By Anup Rege, Chief Business Officer for Experience Services at Foolproof, a Zensar company
The future of subscription-based services appears full of promise, fast becoming a popular model for many businesses. Although it’s been around for decades, digital transformation and adoption has accelerated growth of late. In fact, companies with a subscription model have grown between 2X and 5X* against benchmarks, as reported in 2022.
Driven predominately by changes in the financial markets, including cash flow, limiting capital investment and reducing risk, and the use of behavioural economics to evolve customer experience, we live in a world where we can subscribe to almost anything.
However, as Netflix’s infamous 2022 subscriber drop abruptly reminded us, where there is promise, there is both challenge and risk.
Evolving customer behaviours and expectations, particularly in times of economic uncertainty, necessitate a different mindset and operational capability; something that may not always be readily found, even among some of the most established subscription players.
Shifting consumer behaviour
While joining the subscription economy is financially attractive to many, it can only be successful when the proposition makes sense to customers and adds value to their lives. That’s why when something causes consumer behaviour or attitudes to shift, the proposition may stop being as successful.
Take Netflix; in early 2022, challenged by the market and inflation, the company increased its prices, lost some existing customers, saw less uptake from new subscribers and became the market’s most expensive streaming platform. While Netflix later turned things around, there is precarity and risk across all providers and the impact of some changes remains to be seen, such as the positive or negative impact of changes to password sharing, advertising models and cutting inventory.
The evolving landscape of subscription management
Changes including the increase in the number of subscriptions per customer or household and the impact of the current cost-of-living crisis have meant that, for some, subscriptions are no longer viewed as a small number of set amounts leaving your bank account each month. Rather than passively letting the money leave or acting only when a contract ends, some – particularly those with a reduced disposable income – are tightening their purse strings and looking to consolidate or cancel in the process.
The current market also offers an abundance of tools that assist the process of switching and managing subscriptions, while methods available to aggregate or circumvent subscriptions through service providers are also plentiful. These services bundle together multiple subscriptions at a reduced price, altering people’s perception of disconnected subscriptions that are not consolidated.
This is perhaps more obvious in certain industries over others, such as entertainment. For example, with streaming services customers may feel frustrations over not being offered continued access to content, needing to have multiple streaming services to access the content they want, or perhaps even a lack of flexibility to activate or deactivate services according to their specific needs.
The three-pronged approach to reframing customer value
No matter the source of frustration, subscriptions that fail to meet the customer value criteria on a monthly basis may put subscriber numbers at risk. So what can be done to mitigate this risk?
Create a new understanding of the customer:
One of the best ways to unlock additional revenue and cultivate stronger relationships is with customer data. Deep analysis of customer behaviours and needs plays a crucial role in reevaluating the customer experience, ultimately enhancing its value and overall satisfaction.
Taking this a step further involves incorporating generative or composable approaches to platforms, where surface-level content can be rearranged based on individual users’ requests or common interactions, to offer a unique selling proposition and ensure that each customer feels recognised and valued.
Use customer data to lead product innovation and improve value propositions:
Leveraging a detailed understanding of customer data can yield substantial returns through using it to evolve product innovation and customer propositions. A common pitfall companies face is monitoring customer data, yet failing to use it to drive change. This challenge is further exacerbated by the tendency to experiment solely at the presentation layer, instead of taking a holistic approach across departments, businesses, or subscription product offerings.
Use product innovation to grow and retain customers:
In the subscription economy, relevance to the customer is of utmost importance and can be achieved in a number of ways. For example, by providing an increasingly personalised experience and offering product options that align with the customer’s preferences. Or, by identifying products and services that complement and broaden the customer proposition, thereby enhancing the perception of value.
There are also cost effective ways of adding value through one-to-one engagement. This could be done through recommendations and simple things like understanding viewing patterns better, through to customised reach-out as part of marketing communication and value-added offers relevant to individuals and their context, which make customers feel valued. These need not be high cost, but the impact is exponential.
Driving success in the subscription economy
In the race to be industry leaders, it’s vital for businesses to develop subscription experiences based on customer data and experimentation, encompassing every touchpoint and level of interaction. This approach is often considered one of the best ways to reduce churn and increase average revenue per user while generating higher returns.
Overall, there’s a growing need to deliver ongoing value to customers, signifying a maturation of the subscription economy. Focus too heavily on acquiring new subscribers, and businesses could find themselves overlooking the potential for optimisation and improvement within the current customer base.