The subscription economy
Thanks to businesses such as Netflix and Amazon Prime Video, media streaming may be the most high-profile example of the subscription model.
Retail is another sector where subscriptions are prominent. According to Zuora and Deloitte Digital, 37% of consumers worldwide have at least one active retail subscription – a figure expected to reach 53% by 2025.
But the subscription model is gaining ground in most consumer sectors, from automotive through health and personal care to travel.
It is also well established in the B2B arena, notably through SaaS (software as a service).
Potential benefits
- Deeper customer relationships
- Wider market access
- Recurring revenues
- Stronger cashflow
- Improved margins
- Richer customer data
- More focused marketing
- Upselling opportunities
- Leaner supply chains
- Smarter inventory management
- Reduced waste
- Exclusive access
- More certainty
- Greater convenience
- Pricing benefits
- Offers and discounts
The right model
Subscriptions work best when they are win-win, offering clear benefits for both the provider and the customer. If you want to reap the rewards of the digital economy, you should take time to understand the digital landscape, and develop a position of competitive advantage, with a proposition tailored to your target market.
Five key considerations for companies to remain competitive in this industry
| Offering a subscription service with a compelling, premium and realistic business proposition. |
| Ensuring only appropriate risk is transferred to customers, in a balanced deal with appropriate exit opportunities. |
| Possessing an understanding of, and an ability to leverage, subscription capacity prior to any acquisition of it. |
| Appreciating the scale of the commercial and operational transformation involved. |
| Understanding the evolving regulatory and political landscape relevant to subscription businesses. |
Growth prospects
There are some indications that the rising cost of living and heightened competition have increased churn for some subscription companies. But there is also evidence that consumers cutting back elsewhere have increased their overall spending on subscriptions for services such as pay TV and streaming. In the longer term, we should certainly expect to see more growth, innovation and consolidation, in both B2C and B2B subscription businesses.
We can also expect significantly more cross-border expansion as domestic markets mature and subscription businesses become more adept at handling issues such as scalability, cultural differences and multiple regulatory frameworks.
This edition of Bandwidth looks at some key subscription issues in more depth, including acquisitions and investment, finance, regulation and data and cybersecurity.
