Why digital subscription is a win-win business model

Anne de Kerckhove, CEO, Iron
- Finance - Nov 01, 2016

More than eight in 10 Europeans already rely on subscription-based services. Once largely confined to newspaper and magazines, the subscription economy has gone digital and expanded from online entertainment—think Netflix, Spotify and Apple Music—to an array of fast-growing sectors, from education to retail.

Why is digital subscription becoming so ubiquitous? Because it serves both customers and businesses. And this is why pioneers such as Iron have made subscription their business. 

Let’s start with customers. The data revolution has transformed the way we consume in several fundamental ways. We are increasingly favoring personalised service and experience over simple purchase transactions. Just like the cornershop owner gets to know our name and the kind of cheese we like if we shop there often enough, customised online service and experience develops through repeated contact and the data it produces. This means developing a relationship and building trust, rather than focusing on one-off purchases. With digital subscription, customers can get more personalised service and better value. In exchange, they are willing to share data. 

A second trend is the value we place on time and convenience. E-commerce means we are able to shop and pay our bills from the comfort of our computer or our phone, but who wants to enter credit card details over and over again? Or remember to order coffee or contact lenses? Or wait at the back of the security line at the airport? Thanks to digital subscription, we no longer have to. With companies like Gillette launching the ‘Gillette Club’ allowing consumers to get the blades they want, when they want them, subscription makes our lives easier and saves us time.

Attitudes towards ownership have also changed, as consumers increasingly turn to flexible access. This has created a shift from purchasing goods towards buying services. Take transport, for instance. If I want quick and easy access to a car whenever I need it, I no longer have to buy one. Instead, I can subscribe to a service like Drivy or ZipCar and share one. Sharing resources is cheaper and more efficient: I can trade a single big purchase for small regular payments. Thanks to technology, sharing or pooling has also become easy and flexible. It also creates new communities, a trend that platforms like Uber and BlaBlaCar, the French car-pooling system, have tapped into. Subscription offers easy, more efficient and cheaper access to what customers need, when they need it.    

Now let’s turn to the business perspective. The subscription model has many advantages there as well. First, it offers regular, predictable cash flows to companies that keep their customers happy and have a good recurring billing system. And recurrent, predictable cash flows make a lot of things easier, from planning and investment to capital raising. 

Operating a subscription model also means that the lifetime value of your customers is much higher. If you deliver value, customers buy again and again, instead of once. You don’t have to spend money on marketing or advertising to convince that customer to buy again, so the return on that initial investment is far better. For example, Graze offer the first boxes for free, providing customers with a trial run, this investment allows consumers to experience the value of the service, which leads to returning customers. This shows that it is the quality of service and experience, that keeps customers rather than the spend. In order to this, businesses have to shift their focus from transactions to creating and nurturing long-term relationships with their customers. This means disrupting traditional models. It requires constant innovation.

Constant contact with your customers means keeping in touch with your market, and how it evolves. Through digital subscription and the data it generates, business can track what people want, when they need it, and how they behave. So businesses get to know their customers much better—both individually and collectively—so they can spot trends and gaps in the market, and they can do it fast. They can adjust their products and services accordingly, and test new ideas through their pool of subscribers. An example of this is the Adidas Avenue A subscription, allowing customers to receive celebrity-curated athletics apparel boxes, due to the consumer reaction to celebrity branded products.

Technology and innovation, as well as shifting consuming trends, keep stretching the horizons of the subscription economy. Its future shines bright. Businesses that fail to embrace it do so at their own peril.

By Anne de Kerckhove, CEO, Iron

Read the November 2016 issue of Business Review Europe magazine. 

Follow @BizReviewEurope

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