When consumers think about subscription-based businesses, their minds are drawn first to media providers. From iconic newspapers like the New York Times and the Washington Post to streaming video services like Netflix and Disney+, the average consumer budgets a monthly sum to ensure they’re informed and entertained.
However, the past few years have seen the subscription model expand rapidly across industries and verticals. Subscriptions aren’t just for content anymore: Consumers can now subscribe to everything from pet products to luxury vehicles to sock-of-the-month clubs. Amazon Prime offers a more comprehensive example of how the subscription model has taken over our everyday lives, with Amazon’s platform allowing users to set recurring subscriptions for a broad range of health, beauty, food and home products. According to a report from UBS, subscription business models could grow from a $650 billion market to a $1.5 trillion market between 2020 and 2025.
However, for businesses choosing to adopt a subscription-based model, long-term success isn’t guaranteed. New subscription companies entering more traditional industries will find themselves facing the same challenge as Netflix and the New York Times: finding ways to deliver enough value to maintain customer satisfaction and minimize churn. What’s more, the constant debut of new subscription-based competitors is quickly turning these markets into a zero-sum game. Successful companies will need to make quick, shrewd decisions within the context of broader business trends.
Here are three ways forward-thinking companies can get ahead in the current moment:
1. Look for opportunities for hyper-customization.
Customer satisfaction is the name of the game, and customer expectations have evolved significantly following two years of rapid digital transformation. Today’s consumers expect a premium experience when they commit to an online subscription—regardless of whether the service provider has been digitally native for ten years or ten weeks. One important tool for delivering value in a new subscription business is to offer a personalized experience. According to research from McKinsey, 71% of consumers expect personalization from brands, and 76% expressed frustration when they don’t get that type of service.
Customization in 2022 is no longer just about changing the subject line of an email to call out the recipient by name. Effective customization builds from understanding the customer journey and using customer data to deliver a curated experience. The key to success is to find a strategy that matches your company’s identity and business model. Each customer touchpoint should deepen brand loyalty and decrease the likelihood they will cancel their subscription. One prominent example of delivering personalized value while maintaining brand identity: Chewy’s free oil paintings of subscribers’ pets.
2. Make the best out of a bad supply chain.
The fundamental appeal of a subscription is its reliability. Whether you’re receiving consistent access to a content library or a monthly delivery of essential goods, you must be able to count on the provider to hold up their end of the bargain. However, current supply chain complications have introduced a new level of uncertainty for subscription providers. How can they deliver consistent value when they may not be able to guarantee product delivery on the scheduled date?
Supply chain disruptions pose much less of a challenge for online-only subscription businesses like SaaS providers or cloud gaming services, which can seamlessly push out new products or experiences. Companies that rely on physical delivery and logistics can learn from this dichotomy by exploring new ways to provide value while customers are waiting for the product to get on a truck. During periods of supply chain uncertainty, companies should offer transparency on product availability and delivery along with regular updates. The most important goals are to maintain trust with the consumer through consistent contact and to remind the customer of the value you’re providing.
3. Team up to survive the consolidation crush.
Alongside the remarkable growth in subscription services, market analysts have also noticed a parallel growth in “subscription fatigue.” When consumers audit their monthly budget, they may choose to trim down their subscriptions and cancel those which aren’t delivering enough value. In anticipation of this, many companies are consolidating with other subscription players, taking the opportunity to expand their customer base by acquiring smaller rivals to get to scale or maintain a market-dominant position.
This consolidation in the short and medium term may provide consumers with a greater value for their subscriptions, getting them to hold on longer. One strong example can be found in the recent merger of Discovery Inc. with AT&T’s WarnerMedia. In a market dominated by Netflix, Amazon, and Disney+, the combination of streaming platforms like Discovery Plus and HBO Max will give the newly combined entity a fighting chance. In a frantic M&A market, smaller subscription companies must be on the lookout for suitable partners to avoid getting elbowed out of the picture completely. When the dust settles, consolidation will give the remaining companies the power to set the terms of their subscription offerings, as well as new opportunities to upsell or cross-sell their expanded subscriber bases on additional services.
To the victor goes the spoils.