How to identify and launch a subscription model in your existing business
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When you think of subscription models, Amazon Prime, Netflix, and Spotify may be the first that come to mind, however, this model is no longer unique or individual at all. Whether it’s ink from HP, razors from Harrys, coffee from Pret A Manger or flowers from Bloom & Wild, it seems every company is jumping on the subscription train. Even Volvo recently launched its new Care By Volvo service, allowing customers to subscribe to a car.
The UK subscription market is already worth £ 323million per year, and growing exponentially, it’s no surprise that the model is embraced by well-known names and is helping smaller brands gain recognition faster than previously.
We now live in a world where convenience is king and the subscription model can be a win-win for consumers and businesses, if executed effectively.
While for consumers the subscription model offers a lower price and is therefore more attractive, the benefits for business owners are even greater. Subscriptions not only ensure predictable revenue and access to huge amounts of marketing data, but they can also convert one-time buyers into lifelong customers.
So how can SMEs capitalize on this latest business trend?
Identification of the subscription opportunity
Many of the early subscription services were focused on experience rather than convenience, and at the time, this model was nothing short of a genius. Emerging companies, such as chocolate or spirits manufacturers, would provide free samples of call-in products for subscription companies to send to their customers in the hope that they would be won over by the product and then pass a ordered.
While these “experience” models still exist, true success today lies around uniquely branded products or services that meet a need or desire.
The key for any business, regardless of industry, is to identify whether its product or service is something that a customer wants or needs on a regular basis. Very few people will be persuaded to sign up for a subscription model if they only want the product once, or if they only access a service once.
Start by knowing your market inside out and understanding the demand for your product and your customer’s lifetime value. Dig deep into your core demographic. What prompts them to buy, what prompts them to stay, what prompts them to come back but above all, what prompts them to leave? You can’t identify the subscription opportunity and push forward an effective customer retention strategy without understanding their motivations.
Launching a subscription model
Once you’ve identified the opportunity, there are a number of subscription models on which to base your service. For example:
Organized – regularly sending a “luxury” item, or a selection of selected items, to customers with the idea of encouraging them to try something new.
Replenishment – automatically sending essential items to a customer, often at a reduced price.
Access – allowing subscribers to access a subscription or service that offers selected benefits.
The most suitable subscription model will depend entirely on the product or service you offer. However, no matter what route you take, there are some key considerations that apply across the board when launching a subscription model.
Starting a subscription model can be tough on cash flow. Your customer acquisition costs will be high for what is generally a relatively inexpensive product, so balancing will take time. With costs “up front”, many companies are launching their new subscription service with an introductory offer to encourage people to sign up. However, it is essential that you design a pricing strategy that your business can afford and that is not going to strain your cash flow.
For example, if you give customers a one-month free trial, you run the risk of them canceling when it expires. Instead, consider offering a discount for the first three months if they purchase a six-month membership right from the start. Or consider offering a range of pricing options to attract a larger population.
As with all businesses, marketing the launch of your new offering is essential. While a consistent branding image, customer promotions, and developing a social media presence are essential, it doesn’t end there. Your new customer has made the effort to purchase your product and expects to be won over. So when your product lands on its doormat, it’s no longer enough to simply place it in a quick bag with a slip of compliments. Your packaging is part of the customer experience and should therefore reflect the quality of your business and the product it contains. It should highlight your gratitude for your customers’ business and reflect everything your business wants to stand for.
Finally, understanding your customer attrition rate is crucial. While developing your customer base is important, you also need to make sure your loyalty stays strong. It can take a while, but minimizing your churn rate is the ultimate key to a successful subscription model.
Rewarding loyalty will be the key. For example, offer a discount code every six months so that repeat customers continue to feel valued. Tailoring these promotions will help retain typical customers and keep your subscription base engaged longer. Brands can also encourage BGB (buyer, buyer) programs by enticing existing subscribers to recommend products or services to new customers in return for a promotional reward.
Remember, customers have extremely high expectations for a subscription service and they will quickly cancel or switch to a market competitor if they feel a service or product is insufficient.
If executed well, the subscription model can deliver unmatched brand loyalty and unlock exciting new revenue streams for a business, but make no mistake, this is the answer for all struggling businesses. . If you can’t deliver a unique product or a bespoke experience, you risk becoming repetitive or irrelevant, which could hamper the potential of your existing business model.
Neil Debenham is a convenience store, consultant and private equity specialist.