Berlin

Germany
Kantstrasse 24
10623 Berlin
+49 30 814 760 14

 

USA
1500 Broadway, 19th Floor
NY 10036, New York

Switzerland

Switzerland
Militaerstrasse 52
8004 Zurich
+41 79 664 83 61

 

Serbia
Carice Milice 3
11000 Belgrade

Subscription Economy

How the Subscription Economy has gone from vision to savior

By Sally Farrant

How the Subscription Economy has gone from vision to savior

The Subscription Economy provides flexible, dynamic services in a relationship of predictable, recurring benefit for both business and consumer.

 


 

Before Covid-19, the process of becoming a fully digital economy was happening over the course of months and years. So much of our modern lives depended on the public spaces we took for granted such as brick and mortar establishments like cinemas, restaurants, and shopping centres. However, since the outbreak the economy has suddenly become almost entirely digital. This radical shift in how and where we do business has resulted in an online life that even the early 90s visionaries of a completely digital society would not have thought possible. This tragically has led to a catastrophic downturn for many businesses. For example, those that rely on large, public gatherings have suffered, with events being brought completely to a halt. 

Yet for e-commerce, the pandemic has encouraged a huge boom. What had previously been a gradual adoption of ecommerce, has now been propelled forward. Businesses that don’t act now to optimise their e-commerce capabilities will sadly be left behind. This is particularly true because our old ‘normal’ is gone, and the world will not go back to how it was before. Reflecting on this, business owners will be asking themselves what they can do to come out of this market crash stronger. What can they do to prepare for a different and more digital economy? 

The subscription business model has proven to be adaptable and has many advantages for businesses and consumers in this new period. The subscription business model thrives when strong, mutually beneficial relationships are established between businesses and consumers, rather than relying on single transactions and the hope you can get people coming back for more. A key strength of this business model is that it is resilient to the ups and downs of the global economy, as the relationship between businesses and consumers minimizes risks for both parties. Businesses can be assured of a reliable stream of income from subscriptions, and consumers can have flexible, customizable access to goods and services instead of having to deal with the burden of ownership. 

As the economic downturn signals the digitalization of most industries, having the right digital resources which can enhance business processes should be a number one priority. A technical ecosystem should be capable of ensuring secure revenue and optimizing customer relationships. The process of digital optimization is not only in the best interests of businesses, but will benefit the economy as it recovers from COVID-19. Therefore, we should consider the subscription business model not as the visionary concept it once was, but a real, practical savior strategy for consumers, businesses, and the economy. 

Zuora founder and CEO, Tien Tzuo, states that ‘at the heart of the Subscription Economy is the idea that customers are happier subscribing to the outcomes they want, when they want them, rather than purchasing a product with the burden of ownership. Unlike the ‘product economy’, which is focused around the purchase and ownership of things, the subscription economy is about relationships. This focus on relationships has allowed subscription businesses to endure and even thrive as the world went into lockdown, as these relationships can exist within and help to facilitate social distancing. Many subscription businesses send recurring deliveries of various goods directly to the consumer, which limits visits to brick and mortar establishments. 

Over the years the variety within this type of subscription business has expanded significantly, and now includes ‘surprise’ boxes of clothes, cosmetics, or fresh produce, as well as recurring deliveries of staples such as toilet paper, razors, and feminine hygiene products. Subscription businesses facilitate continued access to these goods despite lockdown measures by enabling purchases via a smartphone or website, and delivering directly to the consumer. In the future, subscription businesses can accommodate a growing desire for consumers to establish relationships with businesses largely online, rather than relying on traditional means of acquiring goods and services. 

Beyond the delivery of products, the subscription economy also facilitates the sale of services, many of which have proven popular and useful in these current circumstances. The closure of many public services such as entertainment venues, offices, schools, and childcare centers have created gaps in the everyday lives of busy families that the subscription economy has been able to fill. Video streaming subscriptions grew seven-fold in 2020 compared to the previous 12 months, whilst digital news and e-learning subscriptions grew three-fold. As personal and professional lives have shifted from in-person to online, video conferencing and online collaboration tools have seen a spike in subscription growth rate by 1.4x. One key element that many of these businesses have in common is the utilization of the smartphone, which sells subscriptions through apps. Thus, the subscription economy’s embrace of technology has allowed consumers to access goods and services without risky person-to-person contact. 

A significant benefit of the subscription business model is its resilience; a resilience that has been tried and tested through the COVID-19 crisis. Whilst some businesses have benefited from the significant changes in consumer behavior during this time, others - such as sports-related services, gym memberships, and travel subscriptions - have been negatively impacted. However, the subscription business model is durable, even in times of economic uncertainty. Whilst subscription growth in these sectors are reduced, it is significant that they are still growing, despite the circumstances. This resilience comes from the relationship developed between businesses and consumers in the subscription economy. 

Unlike other business models, where things are purchased and the burden of ownership and the cost of maintenance is the sole responsibility of the consumer, businesses with a subscription model have the opportunity to make gestures of goodwill - such as pausing subscriptions, delaying payment requirements, or changing prices - to improve customer trust and loyalty. Beyond the current situation, customers are beginning to see the benefits of an ongoing relationship with businesses over the transactional nature of the ‘product economy’, and will expect the flexibility of subscription services as part of a new digitalized economy.  

The subscription economy was already growing in popularity, before the COVID-19 pandemic, as a visionary concept, but now it is here to stay. The many ways in which subscription businesses have enabled and enhanced the sudden lifestyle changes of social distancing have allowed these businesses to survive and thrive in times of social and economic uncertainty. Subscriptions have changed the way in which the global community considers the exchange of goods and services; the consumer no longer has to continually buy things, but can instead invest in a relationship that is flexible to the changing times and to the ever-evolving needs of modern life. This adaptability will be a savior for businesses and consumers as we come out of this current situation, as the subscription economy provides flexible, dynamic services in a relationship of predictable, recurring benefit for all.

 


 

Please contact us for more information