Subscription angst, fear, fatigue ... whatever you want to call it, is a real and growing concern. The list of services that can be subscribed to are ever expanding covering a myriad of industries and markets. Enterprise software, apps, gaming, movies, TV, music, lawn care transportation, hygiene, grooming, exercise, nutrition, industrial equipment; are just a few examples of markets that have begun the transition to subscriber centric business models and this list of services continues to expand at a rapid pace. Subscriptions have a growing share of world-wide consumer and corporate budgets, offering benefits to vendors and customers alike, however there are problems emerging. Subscriptions tend to categorize subscribers into large groups, limiting choice by not considering unique subscriber lifestyle and consumption behaviours and needs. Subscription fatigue is a growing response, inviting closer examination of the cost/value benefit from these memberships. The solution? Include a Usage Pricing Strategy in your go to market efforts that substantially thwarts seeds of subscription discontent, drive additional revenue and ultimately improve your customer experience and bottom line
Subscriptions aren’t a new phenomenon. It’s been recorded that the first known use of subscription business models occurred in the early 17th and 18th century book publishing industry. The telephone and utility companies refined this model in the early 19th and 20th centuries and now nearly every conceivable industry is thinking about how to lock you in and keep you there. It makes sense. Companies have better visibility to cash flow, only have to sell you once for repeatable revenue, and the market valuates their businesses more favourably. Customers get services for less initial capital outlay, are realizing the cost benefit of renting depreciating assets and generally experience service upgrades from ongoing innovation as part of their memberships. The subscription model delivers many benefits to the entire ecosystem and will remain as a powerful strategic revenue tool for many years to come. The challenge however is that the nature of subscriptions box vendors into a narrow view of their subscribers by attempting to classify them in wide bands of customer profiles and behaviours. The classic bronze, silver and gold packaging of services does a poor job of addressing varying customer demands and wants, reducing revenue opportunities and encourages larger subscriber churn rates aka Subscription fatigue.
Let's look at TV bundles. Many of us watch far less programming than is offered in our bundled package subscriptions. Scouring through an endless sea of channels and content is when subscribers are reminded that they aren’t using anything near their subscription spend. The typical provider response is to keep adding new content in the hopes of keeping subscribers enthralled and renewed for another period, exacerbating the problem. How about Gym memberships? Does the subscription fee match the reduction of our waistline? That membership we’re still paying for compounds the guilt of not making it to the gym regularly. Like the content providers, new workout machines, new fitness classes won’t fundamentally change the core of the problem; all you can eat offers aren’t always that appealing to consumers in the long run. The combination of subscription AND usage pricing solves that dilemma. Enter the Usage Economy ™.
Heavy users of services would likely remain in the all you can eat category as they can see value, but a large segment of the “pay for what you use” buying public are not effectively marketed to. A large segment of us would opt for a pay-per-channel, al a cart model for our TV Programing or a flexible per visit gym package. As a consumer, I’m more susceptible to churn if I’m lumped in a generalized category of users. As a potential subscriber, I might forgo or even cancel an existing service if the pricing options are inflexible to my lifestyle and consumption expectations. Customers are more comfortable with variable pricing models if they know their consumption patterns would change significantly throughout the year. They want guaranteed access but also flexibility, and insight into their usage trends helps them make better choices. Vendors on the other hand can fine tune and offer more personalized pricing models to attract a broader customer base.
In order to effectively offer usage-based pricing from a technical perspective; Vendors need to consider several elements to the billing stack. To begin with, they need to be able to collect usage data in as near real-time as possible, sort out different usage streams into digestible billing records (Mediation) and have an elegant pricing and service catalog that can quickly initiate the appropriate pricing rates for various usage scenarios.
Flexible pricing and personalization is a game changing differentiator in an otherwise endless world of similar service offerings. Subscription fatigue is a growing threat to your recurring business model. Experiment with Subscription and Usage models that deliver a personalized experience for your potential subscribers. Recognize that increased revenue comes from appealing to and addressing unique consumer demographics that don’t easily fit into gold, silver and bronze categorizations.
Flavio is leading a team of highly skilled and passionate professionals to deliver on a vision he sees of enabling digital transformation towards the Usage Economy – the dynamic convergence of subscription- and usage-based billing models, allowing digital businesses to monetize in real-time any triggered event to drive revenue, gain intelligence and lever significant competitive advantage.