What does it take to capture and grow your share of the $275 billion subscription economy?
Over the past decade, the subscription economy has experienced significant growth, consistently expanding five-to-eight times faster than traditional businesses, according to industry research. So it’s no surprise that we are seeing a proliferation of business categories diversifying their models and experimenting with subscriptions—whether for online retail, premium video platforms, social media, or sandwich chain restaurants.
Despite the rapid ascent of the subscription economy and a change in consumer behavior, many organizations struggle with adopting the right strategy and executing it well.
The subscription model is by no means a panacea, and the dynamics that underpin it are often complex and misunderstood. Three strategies have become critical for any organization to become a subscriptions leader.
1. Help Customers Understand Your Value Proposition
It’s important for prospective customers to understand and experience firsthand what you offer them. High barriers to entry—for example, hard content paywalls in publishing—typically prevent sampling and may actually reduce subscriber acquisition.
The Financial Times recently ran an experiment to understand this phenomenon, reducing the number of free articles from three to zero for nonsubscribers. The Financial Times saw an approximate 30% decrease in website visits and a long-term decline in new subscribers. Forcing all users to convert on their first visit would mean losing out on 79% of conversions—equivalent to tens of millions of dollars in customer lifetime value.
One consumer-oriented premium cloud subscription service provides a case study for how you can allow sampling without cannibalizing potential subscription revenue. By allowing a small amount of free storage, prospective customers can experience cloud hosting without a financial transaction. For prospects who make use of the product and get value from it, the cloud service transitions them to paid tiered subscription offers. This provides a win-win for the customer and for the provider.
2. Deliver Consistent Value—and Measure It
The long-term success of subscriptions is predicated on two interconnected concepts:
- Subscriber engagement: the value your subscribers get from your product
- Subscriber loyalty: the amount of time a person remains a subscriber
However, building engagement and loyalty in today’s marketplace is extremely challenging. A wealth of information and competition creates a poverty of attention and loyalty. So how can businesses achieve success in these areas?
- Subscriber-centricity. Traditional businesses have to transition from a product-led transactional mindset to one of creating consistent value for their subscribers by listening to subscribers, collecting and analyzing data, and working hard to fulfill their needs.
Although cultural change is not easy, it is possible. During a 12-week engagement with a leading European media organization, FT Strategies embedded the mindset of subscriber-centricity and supported a 29% increase in subscribers within six months.
- Bundling value. Increasingly, successful businesses are bundling complementary products and services into their existing subscriptions to deepen loyalty and increase customers’ reasons to stay. Shortly after price and quality, a “good variety of items and experiences” was the third-most important motivator cited for sign-up and retention in a 2021 study. Among many examples we’ve seen, one upstart streaming service charges at least twice as much for its bundle as it does for a basic package—as well as what a more established competitor charges—yet it outperformed both on its six-month retention rate.
- Measuring engagement. There is a strong relationship between the engagement of a subscriber with our product and the subscriber’s lifetime value. If you can systematically measure subscriber engagement, you can segment your customer base to either reengage subscribers who do not use your product in order to reduce the likelihood of them leaving, or increase the value of your most engaged subscribers through upselling. A recent FT Strategies study based on in-depth research among 454 executives worldwide illustrates the powerful link between a data-led, customer-centric approach and financial performance (FT Strategies, 2020).
3. Continually Optimize Through Experimentation
Building a successful subscription model and excellent digital product takes time, and there is no silver bullet. That’s why it is vitally important to build a culture of continual optimization through the design and execution of experiments.
One digital travel platform, an independently awarded leader in experimentation, runs more than 1,000 rigorous tests simultaneously and more than 25,000 per year. By leading with experimentation, the platform can make dozens of iterative improvements without much risk or overhead.
FT Strategies has helped clients imagine and build brand-new digital subscription products and optimize their existing subscription models to significantly increase their total digital subscriber number by acquiring hundreds of thousands of new subscribers (for example, our 2021 Subscriptions Lab).
Executing a subscription model can be challenging. But given the growth of the subscription economy and the obvious appeal of recurring revenue, any organization would be remiss to not examine or invest in this emerging and expanding business model.
Harvard Business Review
View the original article in Harvard Business Review here.
About the author
Tara is Managing Director of FT Strategies. Before joining the FT, Tara worked at McKinsey's London office and previously at Goldman Sachs in Europe, the Middle East, Africa and the US. She has over 15 years’ experience, serving clients across multiple sectors on strategy, digital and transformation. She is a Fulbright Scholar and MBA graduate of Harvard Business School, and serves on the Board of the The Bureau of Investigative Journalism. She is passionate about mentoring underprivileged youth and is a proud mum to three boys.