Building a subscription business
by Morten Suhr Hansen
Part 1: Why consumers love subscriptions
Building a subscription business
Before we look at the specific blueprint for building a subscription business, it will be worth spending a while exploring some of the reasons for the explosive success achieved by the
subscription business model over recent years. This brief exercise will itself, as it turns out, give us valuable insight into factors to consider when we build our new subscription business.
It is my strong belief that a prerequisite for the success of any business model is that it must provide tangible benefits to both the customer and the company providing the product or service.
And the subscription business model does just that: it provides tangible benefits for both seller and buyer. Consequently, in this chapter I shall describe the most frequent ways in which consumers and businesses benefit when they engage with the subscription model – benefits that run across all subscription businesses and subscription industries.
I shall start by describing the benefits of the subscription model to the consumer, before moving on to explain how subscriptions can benefit your business.*
* This chapter focuses on individual consumers and on businesses which serve consumers (B2C companies), but most conclusions are valid for B2B companies also.
Why consumers love subscription businesses
When discussing subscription businesses with colleagues from companies across various business sectors, it is never hard to explain why subscriptions are good for a business. It seems quite
intuitive to most business professionals that having subscribers who pay on a regular basis is a good thing. At the same time, I often encounter the assumption that if subscription is attractive
for businesses, it must be unattractive for consumers! Nothing could be further from the truth.
As this chapter will show, there are just as many benefits for the consumer as for the business. That is not to say that any kind of subscription system will be attractive to consumers. It
should rather be a reminder to us all that when we design our subscription model, we must be sure to make it attractive to our customers in order to make it successful.
Here are some of the most obvious benefits for building a subscription business from the consumer’s point of view:
One of the most obvious key benefits of the subscription business model is convenience for the customer. This convenience can be in terms both of transactions and of product delivery.
Subscribing to a product means that you do not have to go through a fresh purchasing transaction each time you need the product. You sign up once and do not have to do anything to
repeat orders. Often this purchasing transaction is combined with a convenient form of delivery. Many subscription businesses use home delivery to their customers as an alternative to shops, thus making the total customer experience super-convenient.
In 2004 the American psychologist Barry Schwartz wrote The Paradox of Choice: why less is more, a book describing the immense range of choices facing the modern consumer. No
longer do you just buy a box of breakfast cereal – you must choose from a huge range of brands and flavours and sizes. Some supermarkets have more than a hundred different breakfastcereal products, and if you add that to the hundreds of other consumer choices you have to make each week it will be no wonder if you start searching for ways to reduce this “tyranny of choice”, as Schwartz calls it.
Subscribing to a product or service is in fact a way for the consumer to reduce the complexity of choice. When you subscribe for shirts and get new shirts delivered every second month (you can actually do this!) you have no need to worry about choosing between many different brands, styles, and colours as you must on a high street shopping expedition; and when you subscribe to a mobile phone company you do not need to worry about checking rates each time you make a call. As a subscriber you in effect “take yourself off the market” for a while, and this reduction of complexity is very appealing to many consumers.
Great subscription services are not just about making your life easier. They also provide you with a great deal of inspiration and add extra value to the product you subscribe to. Great
subscription services will even serve as your personal shopper, leading you to goods and services you would never have found for yourself.
Gateway to membership of a community
Becoming a subscriber sometimes means that you become part of a group or a member of a community. By subscribing, rather than buying on an occasional basis, you send a strong signal and tap in to the values or the community associated with the product or service. This creates a very strong relationship between the customer and the product.
At home, I have paid for a premium version of one of the best music streaming services, and I have offered my son unlimited access to this. Yet he prefers the free version of Spotify, with
limited access and tons of commercials. Why? Because Spotify gives him an entry to a valuable community where he shares playlists with all his friends. Subscribing to a service is also about subscribing to the company’s values and community!
When they consider the benefits of subscriptions, the main thing that most people will think of is saving money. But, as the four previous sections indicated, money saved is not everything.
Nevertheless, for many subscription services it is true that you will get a discount if you commit to a subscription rather than buying the product or service sporadically.
A subscription business will often have lower production and sales costs, and some at least of these savings will feed through to the consumers as lower prices. You need only compare the unit price of a newspaper or magazine sold on subscription with its cover price to see this, and thus a financial saving is one of a number of potential advantages of subscription businesses to the consumer.
Part 2: The advantages of the subscription modell for companies is available here!
About Morten Suhr Hansen and Subscrybe
Morten Suhr Hansen is an experienced subscription expert and has held senior positions in the subscription business for more than 20 years.
In 2011, Morten Suhr Hansen founded Subscrybe – a consulting and innovation company working exclusively for subscription businesses in areas such as subscription business development, subscription innovation, pricing and packaging, acquisition strategies, loyalty building and subscription systems and processes.
Subscrybe is headquartered in Copenhagen, Denmark, and the company caters to customers in several European countries.
Morten Suhr Hansen is the author of the book “How To Build A Subscription Business”. You can find the complete book here.