Subscription models are becoming increasingly relevant to business owners, shareholders and consumers alike and cover industries from music, movies, clothing, food and craft beer. Over the last 7 years the subscription industry has grown more than 350%, with businesses such as Netflix, Apple, Disney & Spotify leading the way. Indeed it is notable that the doubling of Apple share value over the last year has happened whilst analysts particularly take note of the development of their Services Division. Whilst the UK market is developing well, there is significant opportunity to identify best practice from the more developed US market, particularly with regards to conversion and retention, which continue to be the key challenges of the model. Getting these right will enable your subscription model to deliver value and longevity with your consumer base.
What can we learn?
Prioritise data and the design of your data warehouse from the outset.
Insight from data is critical to a subscription business, so getting it right from the start is important. It is common for a business to realise data is required and then delay the insight because they spend time collecting it. Collect it from the start because it is better to have it and not use it, than need it and not have it. Take time to build at the start because turning back the clock is rarely possible. Prepare your data strategy for scaling and in anticipation of potential operational challenges that brings, so that scaling is smoother when the demand arises.
Have clear T&Cs.
Having clear T&Cs is obviously important but pay particular attention with offers and trials. The more your customers understand the terms of trials and offers, the more likely they are to become long term advocates. Whilst it may be possible to mitigate the risk of an ambiguous offer by having great customer service touch points, these carry a cost that can be avoided, and must be avoided to succeed at scale. Having a call centre over run with calls from customers questioning why they are suddenly paying for something they though was free, will not translate to enterprise value. Counter intuitively, adding friction points to a subscription flow is strongly advocated to slow down the sign up process and increase customer understanding and take up.
Give the customer control.
Sustainable subscription models are not a con. Providing customers with transparency and control is important and valuable, as the more they ensure the service meets their needs, the more they are likely to use it. Building flexibility into your subscription can be important to allow better alignment of your service to the customer needs, providing the customer has the ability to amend the subscription. Consider real life user experiences with your product to build in the right flexibility. For example, if you are delivering a subscription box, the ability to pause a subscription during holidays will add considerable value. Nobody wants to come home from holiday and find boxes of fruit stacked on their doorstep. If your subscription is for media consumption, consider how the service can adapt across family and friend groups.
Leverage value from mistakes.
Mistakes happen. Outages happen. They are often an opportunity to demonstrate how much you care about customers and further strengthen advocacy. Consider the costs of rectifying mistakes in your particular model and understand the alternative options within that same budget. For example, if you are shipping boxes and send the wrong box, the cost of returning and processing the box may exceed the loss of the original box, so offering customer a quick replacement and allowing them to gift the mistaken delivery could add advocacy and gain a new customer for minimal cost. A mistake is an opportunity to interact with the customer. Make sure the interaction is an overwhelmingly positive one.
Enhance physical samples with recommendation.
Giving away samples is tried and tested mechanic from industries of the past. However, the cost can be significant with physical subscriptions. Physical samples gifted by existing clients, cost less because of the targeted distribution, and convert better because of the personal recommendation from a friend. Organic word of mouth is known to be valuable, and can be driven by targeted referral samples.
Understand the cost of “free” to the customer.
Free offers that require a credit card are counter intuitive to the customer. A highly discounted offer, that requires a credit card to pay is more logical and can cut through more. The customer is more engaged with the purchase and less likely to lead to a dispute when the full subscription begins. The time taken to input card details, and cost of uncertainty in committing to a new service can often be relevant compared to the cost of the service itself to a consumer. The difference to the consumer of being asked to sign up but pay nothing initially v signing up and paying a discounted rate can be marginal.
Be proactive with customers that cancel.
The cost to win back lapsed customers is often less than the cost of winning new ones. Proactively contacting cancelling customers, or interrupting the cancellation journey to hear their issues is a cost effective way of of creating an opportunity to retain, but also provides valuable feedback to mitigate the risk of losing customers in the future.
Value long term customers.
As your business scales and develops, your proposition will too. Be mindful of the impact on existing customers who may feel they were on a premium service that are asked to spend more in the future. Having clear points of difference in new propositions is important to help existing customers feel that they have always received value and understand how they can have more.
Be open, but mindful of collaborations.
Partnerships to leverage other bases can be valuable, but ensure they are consistent with your proposition and brand position. Partnering with a non competing product to leverage each others bases may bring value in new subscriptions, but ensure the product fit for your customers is right to avoid them feeling commoditised. Bombarding them with irrelevant offers will desensitise them to future partner offers and offers of your own.
Understand and respond to the different ways consumers communicate.
Different demographics consumer media and communication in different ways such as younger demographic consuming more digital media than elderly demographic consuming more print. However, it is important to monitor how consumption and communication changes through the data you collect. Subscription is a young and dynamic industry, and consumers in the industry have dynamic behaviours.
Proposition and pricing is key.
Finding the right pricing proposition requires optimisation, and therefore the ability to change pricing regularly and easily. It is important to build this capability into your code from the start. As you develop your pricing model be mindful of existing pricing promises, keep them where possible, and navigate out fairly when needed. This should allow for testing between models such as flat pricing, volume pricing, stair-step or tiered pricing. Consider a freemium model to maximise your product's audience. A freemium model provides key aspects of your service for free and gives a clear value reason to trade up to a paid subscription. Build plans that fit different customer usage types and differentiate costs base on typical usage. This enables you to invest effectively in acquiring customers and maximise your marketing ROI. When acquiring paid customers, understand the marketing cost of acquisition in traditional channels such as PPC and consider making a similar investment in your existing freemium base. Your acquisition strategy should include upsell and cross-sell to your existing base.
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