Move over, product economy. There's a new star in town. Businesses are increasingly moving to the subscription model, where the defining philosophy is 'customer-first.'
Recurring and subscription billing is a predominantly successful business model and increasingly popular, evidenced by the exploding success of the large brand retailers who have adopted the model.
Although lucrative for businesses, consumers do not have the same affinity for subscriptions. On the contrary, in most cases it's a hassle to subscribe and renew and remember an increasingly long list of subscriptions. However, they do want a great end-to-end experience and are willing to subscribe when the automated purchasing gives them tangible benefits, cost savings, convenience and are provided with an easy checkout including a variety of payment options.
Changing trends – the subscription model is the way forward
B2C subscription businesses are attracting more customers each year. Overall the growth has been almost 200% annually since 2011, mainly due to new start-ups. So, why are businesses taking the subscription path?
- Better revenue prediction: Businesses can predict cashflow more accurately in a subscription model. And with a steady and guaranteed cashflow, it also results in a better valuation for companies.
- Increased convenience for customers = better customer relationships: In a subscription model, customers sign up once, and if they're satisfied with the service, might continue with the subscription for months, or possibly years.
- Ease of operation: Once a customer places a subscription order, the overhead reduces in terms of receiving payments or other administrative efforts in the subsequent cycles. This frees up valuable time and resources that can be utilised on the core business.
- The sustainability agenda: Customers want the ride, and not necessarily own the car. Delving a little deeper into the subscription model, one less obvious benefit is the contribution to sustainability. Ikea's response to the growing concerns about climate change is an attempt to move towards a subscription rental service, instead of a purely retail service. With growing awareness (especially among the younger generation) about the impact that consumption has on the environment, the subscription model has the potential to address this issue.
Digital content streaming is one of the most successful subscription business areas. Similarly, sports club memberships and grocery, which a user needs to purchase at regular intervals, lend themselves naturally to a subscription model. But, several 'unconventional' services have, with creativity, adopted this new model. Take high-end luxury products for instance. Offering subscription rental options opens a whole new market to brands – customers who might not invest in purchasing a high-end product for thousands of euros would find it attractive to subscribe to a service that allows them to rent these products.
So, what's the secret behind their success?
A 2018 survey by McKinsey & Co. found that more than 30% of customers cancel a subscription within three months of signing up, and more than 50% cancel within six months. Many consumers who churn do so quickly, which suggests that companies should analyse the data and use it to influence future product or solution development.
Why are some subscription services miles ahead of the rest? Successful subscription businesses have done their homework on what their customers expect – not just from their product, but also in their engagement with the business.
The whole experience matters
Customers care about product quality, easy sign-up process, competitive prices, customised experience, accessible customer support, easy cancelation process and more. These are just some of the questions they ask before choosing to sign up to your subscription. The customer experience is just as important as the product or service itself.
Making payments easy
The last step of the process is one of the most crucial – payments. If the customer is unable to pay easily, and with preferred payment methods, no matter how good the product or service is, he will simply abandon the process and look elsewhere. Subscription services differ from regular one-off purchases and need a different approach to payments as well.
- It is important to take into consideration local payment methods and geographical preferences and availability. An optimal mix of payment methods will contribute immensely to customer retention.
- Sometimes subscriptions are cancelled without the customer intending to, because of a payment being declined. And this can be an easy problem to address – make sure your payments partner has an account updater feature incorporated into their recurring payment solution. The Visa and Mastercard account updater solutions ensure that even when a customer's card expires, the details are automatically updated without the user having to do anything.
- A recurring payments solution must have an automatic retry feature integrated, for when a payment fails. Sometimes, declines happen because of technical errors, or simply because the account has insufficient funds, typically in the few days before a user’s salary hits their account.
Don't lock them in, and they won't leave
A subscription where 'unsubscribing' is a hassle, or an exorbitant deposit is charged, is likely to put the user off. In cases where it is simple for the user to cancel their subscription, unsurprisingly, there is a significantly lower number of cancellations. Simply because of the choice.
Customer Loyalty: 'Make me want to come back'
The trigger for a customer to sign up to a subscription is usually a recommendation, either from friends or social media platforms. But what will truly have them stay loyal, and make it worthwhile for the business, is delivering a rewarding experience. This spans the entire spectrum – from signing up, ease of payment and preferred payment methods, product or service quality, value for money and customising to customer needs. So, for subscription companies it is good to not just think outside 'the box' but throw the box away and bring in a whole new experience. And customers will value the brand they choose.
Do you need a subscription billing system? Do you feel that your existing system is not converting well? Download our Recurring & Subscription Billing brochure or Contact us in order to discuss the best solutions for your business.
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