Technological development and digitalization strongly impact consumer buying habits in today’s world. Consumption patterns are changing. In fact, people have changed. They have changed the way they think, live, and shop. They are eager to find ways to make their lives easier. They prefer subscriptions instead of ownership. That’s why the subscription economy is becoming a trend and booming at a breakneck pace!
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What is the subscription economy?
A subscription means a payment made to receive or participate in something in advance.
The subscription economy is straightforward – it’s a business model which allows customers to access goods and services through recurring payments. Simply put, businesses in the subscription economy enable offering subscriptions to consumers, or subscribers, to pre-book a product, service, experience, or access software. These subscribers typically access these products or services more regularly. In this case, customers can easily adjust their payment schedule based on their own financial goals.
Currently, tons of subscription companies are on the market as part of a more significant shift from the product economy to the subscription economy. Examples include subscriptions to platforms, media, and entertainment (such as video, music, magazines, or other information services), product care plans, mobile phone plans, and many more. In addition, the entire business relies on a subscription business model for some companies. Examples include Netflix, Spotify, and many SaaS companies such as Salesforce and HubSpot.
The rise of the subscription economy
In the past few years, the subscription economy has grown nearly 6x, more than 435%.
According to The Subscription Economy Index, subscription businesses have grown nearly 6x (more than 435%) over the last nine years. This boom has probably happened because the subscription model has been powered by rapid adoption among younger generations. Studies showed that millennials are more interested in subscription services than any other generation.
Also, the lockdown in the pandemic accelerated the digital transformation of many companies and brought the desire of customers to access experiences they seek quickly. People want to view movies, watch TV, and listen to music easily. You can order from a favored restaurant and enjoy great content on-demand by easily subscribing to your favorite company.
Subscription-based business model
The subscription economy it’s basically a subscription-based business model built around access and services. Subscription companies can be categorized into three types based on their offerings:
- Physical goods; that include providing ownership or consumption of material goods, for example, grocery subscription
- Access-dependent; that provides for offering access to a service or platform (usually via internet – online), for example, a game subscription
- Person-dependent; that includes offering in which a service/product is tailored to the requirements of an individual and is usually non-transferable, for example, a fitness service
Good relationship brings loyality
Subscriptions have taken our lives and are changing the pattern of how we consume. They make running people’s life easier, faster, and less expensive.
One of the most important reasons companies offers subscriptions is to connect with their most loyal customers and keep them coming back to make purchases. Meanwhile, companies can use customers’ data to better communicate with their subscribers, provide valuable experiences, and, most importantly: keep them satisfied!
A real game-changer in subscriptions may connect physical devices to digital content or experiences. Personalization enhances subscribers’ experience on the platforms by customizing the interface of the platform and the offering. Practical personalized recommendations can also reduce involuntary churn by providing a good customer experience and making customers stay within the platform longer.
The importance of payments
A subscription business is slightly different from a traditional business when it comes to payments requirements.
For a payment solution to be as effective in a subscription business, it should be:
- Flexible enough to support recurring and prorated billing
- Able to offer subscribers a choice by supporting multiple payment models and currencies
- Secure and easily integrated into the business’ software
Establishing a robust billing system that will support the growth of your subscription business is a must. Once invoices have been sent, an established billing system can help collect payments, save time, reduce errors, and improve overall performance on subscriptions. It can help prevent revenue leakage for the company and possibly provide a better customer experience.
How to charge customers?
Businesses today need to handle customer loyalty, pricing, and selling differently.
Different situations call for different pricing methods. Choosing the proper type/pricing method could be challenging when using recurring payments. Thus subscription businesses have multiple pricing plans; customers can choose between various payment options; for example, they can select their favorite plan. However, they can decide to move to a higher or lower plan at any time or just cancel the subscription.
By understanding your customer’s needs, you can quickly determine the best pricing method. Choosing the correct pricing method can make the difference between winning and losing a battle regarding your subscription business.
- Fixed pricing: stays simple – a single product, a fixed set of features, and a fixed price per month
- Tiered pricing: users can choose multiple packages with different features and product combinations available at various price points.
- Per-user pricing: this model is used for the majority of subscription companies – pricing scales evenly along with the number of users (more users, bigger charge)
- Usage-based pricing: mainly used by telecommunications companies – subscribers are charged based on how much of a product or service they consume.
Getting on board with the right billing platform
When companies work smarter at offering the best services possible, all sorts of opportunities open up. It reveals new opportunities for growth and consumption. If you adopt subscription business models, you can have advantages like getting customers from any channel using subscriptions and even deploying new pricing models for your subscription business.
Ask yourself, why is it essential to get on board with the right billing platform? The thing is, everything is subscription-based nowadays. The right billing platform for recurring revenue companies will definitely drive your transformational growth into the subscription economy.
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Is your business ready to jump into the subscription economy? Please request a free demo and connect with us. We’ll be happy to help you.