The subscription economy. Think Big. Start Small. Act Fast.
Do you remember the days before Spotify, Netflix, and online gaming? Back then consumers bought physical copies of music, movies and video games from brick-and-mortar stores, but... times have changed. According to The Economist, 80% of customers demand new consumption models.
Nowadays, the way how the product is offered in the market differs significantly from the historical approach. Even if the product is the same, it is offered in a different way - as a service, rather than advertised for the product per se. This means that the whole buying experience, pricing experience, the relationship we have with the customers who buy these services are very different from the traditional world. Subscription-based services are replacing and/or augmenting physical products in almost every industry.
80% of customers demand new consumption models.
In the automotive industry, for instance, companies are developing new subscription-based business models, such as “mobility as a service”, which allows drivers to pay for usage rather than a vehicle. Printer hardware companies have expanded their offering with the opportunity to get a printer for a fixed price or charge for the number of print-outs with some degree of segregation for colour, black-white/double-sided printouts/type of paper/type of printer, or a mixture of both schemes. Even in retail, you can subscribe to get milk, rice and other products on a monthly basis.
If in one industry the monetisation scheme can be rather simple, it can get increasingly sophisticated. This is especially true in the telecom industry with their day vs night, workday vs weekend, short-distance vs long-distance tariffs and special offers, for instance: on Easter, New Year, Saint Patrick or even customers’ Birthdays. The complexity can just go on and on with multiple ways of monetisation.
There is also an opportunity for partnerships and revenue sharing models. Think of downloading the Sony-owned song from iTunes and paying 1.29$, which is then split between Apple, the owner of the marketplace, and Sony (content provider). The more iTunes sells Sony music the more revenue they both receive; and the customer can buy their beloved song in a couple of touches/clicks. Win-Win.
Companies are moving from being just product players to product & services solution providers. Services solutions can be monetised either based on consumption/usage or based on the recurring type of business model. Because of this shift, the value of each transaction is rather small, but the number of transactions is phenomenally high. In addition to that and complex pricing, billing and invoicing should be able to process this type and amount of information (more about converting customer usage into billable items will follow in another post about Data Mediation).
Companies’ infrastructures should be able to capture all the transactions in the right way, price them in the right way, and invoice them in the right way. The fact that each customer might (and most likely will) have different services, different usage and customer-specific contract terms only makes this process more complex.
Lastly, to ensure great customer experience, invoices should not only be correct but also simply-fashioned so that the customer would be able to easily comprehend how much and for which services he/she is charged. Otherwise, the probability of disputes is high, and they could impact the company’s liquidity, days outstanding and overall customers’ satisfaction.
No company wants to run into this kind of situation, so it should be able to take care of the whole process in advance - from how the product is built to cash collection and debt management. There are already companies that recognize the opportunity and try to complement their existing products with an innovative monetization scheme by bundling it with services (e.g. TV + Broadband). But other companies encounter various problems just because they don’t know what to focus on and how to handle properly a business transformation.
While time to market is essential, it should not be at the expense of accuracy. To make the transition as smooth as possible, we suggest answering the following questions:
How can you satisfy your customers’ needs before your competitors do?
How will you price your new subscription-based offerings?
How will you keep all the regular payments turning over in the background?
Especially important is the last question. We suggest starting with the end, e.g. create the monetisation architecture that can be supported by your back end.
For your subscription business, you need a system that can track all of these changes, and then feed that information back into all of your other systems. The fact is: you need to focus on subscription billing management first. The very nature of a subscription business is that you have to manage the ongoing customer relationship. To do so, you need a system that can handle all aspects of a subscription business, from a customer perspective as well as a finance perspective — things like new purchases and add-ons, but also invoicing and payments, pricing experimentation and subscriber analytics, and more.
A subscription business relies on the interconnectivity of an army of systems. It’s not just critical to choose the right systems to support your growth trajectory but to appropriately sequence the implementation of your systems
The right strategy coupled with the right enterprise solution will allow your company to expand geographically and/or grow your customer base, will enable you to brin a new offering to the market in less time, accelerate cash collection, and quickly design and modify pricing models.
Instead of selling products, the company could offer customers what they want - positive outcomes. In this way building customer relationships that are longer lasting and more profitable.