Subscription services can outcompete rivals by focusing on the key value they deliver to customers and by expanding their horizons.
The opportunities in the subscription economy, estimated to be worth $1.5 trillion by 2025, are only limited by the imagination. For customers, subscriptions say good riddance to the idea of product ownership and obsolescence, and hello to flexibility and convenience. For companies, participation in the subscription economy is in large part customer-driven, opening new doors to additional revenue opportunities and first-party data while increasing customer loyalty and engagement.
To execute effectively in the subscription space, companies need to have clarity on the key-value driver(s) of their subscription proposition. For example, these key value drivers could be convenience, curation, value for money, or customization. This clarity can drive execution efficiency and messaging as they look to scale. To continue to grow in the long run, businesses need to broaden their horizons by adopting additional value drivers that can potentially insulate them from customer churn by increasing the barrier for the customer to switch. This can be done by either looking at vertical expansion within their sector or by adding new products or markets.
The LatentView Subscription Value Proposition Framework is designed to clarify where each subscription service is positioned based on the value it offers to consumers. Each of the four quadrants is described by a phrase summarizing the primary value that subscription services should be focused on delivering. More importantly, the framework provides both short-term and long-term strategies for what companies need to do to strengthen their subscription service offers or move to other quadrants to better solidify their position.
- Best Value Bar None – This is a highly competitive quadrant where customers can easily try or drop affordable subscription services without giving it a second thought. To stay relevant and retain subscribers, subscription services within this quadrant need to focus on standing apart from the competition and delivering the best possible value for the price they charge. Examples include many video streaming platforms (Disney Plus and HBO Max) and audio such as music or podcasts (Spotify and YouTube Music). To grow in the long term, companies could expand into new markets, or vertically integrate as in the case of OTT platforms that are expanding aggressively across the globe and also creating original content thus relying less on studios. In addition, companies could also expand their offerings, as shown recently by Netflix now offering mobile games
- Your Way All the Way – Subscription services in this quadrant typically cost more and consumers spend more time upfront researching options. Despite that, customers can still easily switch to a competitor. Subscription services here need to prioritize customer satisfaction by providing more unique experiences, personalization and add-on options in order to offset the higher prices. Examples include many meal plans (HelloFresh and Blue Apron) and beauty boxes (FabFitFun and BirchBox). In the longer term, businesses need to expand their footprints and channels of distribution while working on products and/or services that can become habit forming. For example, hair color company Madison Reed has expanded into retail locations beyond its online direct-to-consumer sales and has entered an exclusive wholesale partnership with the beauty store chain Ulta.
- Convenience You Can’t Live Without – Subscription services in this quadrant need to cement their value proposition based on both convenience and affordability to encourage habit-forming usage of their subscription offerings. Examples include many B2C SaaS products (Adobe Photoshop and Microsoft Office) and some replenishment box services (Amazon’s Subscribe & Save and Chewy’s Autopilot). In the longer term, businesses need to expand their categories—such as Dollar Shave Club having started out as providing shaving products on autoship is now moving aggressively into a broader array of men’s grooming products trying to mimic a beauty box or meal plan subscription.
- The Best With No Regrets – This quadrant requires the most involvement from customers before they commit to a subscription service that they cannot easily abandon. Subscription services in this quadrant need to deliver a personalized customer experience and continually engage subscribers to ensure that they feel like they’re getting the most benefits out of their subscription both before and after purchase. Examples include luxury car rentals (Porsche Drive) and B2B SaaS products (Salesforce). To stay competitive in the longer term requires ongoing innovation to improve the product, channel service quality, augment benefits and user experience, in addition to expansion into new markets.
Crossing Boundaries
The reality is that many subscription categories do not all neatly fall within just one quadrant of the LatentView Subscription Value Driver Framework. As the case of Netflix shows, certain streamers have succeeded in moving beyond the “Best Value Bar None” quadrant and have moved into the higher quadrants.
Amazon Prime Video is another standout example of how subscription services can defy easy categorization. Prime Video is a streaming video service, yes, but it’s also just one part of the Amazon Prime subscription package that occupies the “The Best With No Regrets” quadrant by giving subscribers a wide array of services and perks beyond streaming video on demand. Many Prime subscribers are primarily interested in getting fast, no-fee package delivery when shopping on Amazon, with some hardly watching a single film or TV show through Prime Video.
There are signs that Netflix is marching toward that upper right quadrant where Amazon Prime sits. The company’s announcement of an expansion into gaming was followed by the initial acquisition of the game development studio Night School. That may reveal the streaming giant’s strategy to diversify its subscription content offerings while maximizing stickiness and engagement.
But no matter which quadrant a subscription service occupies, it will need the data analytics tools to glean insights from the habits of subscribers. Having data insights will enable a subscription service to improve its offerings and the customer experience, along with strategizing for long-term shifts in the overall business model.
The Takeaway
- Subscription services need to understand which quadrant they occupy in order to strategize for both the short and long term.
- Two paths for improving a subscription business’ prospects include diversification beyond subscription and moving into a higher quadrant.
- Many subscription services within the same vertical defy easy categorization and don’t necessarily all sit within the same quadrant.
- Data insights are crucial for any subscription service regardless of where it sits among the four quadrants.
