What does the client want today? This question may seem basic, yet it is crucial for all businesses, regardless of size or sector. It carries with it the essential problem: how to place the customer at the center of thinking about his business model? How can you bring it value to measure?

In recent years, a major shift in consumer behaviour has been taking place. Today’s consumer is primarily seeking access to a positive experience that fully meets their needs. He no longer needs to own a product, what matters is access to a solution. Instead, customers find value in the experience of using the product. The property is no longer sacred and has become rather a constraint for a good number of properties.

This explains the exponential growth of the subscription market: 100% between 2013 and 2018. The projected average annual growth rate is 9.8% over the next ten years worldwide. By 2023, 75% of businesses with direct outlets will offer subscription services. Global subscription trade already accounts for 18% of the market. 59% of consumers in high-growth markets are interested in automatic resupply based on subscription preferences.

Thus, the transition to the subscription-based business model has become a preferred route for any company seeking to accelerate its growth, maximize its liquidity and increase its value.

The ubiquitous digitalization and interactivity have given each company a reason to think about its customers in terms of continuous revenue streams rather than in terms of individual and unique purchases. As a result, the customer lifecycle takes on an entirely new importance.

Subscription: creating bespoke value

The value provided is not equal to the product itself. Today, customers find value in the experience of using the product. This is why companies are gradually evolving their business models to allow flexible monetization of experiences.

Subscription models now allow you to personalize the customer relationship and create a lasting relationship.

These models are flexible and can take many forms to better target customers and meet their needs.

• The standard subscription is a model used for a product or service at a fixed price, billed on a recurring basis. Its advantages are the prediction of income and the ease of implementation. Examples include Spotify — a monthly subscription to the music streaming platform.

• The user subscription is adapted to offers whose price varies according to the number of users of a product or service. Its advantages are the predictability of costs and the ability to build an offer for a large group of users. This type of subscription is typically offered for software subscriptions, such as Microsoft 365.

• In the subscription, theprice of the subscription varies according to usage. Customers are only charged for what they use. This type of subscription creates incentive sales opportunities and establishes customizable billing. The most telling example is car rental and “pay as you drive”.

• The mixed subscription allows you to vary the price according to included options. Its advantage is to make flexible the business model of all sectors and to include different operations in the existing subscription offer (for example, including the cost of set-up in the subscription offer, as well as adding e-shop products to the existing subscription offer.)
  This is the case, for example, with Gymlib — the gym membership.

• The bespoke subscription (or Quote to Cash) allows you to fully customize a subscription offer. This model allows the development of “tailor-made” contracts, as well as the application of custom pricing. As an example, we can mention Enki, Leroy Merlin’s Connected Home solution. This solution offers customers the opportunity to compose the “A la carte” solution that best meets their needs.
  
  

Lifecycle in subscription: priority to the customer experience

The subscription model completely changes customer relationships. It allows to establish an ongoing relationship with the customer and to retain him in the long term.

Thinking about the cost of acquiring new prospects is gradually changing the overall financial thinking about providing a better customer experience that will ensure that each customer is retained and sustained.

Indeed, the customer experience is at the heart of managing the subscriber’s lifecycle. Once the subscription responds to the need to use the product and not buy it, a subscriber’s lifecycle is radically different from a traditional customer lifecycle. The success of the subscription implies the monetization of relationships.

There are 7 stages of the subscriber’s lifecycle. Each phase of the life cycle focuses on loyalty and customer satisfaction.

1. The creation of a subscription offer (weekly, monthly, quarterly, annual) after identifying precisely the need to meet the offer.
   
2. Personalization: The offer can be customized based on available customer data.
   
3. Payment, which is based on billing flexibility (fixed billing, usage-based billing, billing based on the number of users, etc.).
   
4. The break: User loyalty means giving them the option to pause their subscription when they want to. This step significantly reduces the churn rate.
   
5. Upgrade, downgrade: At this stage of the subscription, the user has matured. It’s time to offer him an additional offer or better suited to his needs.
   
6. The ability to change the subscription offer or add another subscription offer that reduces the risk of dissatisfaction.
   
7. Automatic renewal is an effective means of retention.
   

The subscriber’s background is a virtuous circle: it increases customer knowledge and develops a unique customer relationship. Each stage of the cycle is an opportunity to add value. Analyzing data from the customer journey allows us to go even further in personalization and customer knowledge by further refining segmentation.

How do you set up your own subscription offer? Do you need guidance in your strategic thinking? Contact us!

McKinsey and Company, 2018
Futur Market Insights
Subscription Trade Association
Oracle Retail, 2019