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How is the subscription economy performing?

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How is the subscription economy performing?

There has been a consistent increase in subscription based organizations being a part of the larger shift from the product based economy to the subscription economy. Organizations are now required to handle pricing, customer loyalty and selling very differently. Running a company that is subscription based does mean that there is a recurring relationship with a customer. As a result, the business-customer relationship does not merely end through a monetary transaction. Due to the fact subscription business is new for consumers, it is essential to explain to them benefits and accept its unique attributes.

For the purpose of being operational in the subscription economy, organisations require new software applications that can help to facilitate their transformation. Over the last 2 decades, organisations have invested a significant amount into Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems for supporting customer service, sales automation, supply chain, inventory management and accounting.

An in-depth survey conducted by McKinsey & Company comprehensively illustrated the dynamics of the subscription e-commerce market and its major trends. Over the last few years, the subscription e-commerce market has increased by nearly 100% percent annually from 2011 to 2016. Some of the largest generated $2.7 billion in sales in 2016 from $58.0 million in 2011. It was also revealed that e-commerce subscribers are likely to be 25 to 44 years old and also have incomes from $50,000 to $100,000 and are living in urban environments in the Northeastern U.S.

Internet Retailer 2018 Top 500 Online Database; McKinsey analysis. Stitch Fix is the largest subscription e-commerce company

Companies like Dollar Shave Club, Amazon Subscribe & Save, Ipsy, Blue Apron and Borchbox are five of the most popular subscription sites in 2018. The Amazon Subscribe & Save and Dollar Shave Club now have access to almost twice as many subscribers as the other services on the top ten list. Saving time through reduction of reducing regular trips along with price savings can be stated as two catalysts that tend to drive the growing adoption for replenishment subscriptions.

An example: Save up to 15%. Choose product, set up frequency, receive repeat shipments

The usual subscription customer is upscale with higher-than-usual income and have comparatively limited free time. As a result, the requirement of subscriptions does become evident. Several of the popular services charge comparatively low monthly fees of either $10 or less. Others, including stich fix and blue apron, have comparatively higher fee structures. Therefore, they can result in extracting higher revenues on a smaller customer base.

Almost 55% of all subscriptions are curation-based. This does make this subscription one of the most dominant within the subscription economy of 2018. The dominance of curation-based subscriptions has reflected online customers demand for a consistent series of personalized and high-quality experiences. On the other hand, access based subscriptions are 13% while replenishment-based are 32%.

Three broad types of subscriptions: replenishment, curation, and access

29% of curation and access based subscribers have a personalized experience that is the most essential reason to continue with subscriptions. For subscribers based on replenishment, convenience (26%) is the most essential consideration. However, value for the money (23%) and personalized experiences (21%) were equally important. Consumers tend to quickly cancel services that can’t provide high quality or end-to-end experiences.

Merely 55% of online shoppers that have considered a subscription service tend to subscribe. Despite of the hype that does surround subscription based business models and cloud applications and platforms supporting them do make a subscription-based business work more cumbersome than it actually looks. Services that are replenishment-based tend to have a higher rate of conversion (65%) when compared with curating content (52%) or access services (51%). 40% of subscribers of e-commerce have either canceled their subscriptions and are now further underscoring the significance of providing high quality customer experience on a consistent basis. The companies that have highest levels of long-term subscription rates comprise of Dollar Shave Club, Amazon Subscribe & Save, Ipsy and Loot Crate.

Here’s how the process works, according to Dollar Shave Club’s website

Nearly 15% of online shoppers across the world have subscribed to an e-commerce based service over the last few years. Moreover, 46% of the total respondents have subscribed to a global streaming-media service that also includes Netflix. Subscription-box services can provide products regularly. This includes Ipsy, Blue Apron, Dollar Shave Club and Stitch Fix. Subscription-based media includes Hulu, Netflix, Spotify, Amazon Prime Video, ClassPass etc.

Netflix Beats HBO in Subscription Revenue

Women are mainly 62% of subscriptions. On the other hand, men are highly likely to have multiple subscriptions. The overall number of subscriptions that could be attracted by an active subscriber is usually two and nearly 35% may have multiple. Men are highly likely than women for having three or even more active number of subscriptions. This does illustrate that men value automated purchasing for saving save time through the means of a reduction in store trips.

Subscribers by gender

Through the subscription economy, companies form an ongoing relationship with the customers. They are able to know are there customers, their views, their purchasing habits, the products they like and other demographic information. These organisations, therefore, are able to extend value to customers that is directly anchored within their brand. This also helps to open up a new set of possibilities. Within this context, providers of books, software, music, media and entertainment organisations such as HBO, TripAdvisor, Telstra, AXA, Thermo Fisher Scientific, lynda.com and Kaplan have been able to start a subscription business with recurring revenue.

Subscriptions Lead Digital Content Spending

Australian corporations have been able to take notice of the rise of the subscription based economy. According to a research conducted by ANZ Subscription shift, nearly two-thirds of the businesses in Australia have planned to adopt a subscription based model by 2018-2019. Organizations from other industries such as manufacturing and logistics have also got into the mix of subscription.

Organisations such as Schneider, GM and News Corp predict that nearly 50% of their revenues would be subscription based. It is evident that the shift towards subscription based economy has been accelerating on a consistent basis. Organisations that are required to become or remain as industry leaders and enjoy the market, financial, technology and customer loyalty benefits related to long-term subscriber relationships are required to plan their transformation on a regular basis. Organisations such as Schneider, GM and News Corp predict that nearly 50% of their revenues would be subscription based. It is evident that the shift towards subscription based economy has been accelerating on a consistent basis. Organisations that are required to become or remain as industry leaders and enjoy the market, financial, technology and customer loyalty benefits related to long-term subscriber relationships are required to plan their transformation on a regular basis.

Tien Tzuo, founder and CEO of Zuora and author of Subscribed, talks to Tonya Hall about the importance of counting customers instead of purchases via ZDNet

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