ranging from beauty boxes to pet food, and US households subscribe to four streaming services on average. However, with inflationary pressures and uncertain global environments, many consumers are starting to reduce the number of subscriptions. Julia Beizer, Chief Digital Officer at Bloomberg Media, indicated that “news and subscription fatigue are both very real.”
www.linkedin.com/in/isabelleroussin
Consumer buying habits have shifted from one-time purchases of products towards paying monthly subscription fees for the right to access a product or service. The average US subscriber now has five retail subscriptions, ranging from beauty boxes to pet food, and US households subscribe to four streaming services on average. However, with inflationary pressures and uncertain global environments, many consumers are starting to reduce the number of subscriptions. Julia Beizer, Chief Digital Officer at Bloomberg Media, indicated that “news and subscription fatigue are both very real.”
Does this signify the end of the subscription wave?
Certainly not! Instead, you should strive to create more value and stickiness for your consumers. Below are a few trends used by leading companies to build customer loyalty and ensure customers are not canceling their subscriptions.
Premium loyalty programs: Create programs in which members are part of an exclusive club with special perks and rewards. This is especially important as people overcome the isolation brought by social distancing due to COVID19. Membership can be based on paying a premium fee, usage amounts, or a combination of both. Airline mileage programs are an early example in which members in different tiers received free upgrades. Initially based purely on miles flown, airlines now are requiring a combination of miles flown and prices paid for tickets to determine member status. Credit card companies are also known to offer their best customers elite status when a higher annual fee is paid. However, membership can be as accessible as Amazon Prime in which millions of users have their orders delivered in two days or less by paying an annual membership fee.
Value-based pricing: Different pricing models can be offered to better reflect the value gained by your customers such as:
- Usage pricing - Customers only pay for what they use, similar to what utilities and phone companies have been traditionally offering based on megawatts of electricity used, megabytes of data downloaded, and minutes used for phone calls – metrics that were almost impossible to decipher. Does that only apply to services? Well, we see a growing trend of models applied to physical goods recently. Take a drill as a simple example. We had this case proposed by one of our customers. The simplest model would be a periodic subscription with a flat fee and unlimited usage during this period. Adding a usage fee would be to charge on the hours or days the drill is used.
- Outcome pricing - This emerging pricing model is based on the expected outcome of a product or service. For example, let's go back to our drill illustration. While you have been charged on a time-based approach, did you get what you wanted from this drill? What if you have been drilling for 15 mins, but didn’t manage to make a hole, as actually this drill model was not powerful enough for this hard ceiling? Wouldn’t you prefer in that case be charged on a per-hole basis, as this corresponds in fact to the expected outcome? Going further down this line, you can even argue that the real value is the time saved using the right tool from the start to make this hole.
- Dynamic pricing models versus prefixed prices will also contribute to maximized service renewals. For example, we are all familiar with the offering fluctuation when we take the train or book a flight, where prices are based on market demand and competitive prices. Without going into the pricing complexity of yield management, it might still be interesting to introduce some contextual parameters in pricing models which will end up in a dynamic charge. Take as example your Road Tolling charge which will fluctuate based on peak, off-peak period, location, the daily index of the air quality, or by the number of people in your car at the moment you cross the gate. Obviously, this requires for the criteria here to be metered in real-time.
- Product bundling - With the rise of subscriptions, companies across all industries have taken advantage of bundling related products and services. This not only increases the revenue per customer, but also builds customer loyalty and stickiness. Bundled services is one of the ways in which media companies have successfully survived the decline in ads and readership. In fact, The New York Time experienced double-digit subscription growth in Q4 2022 by bundling news with lifestyle products, such cooking, produce reviews, and sports.
Partner offerings: Related to bundling, you can include third-party partner applications, content, games, and new services such as installation and maintenance. This is especially valuable if you operate in a marketplace environment in which customers are seeking related products from multiple providers.
Flexible contracts: As consumers seek ways to decrease spend, give your customers the flexibility to pause or put their subscriptions on temporary hold and the ability to downsize their options. For your most loyal customers, you could offer favorable payment terms based on their needs.
Usage rights (entitlement): If you offer products to households, you may want to consider giving usage rights based on the user’s role. For example, teenage users have restricted access to specific content and only during specific hours and devices. Take the connected home services: you may also have warranty entitlements on your printer-as-a-service, or manage the entitlement of the embedded software in home-automation devices such as thermostat, water meter etc …
Replenishments: If your subscription includes ongoing replenishment of household items, such as coffee, shampoo, and cleaning supplies, you should give customers the flexibility to put the replenishment on hold or to change delivery frequencies.
As you look towards implementing ways to drive customer value, make sure your quote-to-cash process has the ability to support:
- Flexible pricing modeling and options, including recurring fees, usage-based pricing, dynamic pricing, and bundling of physical and digital offerings
- Real-time capture and cleaning of usage data coming from any source and format (e.g., IoT sensors, web, networks) and feeding into the billing engine
- Tracking and instant settlement of revenue-share arrangements with your partners
- Flexible contract management including changes, pauses, extensions, downsizing options, and tracking usage over the entire contract lifecycle
- Memberships and loyalty programs with rewards, rebates and promotions
- Capabilities to define and track any type of entitlements or usage rights that are driven to downstream processes like provisioning, fulfilment, license key creation and revenue recognition
- Seamless integration with processes for fulfilling products and services, and
- Scalability to handle high volumes of transactions especially usage models.
Building long-lasting relationships with your customers is the key to combat permacrisis and other unpredictable disruptive challenges for your business. Spend some time getting to know your customer better in order to modify your business model appropriately. For this, insights into customer consumption and financial data will be invaluable. By increasing the value delivered to your customers, you decrease churn while driving adoption for your subscription business.
Isabelle Roussin
www.linkedin.com/in/isabelleroussin
#businessmodels , #subscriptions , #recurringrevenue , #quotetocash , #billing
Previous Blogs and Podcasts on the same theme
Start Small, Plan Big: How to embrace successfully the world of subscriptions!
Podcast - The Future of ERP – Kicking Off Your Journey to Subscriptions and Recurring Revenues
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