Are you in a Subscription Relationship yet?
One of the biggest trends that has changed in personal purchasing within the past few years has been the subscription model, or as many call it, the subscription economy. It is taking over everything. You can subscribe to anything from beauty products to music services to – believe it or not – bacon.
Why though, is this model so popular? Has it changed enough of the market so that a company’s success is measured by the amount of people who use your product, especially in the SaaS style market of subscriptions, rather than the product or service itself – which is what the subscription economy aims to do?
The answer to the above is YES. According to a study, the subscription service industry surged in growth by 300% between 2013 and 2018. We know it has grown exponentially during Covid, making the growth number even higher. Imagine what those numbers look like in this era of working from home and having more retail shops shuttered. This has almost mandated for the market to move towards agile companies that can handle the strategy-shift from transaction-centric to relationship-focused, which provides more growth value over time, and stability.
There are a few key differences in a subscription model business. One is about focusing on the customer, their personalised experience – which is the bedrock on which the entire subscription economy is based on – and how it sets the path to success when the traditional product-centric models fall short.
More pragmatically, it is about companies building on the idea that they can capitalise on the compounding value of customer relationships through subscriptions. As long as customers see a product as vital to their own way of living, their own ecosystem, they’ll continue to pay for it.
Therefore, subscription model businesses truly thrive only when customers get long-term value from the product a company provides them. In order to secure this, companies must create strong customer relationships to understand what people value about their product and how they would like to see it evolve.
The company must continually show value, which means the customer has the power to control the direction a company grows in. If it goes in a direction that the customer is not happy with, or changes from their expectations, they can easily leave and go to a competitor. Otherwise the company’s success is all about providing inexpensive but exceptional customer service.
An industry expert of the Subscribed Institute said: ‘In the subscription economy it’s not about the [packaging], it’s not about the CD, it’s not about the code, it’s actually about people using the (QR code) and what they’re doing.’
The subscription economy is just a shift of the usual trend of people buying when they ran out of something, or remembering they needed to get something quickly because their usage models were the same, but there was no incentive or easy way to move to being customer-centric for many companies. In many ways it is reminiscent of the days of direct marketing fundraising, where you could be put on a monthly direct debit to make a donation to a charity. Or, going further back in time, ‘subscribing’ to join a cassette of the month club – but if you left, you were penalised by having to pay a cost that covered the time of your subscription when you joined up. In the subscription models of today, that no longer exists.
The largest change is that the subscription economy focuses on the customer. It requires a strategy that is people-focused rather than product focused and makes companies shift how they view their product experience. As we advise at Szentia, they are absolutes to make it work for both parties, but especially the customer.
It is about access not ownership
It is about relationships and personalisation, not one size fits all
It is about constant improvement
It is about automating your value chain and improving relationships
It is about being responsive, but it isn’t about being perfect.
According to McKinsey, 49% of customers are currently using a subscription service, showing that there is value to customers in subscription models.
The top reasons given for subscriptions successfully attracting subscriber/buyers are: convenience, cost, and discovery.
Over the past few years as customers have been given more choice in products, services, how their data is used, what they share on social media, or with companies for loyalty programs, etc., the balance of power has shifted towards the customer. Covid has only accelerated this process; the pandemic has redefined the future of self-service, remote work, and most importantly, increasing customer expectations, regardless of how small your company’s budget or tough the times are.
This means customers are no longer happy with the general product the business chooses, but they want to co-create, or at least control their product choices and how companies interact with them. They expect companies now to offer those more – a point of difference – in order to get and keep their custom.
They want customisation on some level. They want themselves – not everyone, but them, to be dealt with as a unique entity.
There is a direct correlation between increasing technologies and expectations of the modern consumer. As a Wall Street Journal and New York Times best-selling author and customer influencer recently said ‘Today’s customers are smarter than ever before. They are comparing it [your service level] to the best customer service they ever had.’ Backing that up is some information from CCW Digital’s Market Study on the Contact Centre of 2025, which states the number one objective for customers is reducing customer effort, or friction. They want ease. What happens if you don’t meet that objective? 78% of customers will back out of a purchase due to poor customer experience and directly put money in the competitors’ pocket.
Once customers experience the entire seamless process of a quality customer experience – and, specifically, a customer-centric subscription service – and the value and ease it brings to their daily lives, customers start to question why they may even need to purchase it. The pandemic is expediting the process of moving to a circular economy, subscription model, customer-centric style of commerce, and of living. As AI, automation, data, and CX design and thoughtful customer value-based marketing iterates forward, subscription models will become the new norm.
The measurements of customer performance from the business change with subscription models as well. Instead of measuring Customer Acquisition Costs (CAC) for new customers, or churn rates, what becomes more important are metrics such as Customer Lifetime Value (CLV) and increase in basket share.
Once a customer feels they are getting an excellent customer experience they will begin to select more products and offerings and add-ons can become almost endless, eliminating a customer spending new products and services that are more and more customised to them and their needs and behaviours.
The chart below, built by a pre-eminent data scientist, reflects the customer’s use change, churn, and growth rates from more than 1,000 company years in subscription data from 600 companies (Source: Profitwell). The success is realised is because they are focused on growing relationships and not transactions. For these companies, 70 of their revenue comes after customers sign up as subscribers, from events such as upsells and cross-sells, and not from the initial sign-up.
At Szentia, we are passionate believers in brands listening to their customers. Savvy customers now want brands to cater to their needs, to almost know what they need before they do, to have things create ease and be seamless in their lives, and – probably the most important one – solve or have a solution to a problem or need they have – even before they know it. Our B2B platform is made to allow brands to create the one to one relationships they want, and be able to create mutually beneficial relationships based on subscription models – in the beauty-tech / skincare and associated verticals.
If you can do as we have suggested (which isn’t easy, and why an excellent partner is a huge asset as your company steps into the subscription model) and you are on the path to building and realising an excellent subscription model as the basis for your business, you can reap many rewards. It allows for greater accuracy in forecasting, in your supply chain, in creating customer experiences, reducing churn, and reducing acquisition costs. You will be creating creating customers for life, which will become a bulwark against your customers being able to poach your customers’ as they will be getting such a tailored experience from you, and with perks and customisation other brands can’t provide, and they won’t ‘know’ that customer as well as you do, they won’t have a relationship. They are still trying to interact on the plain of transactional product models. Additionally, with the concept of refill, reuse, and recharge, the customer is adding to the sustainability of the planet, which will help them overall begin to make more earth friendly choices.
We’ll be writing more on the subscription economy soon, and focusing in on the different elements of it, so if you want to learn more, subscribe to our Linked in page to be alerted when our next posts go up.