Linda Nguyen
Off the top of my head, I can think of quite a few services I am subscribed to. First, is Adobe Creative Cloud, because I am a graphic designer and yes it really is the holy grail for the creative industry. Second, is Netflix, because I have got to start Stranger Things one of these days (I know, I’m late to the game). Third, is Amazon Prime, because two-day deliveries save my life—like when I bought a frozen pizza only to come home and realize I did not own a pizza cutter. Cue, Amazon. In forty-eight hours, I had a beautifully-cut, semi-decent frozen pizza dinner. What all of these examples showcase is how valuable a subscription can be to a consumer like myself; it explains why we live in the age of subscription businesses and how the marketing industry is evolving.
What Is a Subscription Business?
The subscription business model is generally thought to have been established by the publishing industry, where individuals could sign up and pay for daily or weekly deliveries of newspapers and magazines. A subscription business, therefore, is essentially a business that offers access to its product or services through a cyclical payment system. A consumer pays a subscription price and receives a product or service for the offered amount of time. Nowadays, the amount and types of products and services sold by subscription span industries and are vast. From music-streaming services like Spotify, to monthly beauty product deliveries like Ipsy, to prepped meals at your doorstep from Hello Fresh, subscription-based services and products are growing fast.
Why Are Subscription Businesses Successful?
According to Forbes, in April of 2017, websites from businesses offering subscriptions had approximately 37 million visitors. Since 2014, that number has increased by over 800%. Why have these businesses suddenly exploded in popularity? Well, it really comes down to the consumer and their changing tastes and lifestyles. Subscription businesses such as Ipsy, which doles out monthly boxes of beauty products, have really capitalized on being strategic. Market research and consumer insight from Hitwise shows that there are about 5.7 million subscription box shoppers in the United States. Behind Ipsy’s business strategy for these 5.7 million subscribers (and how to gain more) is really the element of surprise. Anyone can click on a button to purchase an item that they know that they want. Instead, by subscribing to Ipsy, consumers are buying into the idea of receiving unknown products—that they haven’t yet realized that they want—curated specifically to their preferences. Interesting, right?
Subscription businesses have been successful because they tap into human behavior. People don’t just enjoy surprises, they also enjoy convenience. The lifestyle that we have in this day and age is fast-paced and pivoted towards optimization. No one wants to waste their time. How many times have you run out of a product that you use frequently? How inconvenienced did you feel when you had to take the time to actually go and buy it? This is where subscriptions win: they save their customers the time and hassle of having to remember to buy the product. Better yet, as long as they are subscribed, customers never have to worry about running out of the product.
Another key point to consider is ease of budgeting. Subscriptions are simple to budget because they are a flat fee. The consumer subscribes to pay a certain amount of money every week, month, or year (depending on the plan). I know that every month, an automatic payment of $14 will go towards Netflix’s premium plan so that my five-year-old niece and I can simultaneously watch Moana on different devices. This fee is predictable and allows me better control of my spending—a benefit in the grand scheme of managing finances. This point is also relevant for subscription businesses themselves. As profit comes from the amount of subscribers, knowing this information allows businesses to predict revenue and invest accordingly. Businesses with a subscription-based strategy have consistent and foreseeable cash flow which allows for secured revenue and possibly higher business worth.
How Are Subscription Businesses Going to Affect Marketing?
So what does this exponential growth in subscription businesses mean? Consumers are becoming more and more inclined to look for time-saving and effortless shopping experiences. With that being said though, the subscription market is not quite settled. Consumers can end a subscription at any point in time when they feel that it has lost its value or sense of function. Knowing this, businesses need to continue adapting to the changing needs and desires of their consumers. Failing to understand and adapt for these changes leads to a decline in consumer interest and involvement. Remember Blockbuster? Yeah…it’s a thing of the past now, for that very reason.
I can’t stress this enough: consumers drive the market. Not only does a subscription business need to offer relevant services and products, they must also establish real relationships. Developing a strong customer-relationship and providing good customer service is imperative for building confidence in a business’ services or products while also increasing the longevity of a subscription. Consumer loyalty and recurring revenue is crucial in the profitability of a subscription business. Having more subscribers is not only good for a subscription business, but it’s essentially good for the “subscription economy,” as coined by Tien Tzuo, the CEO of Zuora. Research shows that consumers who are subscribers are about four times more likely to subscribe to other subscriptions than other consumers, according to Forbes. So…the more people who start subscribing to businesses, the more overall subscriptions there may be. How far can this idea of subscriptions really go? We’ll have to wait and see.
