The seduction of a subscription model

In the UK today, there are c60 million people now using subscription services and last week Apple unveiled further choices.

Subscription models offer a number of attractions for business owners. These include sustained and more predictable revenue,  increased customer engagement and a more confident calculation of lifetime customer value. In 2016 Unilever paid $1 billion for Dollar Shave Club and today Netflix has 139 million subscribers in 190 countries. According to Zuora, companies with revenue based on subscription models are growing about 5 times faster than the S&P 500 company average.

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A study conducted by the agency Fetch shows adoption of subscription services by ‘mobile-first consumers.’ Source: The Mobile-First Consumer & The Subscription Economy

Core to the consumer appeal is often convenience, that is, ongoing benefits from setting up a payment (and often then forgetting). But brands are applying the model to meet different consumer needs and address specific competitive opportunities. Here are 7 subscription plays that should offer some inspiration to those exploring the model:

Apple News Plus

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Apple’s new service targets news-hungry consumers who resist the cost and commitment of buying a subscription for one publication. Sourcing from 300 titles it will curate articles based on personal preferences, enabling readers to find relevant articles inside previously inaccessible publications.  The model offers a potential revenue ‘win win’ for Apple and publishers – although early indications are that daily newspapers are reticent to participate – presumably because the risk of subscription cannibalisation is greater.

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Ipsy is a leading brand in the competitive beauty subscription box market. Cleverly, Ipsy generates revenue from providing a monthly box of samples alongside an additional subscription payment for full size products or deluxe samples. With c3.5 million subscription customers and an algorithm that generates personalised recommendations  Ipsy obtains low cost or free samples from beauty brands expanding the choice offered and keeping subscriptions competitive.

Access by BMW

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BMW and competitors are facing a strong shift away from car ownership. Subscription propositions offer the prize of establishing a long-term direct to consumer relationship – displacing car dealershipsAccess by BMW is currently a pilot and offers a ‘premium’ flexible car experience that allows subscribers to switch to a different model when they want with the convenience of concierge delivery to any location.

Pause for Mind

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Pause is a subscription box created by mental health charity Mind with the aim of increasing regular donations. It provides the incentive of a more rewarding and involving experience and makes the gifting of donations more attractive. Each month an activity or gift designed to encourage relaxation, reflection or support a new skill is sent to subscribers.

AvivaPlus

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AvivaPlus aims to address the frustration of the best insurance deals being only offered to new customers.  Aviva want customers to see AvivaPlus as an ongoing ‘subscription’ rather than a big annual purchase that requires shopping around on comparison sites at the end of each year.  In return for a monthly payment customers have a ‘Renewal Price Guarantee’ promising the same or better price than a new customer at the same point in time.

LegalShield

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LegalShield has applied the subscription model to provide affordable legal expertise ‘for life’ to consumers and companies. The business model depends on a high volume of subscribers and digitally-enabled efficiencies to provide plans from £25 per month with additional costs for court representation.

Amazon Prime

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Amazon Prime is more than a decade old, but simply can’t be ignored as inspiration. Core to the range of Prime services is fast delivery.  This subscription proposition has created a segment of customers committed to fast delivery who use Amazon as the default choice for on-line shopping.  A recent study by Millward Brown revealed 74% of Prime members browsing the Amazon website convert to buying.

 

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