The subscription model has made its way into various industries in recent years, ranging from automobiles to clothing. This has allowed these industries to modernize the car-leasing experience and transform living rooms into dressing rooms, generating significant revenue streams. Stitch Fix, for example, brought in $296 million in revenue in the second quarter of 2018, surpassing analyst predictions. By 2017, subscription box companies had amassed 5.7 million shoppers.
The subscription model, once known for Jelly of the Month clubs, has become a genuine success story in the digital age. While many other industries have been influenced by this business model, the tech sector represents the “final frontier.”
While software subscriptions have been around for years, the subscription mindset could provide value to many product-driven tech companies. These companies can create subscription packages to enhance the usability of their hardware, improve customer service, and build lifelong advocates. Companies like Apple have already capitalized on this.
How Tech Can Benefit From Subscriptions
Matt Cronin, president and founding partner of House of Kaizen, a company that helps brands secure and retain subscriber revenue through optimal digital experiences, is surprised that more tech companies haven’t taken advantage of subscriptions. He notes that marketing strategies for subscribers offer significant advantages over marketing for regular buyers in terms of econometrics, quality, and relationships.
According to Cronin, the economics of a subscription model are based on an established customer lifetime value, justifying a more competitive investment in each new subscriber. This approach allows for more customer-centric marketing tactics, leading to greater efficiency and higher ROI in the long run, despite higher initial costs.
Acquisition programs can be optimized based on subscriber quality instead of cost alone, ensuring that marketing tactics bring in and retain valuable subscribers, contributing immensely to the bottom line and mitigating massive churn events following high volume, low-value acquisitions.
A subscription’s value hinges on the quality of the relationship between the company and the subscriber. Companies offering subscriptions need to treat their subscribers as “members,” providing all the benefits that status entails. Subscription marketing strategies offer a unique opportunity to balance investments between acquisition and retention tactics.
Planned Obsolescence Shouldn’t Apply to Customers
While planned obsolescence has been effective in driving product sales for tech firms, it should not be applied to customers themselves. Shifting this perspective could have a real impact on the bottom line. Industries with shorter-term transactions and consumption in mind can benefit from a subscription model in terms of category differentiation, value creation, deferred revenue, and customer loyalty.
Technology subscriptions are evolving into “servitization,” where ongoing support and enhancement to a product purchase present a direct-to-consumer opportunity for technology companies. This concept has long existed, but it’s only recently been considered by technology companies as a direct-to-consumer opportunity.
This ongoing aspect offers value in terms of deferred revenue, as companies can rely on revenue realized as subscribers continue to pay indefinitely into the future. Delivering consistent value to subscribers is the best way to foster loyalty and grow a business.
Brands have leveraged this mindset in various ways, offering value to consumers by bundling services through a single subscription and venturing into hardware-as-a-service programs aimed at replacing ownership with device updates for organizations.
Designing a Subscription Plan
Many companies can find success with the subscription model by designing a plan that embraces an additional point of sale. Embracing various models grows the opportunity for a tech company to tap into an incremental customer segment.
Customer journey mapping that evolves to include a subscriber journey reveals the opportunities inherent in the subscription model: capturing new markets, evolving product offerings, cross-selling, and upselling. Subscription models allow brands to adjust their pricing for different consumption patterns and experiment with pricing for growth.
The subscription model offers tech companies opportunities for product and revenue diversification, without disrupting their core business, and opens the door to new kinds of customers with slightly different needs and values. By embracing subscriptions and getting to know their customers’ needs, tech brands can achieve the right balance between being seen as disposable and being seen as innovative.
