With services like Netflix and iCloud, subscription models might seem new to a lot of people, however, they’ve always been there. Think newspapers and magazines, and how following such a model ensures that businesses have a constant and recurring source of revenue along with customer loyalty.
But what was only limited to newspapers and magazines in the past has now spread like wildfire domains such as finance, tech, AI, health, entertainment and virtually any other field one can think of.
The subscription economy is fairly simple to understand and implement for any business. Instead of charging customers a one-time fee or a hefty one-time purchase, subscribers are created and they pay small and recurring fees on a regular basis.
So why are so many startups and established companies switching to this business model, and why does it work so well?
1) Highly Convenient for Customers
Who doesn’t want a hassle-free experience where you constantly have what you need and don’t have to worry about renewing your product or service since autopay mandates make sure that your subscription stays active. Moreover, subscriptions offer customers unlimited variety without the headache of having to choose only specific items.
For instance, Apple Music or Amazon Prime give you a plethora of options of music or movies, and make your choice easier by taking out the burden of guesswork or a single hit-and-miss choice.
2) Impressive Levels of Personalisation and Customisation
Most subscription services such as Spotify and Hulu collect and analyse user data, and their algorithm curates and suggests content or options that the user likes to provide a highly personalised and enjoyable experience.
Netflix has some of the best recommendations based on a consumer’s historical viewing habits. Such unprecedented customization strengthens satisfaction and increases loyalty towards the brand.
3) Mass Affordability Through Lower Upfront Payments
Subscription models are very similar to EMIs, with the key difference being you can stop when you want to. By evenly spreading the high cost over time through weekly or monthly payments, more people are able to use high-value products and services.
For example, monthly subscriptions to expensive softwares like Adobe Photoshop or Canva are more affordable for customers as compared to buying a full licence outright. This lowers the barrier to entry for consumers, increases accessibility and expands a company’s customer base, thereby increasing the revenue.
4) Companies are Forced to Continuously Work on Product Evolution
In industries like software, subscription models encourage ongoing product development. Since customers are paying regularly, businesses must continuously improve their services to retain subscribers. This creates a cycle of innovation that benefits both the company and its users.
For instance, if a meal subscription service doesn’t offer more variety or meal combinations every week, the company will gradually lose its paying customers to its competitors.
5) Consistent and Predictable Revenue Streams for Businesses
The most lucrative perk for companies employing subscription models as their revenue stream is the predictability and continuity of income. Instead of relying on unpredictable one-time sales or seasonal models, businesses prefer having a steady revenue flow.
This allows for more prudent financial planning, asset management and investment into future growth, such as product development, contingency funds and customer service improvements.
