The Subscription Economy
It is ironic that in a materialistic, asset-rich society the subscription economy is the thing taking off. People are choosing to subscribe for services and for the use of assets rather than own them outright, giving up possessions in favour of real-time access, instant updates, and the ability to pay according to what they actually use.
A subscription is simply a recurring fee for the ongoing use of an asset, or for access to a service. The interesting part is what adopting one does to a business.
What changes inside the business
Executives have to shift strategic focus from product development to being customer-centric and service-oriented. Growth stops being product-driven and becomes customer-driven, because the model depends on delivering instant, relevant, seamless service to a base that has to stay loyal to keep paying. It is the customer's current and ongoing needs that sit at the centre of the execution strategy.
Marketing changes too. Every business needs it, but a subscription business is built on securing and keeping relationships rather than on closing sales, so the thinking has to be rebuilt around that.
Artificial intelligence and machine learning take over the analysis and interpretation of data, which moves marketing from a sales-based approach to a data-driven one. Customer interaction becomes central to product development rather than a downstream result of campaigns, and executives come to rely on user-generated curation. Marketing evolves from pushing product through traditional channels to engaging instantly with feedback based on real experience.
Financially, the business becomes more cash neutral, because income is earned across the product's lifecycle or the length of the service. The financial model transforms from unpredictable, lumpy, upfront purchases into reliable annuity income.
What changes for the customer
Customer behaviour moves from needing to own assets to wanting to pay for access and usage. Service levels and engagement have to rise substantially to keep subscriptions alive, which means management has to build deep relationships out of data, behaviour and feedback.
- All-inclusive service rather than naked exposure to unplanned costs for insurance and maintenance. Ownership carries hidden costs; subscription carries known ones.
- Instant updates rather than waiting for delivery of an upgraded asset. An owner who wants to upgrade has to sell the original first, which raises the cost of ownership and adds a delay.
- Flexible, tailored service rather than something bought off the shelf for a single purpose. Customers get exactly what they are paying for.
- Cash payments aligned to benefits received rather than paid upfront against benefits that only arrive over time.
- Services shaped by their own feedback rather than designed for the general market.
The ongoing nature of the relationship is what puts the customer in control. They are in a position to give meaningful input, that input improves the offering, and the improvement creates more value for the next user. Buy an asset outright and once payment and ownership have transferred, your feedback stops mattering to anyone.
In conclusion
The marketplace is transforming, and customer values are shifting from ownership to personalised service delivered instantly at a price they choose to pay. Both businesses and their customers stand to gain from it.
Further reading: Subscribed, by Tien Tzuo.
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