Customer interaction with products and services and the way businesses operate were transformed by the growth of the subscription economy. Traditional business models were disrupted by the subscription models, and it led to a more predictable and sustainable revenue stream for entrepreneurs with flexibility and greater convenience for customers. Continue reading to learn more about the subscription economy and how recurring revenue models are disrupting traditional business models.
What is the Subscription Economy?
The trend of businesses turning to recurring revenue models from one-time sales is growing, so nowadays, customers pay a repeating fee for ongoing access to products or services, instead of purchasing them once, rising the subscription economy. Industries where the subscription model is prevalent are media, software, and e-commerce, but at the same time, healthcare, transportation, and consumer goods also implement it, so companies like Adapty that integrate in-app purchases are in demand.
The Benefits of the Subscription Model
There’s a wide range of benefits that the subscription model offers for businesses, and they include:
Predictable revenue stream: In comparison with one-time sales, recurring revenue provides a predictable and stable income steam.
Customer retention: By reducing churn and increasing retention, the subscription model creates ongoing connection with customers and improves their loyalty.
Flexibility: With subscription models, businesses are able to adjust pricing, features, and offerings, according to the customer needs, resulting in greater flexibility.
As for the customers’ side, there’s also a variety of benefits, such as:
Convenience: Since customers are able to access products and services on a recurring basis without the need for repeat purchases, the subscription model is more convenient than other options.
Cost savings: Customers don’t have to overpay for products and services with the subscription model, especially the ones they use on a regular basis.
Personalization: With the subscription model, businesses are able to provide personalized experiences and increased value by tailoring their offerings to individual customers.
Examples of the Subscription Economy
Speaking of the industries that were disrupted by the subscription economy, it’s worth mentioning:
Media: Many streaming services offer monthly subscriptions for unlimited access. For instance, Netflix and Spotify provide their clients with a wide range of content for a monthly fee.
Software: Software corporations also switched from one-time purchases, and companies like Adobe and Microsoft provide subscription-based access to their software suites.
E-commerce: In the e-commerce industry, subscription services are also gaining popularity, and retailers like Amazon and Birchbox offer subscriptions for products like household goods and beauty products.
Healthcare: In healthcare, subscription-based services are in demand, and healthtech companies like Ro and Hims provide clients with subscriptions for telemedicine services.
Transportation: Users of services like Uber and Lyft have access to subscription-based ride services as well.
Challenges of the Subscription Model
It’s also worth mentioning the challenges for business after turning to the subscription model. They include:
Customer acquisition costs: In order to build a large subscriber base, the subscription model requires a significant investment in marketing and customer acquisition.
Churn: Ongoing customer engagement and retention efforts are important for the subscription model to maintain profit and prevent churn.
Pricing and value perception: It can be quite complicated to figure out how to set the right pricing and provide sufficient value to customers, especially since the subscription economy is pretty competitive.
Traditional business models are getting transformed, and the subscription economy is gaining popularity, providing a wider range of benefits for both businesses and customers. The way customers interact with products and services is changing for the better, but businesses should remember about all the challenges that can be caused by the implementation of the subscription model. Businesses need to adapt and iterate on their subscription models to stay competitive, and it’s especially important with the changing customer needs.