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Over the past five years, the subscription market has grown by more than 100% every year, with the largest retailers generating more than $2.6 billion in sales. Startups continue to pop up in every category, from the meal kits, razors, and makeup items we’re familiar with to beer and wine, kid stuff, video games, and vitamins.
The digital innovation in consumer purchasing habits has led the way, says Emma Clark, chief of staff at Recurly. Case in point: fifteen years ago, a consumer would walk into a music store to buy a CD on the recommendation of a staff member, get it home, and only like two songs. Now you have thousands of reviews at your fingertips, and the opportunity to sample each song before you buy it — or stream just the songs you want from your music subscription service.
Subscription models are popping up everywhere, from the business model that started with SaaS to streaming media, and now in consumer goods where folks are purchasing physical products on a recurring basis.
“Subscription models are what enable this customer choice, because it’s an ongoing relationship,” Clark says. “We see this evolution going from one-time purchase moving further into a long-term connection with your customer through their purchasing habits and creating an ongoing revenue stream.”
The benefits of a subscription model
Companies are recognizing the major economic advantages of the subscription model itself, the first being a predictable recurring revenue stream. Rather than building a product with no guarantee that there will be a market for it, and then having to wait until you sell that out in order to reinvest in the business, a company with a subscription model can start every month with an installed base of revenue that you can then reinvest in the business.
The second big benefit, Clark says, and the reason why we’re seeing, in particular, a lot more of these customer-forward, direct-to-customer businesses utilizing subscriptions, is that the subscription model simply delivers deeper customer relationships and customer brand loyalty.
An example of that is Uber and Lyft, which have both started testing out subscriptions. It’s not necessarily that they’re not generating the revenue they want to see. It’s because they compete head to head with each other, and they’re trying to find a way to drive brand loyalty. If you have an Uber subscription and you’re already paying a certain amount a month for the Uber benefits, you’re not going to open up your Lyft app anymore.
“It’s a way for them to drive deeper customer relationships, and with that comes all the data that you have around the customer during their entire subscription life cycle, which leads to much richer insights,” she explains. “The more that I use that app, the more insights they have around my ridership habits, which they can use for types of cross-sell and upsell products.”
For example, your travel habits might lead to insights around the kind of restaurants you’re going to, which might lead to insights into how they can market certain types of Uber Eats products.
How to succeed, and how to grow
According to Clark, a core element of a successful subscription model is being hyper aware of what attracts customers to your brand and, in turn, the ability to shift on how that product or service is sold by keeping tabs on what their subscriber data is telling you. That could mean launching a one-time product or a retail channel, or opening up a channel through an app store, or sometimes, even changing what you’re selling based on consumer data.
The BarkBox is an example of that. The pet-focused company started by simply packaging a box of toys, but from the start they were really focused on understanding and serving not only the pets themselves, but their pet owners — people who are obsessed with their pets.
The company’s success is centered on continuously finding opportunities to make their customers happy, consistently looking for upsell and cross-sell opportunities to make their subscribers more valuable — for example, in addition to the regular box you purchased for the last three months, this toy might be a great fit for your dog. Or you’ve indicated in your preferences that your dog really likes these types of treats; here’s something new they might enjoy.
For a more in-depth look at subscription success stories like Output, Cinemark, Unbounce and more, and the ways subscription models offer a substantial competitive advantage, and the technologies that can accelerate brand growth, don’t miss this VB Live event.
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- How forward-looking businesses are using subscriptions to gain a competitive edge, including real-world case studies
- The latest subscription trends and technologies to leverage for accelerated growth
- Ways to build brand value and deepen customer loyalty, including hybrid commerce, alternative payment methods, frictionless trials, delighting customers, and more
- Emma Clark, Chief of Staff, Recurly
- Ken Fenyo, Consumer Markets Lead, Fuel, a McKinsey Company
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