Why choose subscription as a business model? What factors should you take into account to achieve success?
There are numerous business models on the market, from the Long Tail, Amazon’s king of models based on a large volume of users and numerous products, to the Bait & Hook, followed by brands such as Gillette that could give you a razor and make profits from the sale of blades, the specialized niche models, SaaS models, Freemium and, of course, subscriptions.
With so many options on the market, it is interesting to highlight the benefits of subscription models, those for which the user pays periodically to receive a product or service.
Main advantages
The first and main advantage of subscriptions is that customers become recurrent, resulting in a relatively fixed income. This stability in sales will be highly favourable to any company.
In addition, if the products for which the subscription is paid are physical products (and not digital products), it will be easier to provide for the necessary stock depending on the people who are subscribed at that time. Although this is not entirely predictable, as subscriptions could rise or fall sharply in the face of certain events, it can be a good reference in most cases.
Last but not least, subscription models promote customer loyalty. Attracting each new user usually involves a high cost and effort for companies, so retaining them over time will be fundamental to increasing the profitability of marketing and communication actions and the resources used. In the case of this type of customer, the retailer has a great deal of information that will make it easier for him to know why subscriber are leaving or what can be done to retain them. For example, a business like Netflix can find out the film tastes of its customers, offering them customized recommendations for new series or films, and even promotions or discounts for merchandise, premieres, etc. In short, they can personalize their offer and their loyalty strategies to the maximum.
The fixed income the article describes only holds if the charge itself holds. A good share of subscriber losses are involuntary: an expired card, a failed retry, a customer who never knew the payment bounced. Building the model on recurring payments with tokenized cards and automatic retries stops you losing subscribers for a purely technical reason.
Recommendations
For a subscription business to be successful and provide maximum benefit, there are some aspects to consider:
- Offer a freemium option or a free trial. Sometimes people find a barrier to subscription when they do not know if the product or service will be worthwhile, what the benefits are or if they will really like it. Offering a free trial will help create a need in the person (provided the product meets their expectations) and make it easier for them to end up paying for the subscription.
- Simplify the process of payment and renewal of the service. Once the user has made the initial payment, the following instalments should be automatic to avoid friction in next payments, as well as to avoid non-payment and ensure collection on the specified date. To this end, solutions such as recurring payments can be used, which allow an amount to be collected on the specified date or period of time, as long as the customer previously authorises it. In addition, if the subscription has an expiration date, it would be interesting to have all the customer’s details, including their tokenised card, when renewing the subscription, so that the new payment or authorisation can be much easier
- To offer added value over time. As we mentioned earlier, customer loyalty is a key point for the success of a business. Therefore, subscriptions must evolve, adding value to the products or services offered so that subscribers find new reasons to continue paying their fee over time.
Choosing subscription as a model means answering a less appealing question up front: what happens when the month-three charge fails. A payment gateway for subscription businesses handles the retries, the card updates and the notices to the customer, and that is where a good part of real retention is decided.
From the Sipay payment gateway they highlight the importance of having a payment service provider that offers maximum security when tokenizing (i.e. securely storing) card data. This is achieved through international security certificates such as PCI DSS, one of the highest standards in the industry, which allows customers to be charged on a recurring basis with the highest security for them.
