The subscription economy may be booming, but that doesn't make it the right model for your brand
Let’s immediately park a common fallacy – that subscription models are a new type of business model. They’ve been around for centuries. Haven’t we all subscribed to something once (a newspaper, school canteen, theatre membership…)?
So why is it catching up now? Interestingly, the shining lights of the subscription economy (Spotify, Netflix, Zipcar to name a few) are all fairly recent companies, a decade or so old. Noticeably, it's technology that’s changed – though I want to argue it’s not technology per se.
The trick lies in a slight shift: there isn’t a subscription model anymore but a flexible range of digitally enhanced models. Technology has enabled the versatility subscription models required to embrace unsatisfied and inherent consumer needs. For centuries subscription was a way to pay for a recurring service or product. Nowadays, subscriptions are malleable ways to access products on your terms.
Granting people access means they don’t literally shop, but rather browse a collection. They then can pay as they go, monthly, upgrade or add on as they see fit. This gives flexibility to consumers and growth opportunities to businesses.
It’s worth mentioning that the success of a few doesn’t necessarily make a case for the transformation of an entire industry. But there is definitely a shift taking place and it would be inconsiderate to underestimate it.
A recent study shows that Brits spend on average 12 per cent of their disposable income on subscription services (think Now TV, Santander Bikes, Spotify, Amazon etc…) and an impressive 78 per cent of Brits pay for at least one subscription product or service.
A quick dig into these studies shows that this largely benefits entertainment companies, with the other success stories (Dollar Shave Club, Hello Fresh…) tending to reach smaller communities. But this should not necessarily worry more traditional industries like FMCG or legacy organisations, as the transformation is getting deeper. Brands like Airbnb, Amazon and Uber, along with others, have started to pave the way. People are now familiar with these new ways of consuming and expect this standard to apply to all parts of their lives.
As a result, some more traditional retailers outside of the entertainment industry have started to implement subscription models. Last year Apple launched its Upgrade Program (not available in the UK) to allow consumers to get a new iPhone every year for a smoothing $32 (£24) per month. The recent App Store revamps from both Apple and Google are another strong sign of a deeper shift to favour subscription models rather than one-off purchases.
This doesn’t mean that adopting a subscription model is a guaranteed path to success – far from it. Back in 2012, Walmart introduced Goodies, a snack subscription service, but shut it down in 2013 as it failed to meet its audience. I would bet in many minds Walmart’s failure weighs more than Spotify's or Amazon's success, but, we must avoid binary thinking.
Birchbox is a good example of not falling prisoner to this black or white vision. Founded in 2010, it claims a million customers and over $170m (£131m) in revenue. Although it started as a subscription service, it has since diversified its business models – including into bricks and mortar retail. Diversification is key. As the competition grows, the likes of Netflix won’t be able to sustain their business purely on their existing customer base. This will fade away and force them to find new growth drivers.
Don’t get me wrong, a solid customer base is a significant advantage in subscription-led industries. Hence the struggles of Tidal and the massive investments of Apple to recruit new users through free trials. But companies like Amazon, Google or Sky have powerful networks and resources to compete with and adopt a more comprehensive and holistic approach. Why would one subscribe to three services when one company can provide them all? That’s Amazon Prime’s tactic. The model runs across several Amazon services as an integrated platform that aims to facilitate people’s lives within its own ecosystem.
The point is that subscription is an opportunity for businesses, not a solution to every problem. Apple’s Upgrade Program is one of the answers to a saturated and price competitive market – it hasn't stopped selling phones. In the same way, Birchbox’s brick and mortar model doesn’t revoke its subscription business; it complements it.
We are shifting into a considerably more modular and granular society. Fluidity is a key factor in people’s choices and beyond subscription models, you should always be thinking about how your company complies with new consumer mindsets.
Jocelyn Turlan is an integrated strategist at RPM