Subscription Revolution30 Apr 2019
More likely than not, you’ll already be familiar with several subscription-based offerings – the modern business model that continues to change the way customers and companies interact. The reason for its popularity? It’s an approach that puts customers ahead of product. In fact, it quite often removes the product entirely.
Over the last ten years or so, the entertainment industry has witnessed huge shifts away from physical DVD and album sales, in favour of subscription-based online services such as Netflix and Amazon. Spotify was one of the first major companies to foresee which way the wind was blowing. By 2018, nearly half of Spotify’s 157 million users had signed up to monthly subscription fees. Ever since, consumers have grown increasingly comfortable with the idea of paying this way for the digital media that they once used to physically purchase in the form of CDs and DVDs.
The Tech industry is no different. Many global vendors are continually making the move from selling products to providing services. Cisco once focused all its energies on selling its network LAN/WAN switch hardware, whilst promoting aftercare through its partner network. Scroll forward to the subscription economy, and Cisco, after having painstakingly re-positioned its customer base, also offers a suite of network optimisation and security software solutions; not to mention elevating its hardware into the hybrid generation of IoT and smart hardware offerings.
We know that Apple still shifts a lot of product, but Apple also recognises that its product range is increasingly hard to shift – at least to sell. Functionality advancements are often hidden in the detail, and the hype around that latest iPhone launch, clearly isn’t received as convincingly as a few years back. iPhones aren’t cheap.
Apple ID on the other hand is the future, and Tim Cook knows it. Apple ID subscription service already accounts for in excess of $35billion annually, increasing year on year. Why is it growing so much and so quickly? Because this is the bit that really does put the Apple customer ahead of product; here in-fact there is no product, only subscription services.
Increasingly, offerings from every industry have been getting in on the action, from Birchbox (beauty) to ToucanBox (crafts) to Snackcrate (food).
Subscription vs traditional
So, why is the subscription economy shaking up the way we consume everything from music to technology to food?
Convenience for consumers: As consumers whether in business or in our personal lives, we no longer need to make the same types of purchasing decisions – the things we like or need are delivered in accordance with our usage preferences, consequently with smaller recurring based fees paid out monthly – easy, quick and manageable.
Improved processes for businesses: Companies that have transitioned to core subscription models are enjoying recurring income streams and a more sustained approach to financial planning and revenue forecasting.
Customer experience: Customers that have chosen to subscribe to services, although having infinitely more flexibility generally tend to be more loyal. Their purchasing preferences and spend pattern data harnessed by the service provider, is used to help create personalised more insightful relationships between customer and vendor, which invariably leads to brand loyalty.
The move from ownership
People and Businesses are now far more cynical about traditional ownership. We no longer feel so inclined to own ‘stuff’ that comes with security considerations or the prospect of impending obsolescence. Consumers are moving away from product ownership as a measure of success, and instead equate success with versatility, choice, flexibility, expend-ability, refresh-ability, and PAYG consumption-based satisfaction, for example.
Subscription services cater to all these needs, while enabling the customer to enjoy the freedom to access whatever they want whenever they want it. And it’s a business model that SK Euroca is following with great interest.
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