Embracing a Subscription-Based Business Strategy for Long-Term Success
In the face of changing consumer preferences, businesses are increasingly turning to subscription models as a means of providing flexible consumption options. This shift has been particularly evident in the apparel industry, with Trevco's swift launch of MaskClub.com, a D2C monthly subscription service for face masks, in just four days.
This move towards subscriptions is not without its challenges. The COVID-19 pandemic, for instance, has forced businesses to adapt their offerings to meet unusual challenges. However, some companies have found new markets during this time, making it a good opportunity for businesses to expand or pilot their services in new markets.
Lyft, for example, launched a new pilot service called "Essential Deliveries," providing drivers with new earning opportunities by delivering food, medical supplies, and other necessities for nonprofit groups, government agencies, businesses, and healthcare organizations.
The success of companies like Salesforce.com, Zuora, Twilio, Nutanix, Uber, Blablacar, Warby Parker, HelloFresh, and Airbnb has been fueled by the widespread adoption of new digital capabilities and the need to provide access to flexible consumption models that reduce upfront investments and risk.
The Subscription Economy has seen significant growth over the past seven years, with sales growing by more than 300% across North America, Europe, and Asia-Pacific, representing an 18 percent compound annual growth rate (CAGR). This growth has been driven by a shift in consumer preferences towards subscriptions, with the average percentage of revenue from existing customers for subscription businesses increasing over the last few years, with an average of 70% of revenue coming from upsells, cross-sells, and renewals.
To succeed in the Subscription Economy, businesses need to focus on improving customer retention and lifetime value, scaling revenue predictably, and extending market reach. Four strategic growth levers have been identified:
- Implement Product-Led Growth (PLG) to drive acquisition, retention, and expansion through the product itself, using strategies like freemium or trial experiences and in-app upgrade prompts.
- Develop Customer Success Programs to ensure customers achieve their desired outcomes by assigning customer success managers, monitoring customer health scores, and providing ongoing training.
- Build Community and Network Effects that enhance value as more users join by creating user forums, social features, and fostering user-generated content.
- Optimize for International Markets by expanding globally with localized payment options, pricing strategies, customer support, and complying with regional regulations.
These levers help businesses refine their strategies, focusing on key metrics like churn rate, average revenue per user (ARPU), and monthly recurring revenue (MRR).
Not all businesses have been unaffected by the current crisis. The remaining 14% of companies are contracting, while 17% are seeing slowing growth. However, the pandemic has made it clear that the winners will be companies that are willing to make bold decisions and act quickly to respond to changing market conditions. In fact, 18% of companies are seeing their subscription growth rate accelerate, and it's likely that the current crisis will lead to a similar increase in demand for more flexible consumption models from customers.
Joffrey's Coffee & Tea Company, for instance, has introduced a subscription offering that allows subscribers to receive Disney Specialty Coffee Collection blends, bringing a bit of the park to customers at home. TOTEM, a France-based B2B startup, pivoted to a direct-to-consumer (D2C) model and quickly repurposed its supply-chain and digital capabilities to offer home delivery services, preserving vital cash flow and ensuring business growth.
The Subscription Economy is undoubtedly the future of business, and now is the time to go all-in on subscriptions and future-proof your business. The current crisis is accelerating ongoing trends and triggering new ones, making customers reconsider what really matters and shifting preferences towards subscriptions. Companies like Lyyti, a Finland-based SaaS event management platform, have seen growth by expanding their services to digital event management and serving retailers.
In conclusion, the Subscription Economy presents a significant opportunity for businesses to thrive in uncertain times. By focusing on customer retention, scaling revenue predictably, and extending market reach, businesses can succeed in this new economic landscape.
- As businesses adapt to changing consumer preferences, they are increasingly exploring subscription models for greater flexibility, as demonstrated by Trevco's rapid launch of MaskClub.com.
- The growth of the Subscription Economy, which has seen sales increase by more than 300%, is driven by a shift in consumer preference towards subscriptions and is fueled by the need for flexible consumption models.
- In the midst of the current crisis, successful businesses like Lyft and Salesforce.com have expanded their services by adopting new digital capabilities and piloting services in new markets, such as Essential Deliveries by Lyft.
- To thrive in the Subscription Economy, businesses should focus on improving customer retention, scaling revenue predictably, and extending market reach, using strategic levers such as Product-Led Growth, Customer Success Programs, Community and Network Effects, and optimizing for International Markets.
