Everybody in business understands that it is a lot more profitable to serve existing customers than to be on the constant look-out for new ones. But, like much else, this is a lot easier said than done. The trick, of course, is to find a way of winning repeat business even in fields where this is not a natural outcome.
It is typical of the odd turns produced by the advance of technology associated with the internet that the inspiration for achieving this should come from one of the sectors that has arguably been disrupted more than most by these developments: the media. For years, newspapers and magazines have achieved significant revenues through subscriptions. When the internet first came along things went a little haywire and publishers rushed to show off their digital credentials by giving away their “content.” What recovery there has been since then has been largely attributable to encouraging readers to take out subscriptions that enable them to gain access to publications through their tablets – for a fee rather than for free. And suddenly other businesses are springing up using the same kind of business model. Indeed, according to John Warrillow, an entrepreneur and author of the recently published The Automatic Customer (Portfolio/Penguin), there is hardly any business that cannot obtain at least some of its revenue from a subscription model.
Many of the examples of what he and others call the “subscription economy” are also members of what has been termed the “sharing economy.” And that demonstrates the central role of the internet in much of this. Thanks to this technology, just as it is no longer necessary to physically hold newspapers or magazines, so it is no longer a requirement to actually buy a physical book or piece of recorded music. Indeed, the ability to effectively rent – or license – a piece of music is part of the appeal. This is particularly so when it comes to cars. Thanks to the likes of Zipcar, which make it easier to rent vehicles as and when you need them, many urban dwellers would be extremely reluctant to buy a car even if they could afford it.
But it is not just about sharing. There are subscription services for everything from coffee and chocolate to dog treats. Yes, really. A company called BarkBox will – in return for a monthly subscription – send what it calls “dog parents” as opposed to mere dog owners a box of treats, toys and accessories for their pet. According to Warrillow, by April 2014 nearly 200,000 subscribers were paying about $20 a month for the service. Less extreme are all those grocery delivery services – ranging from the standard supermarket vans to the more exotic “veg” boxes – that are effectively subscription services even though users can opt in and out.
What links them all, however, is a desire on the part of the businesses concerned to move away from the transactional model, whereby a customer is treated as a one-off, to the relationship approach, which – as the name implies – aims to build an ongoing link between the customer and the supplier. The problem with this is that the internet makes it almost too easy for the business to establish a superficial relationship with the customer. Deal with an online retailer just once – perhaps to buy a present for somebody – and because you have to supply your email address to confirm the sale you are the recipient of emails for ever – or at least until you can make the “unsubscribe” function work. Receiving a “friends and family” special discount is lovely if you genuinely are a regular customer, but if you have only been to the site once or twice you feel a little deflated.
Warrillow admits that some attempts to build a subscription model can be clumsy, and he accepts that there will be winners and losers as businesses learn to deal with this increasingly common way of doing business. But he maintains that it is the way forward. And he goes so far as to suggest that there are no fewer than nine subscription business models – in other words, enough variety to cover most businesses. These range from the “surprise box model” typified by BarkBox to the “private club model,” which covers everything from time shares for affluent families who want holiday homes without the hassle of owning them to networks of like-minded souls who pay to receive wisdom from successful business people. The “all-you-can-eat library model” is typified by Netflix, which offers subscribers access to an ever-increasing selection of films and television shows, while the “membership website” model is for those with specialist interests who want to share tips with others. (Another benefit of the internet is that – because of its worldwide reach – it links people with shared interests who otherwise might not know of each other’s existence.)
The likes of Amazon Prime, which offers its subscribers gifts in line with the interests their purchases suggest they have, show what can be done by using analytics. But, while this practice will become increasingly sophisticated, it is also possible for more traditional industries to benefit. By way of example, Warrillow points out that a householder might think that they only need a builder occasionally, but the smart builder might suggest an ongoing maintenance program – and so a subscription model is created.
One attraction of having subscribers, as Warrillow suggests, is that it brings predictability of work and revenue – something that is not to be underestimated in these uncertain times. But he also stresses that ambitious business managers can go further and scale up with minimum effort.
On the other hand, having subscribers is no guarantee of having long-term customers. “Churn” is such an issue that he devotes several pages to ideas on how to reduce it. In the end, it is clear that – while attracting subscribers is appealing in the same way as having regular customers or clients – this is a model that needs nurturing like any other. As the internet-based economy in all its guises develops, executives will have to learn to strike a balance between bothering their customers and making them feel ignored. The problem is that the tipping point for these emotions will be different for different customers.
This article was written by Roger Trapp from Forbes and was legally licensed through the NewsCred publisher network.