Why is subscription marketing so hot?
Does it seem as though much of what you choose to purchase these days is moving to a subscription model? This is not your imagination, of course. From boxed delivery services, such as meal kits to the various content we consume every day — from Spotify to Netflix — subscription products and services are everywhere.
What’s behind the rise in popularity? Benefits for both the consumer and the seller of the goods and services. The motivations for subscription product purchasing are pretty straight-forward.
For starters, there’s the convenience and control of subscriptions. If a consumer is unsure whether or not they’ll like a product, signing up for a subscription can often allow them to try the product at a lower-entry price point. If the consumer likes the product, the subscription continues until it’s no longer wanted.
Advantages for seller
One of the main reasons companies sell their wares as a subscription rather than a single purchase transaction is the opportunity for increased profit margin. Higher margins are generated by a vendor’s ability to transform the lifetime value of the consumer interaction.
Up-selling and cross-selling are also more easily done through a subscription model. Low or introductory priced subscriptions lower the risk of trying a new product or service. Once the subscriber has paid for the subscription, marketers can then assume the consumer likes the product or service and deems this consumer an excellent candidate for new and complementary service expansions.
Subscription selling also provides predictable revenue and cash for a company. Once a subscription company has a stable book of business, the ability to accurately forecast revenue and margin will become quite stable. The ability to increase margins through price increases is another way a subscription base can generate revenue and margin growth very quickly. This comes down to the simple fact that once we’re hooked on a series on Netflix, a slight Netflix price increase probably isn’t going to trigger a subscription cancellation.
Perils of new customer acquisition
Negative cash flow is often a by-product of subscription efforts, especially in the early stages of their sales growth cycle. A lot of cash is necessary to support these early efforts as companies bet on the upside in revenue and margin from a subscription. This is especially true if you’re selling your subscription with a free trial attached.
Churn and retention also become key metrics for measurement. Subscription marketers cannot fear churn as it is a natural feature of subscription marketing. This is true because ultimately, everyone cancels.
Therefore, it’s the management and measurement of churn by each stage of the subscription lifecycle that matters. These stages include:
- Stage of the subscription lifecycle
- Channel acquisition
- Promotional type
- Usage characteristics
The “pause” feature of subscription services can be exceptionally useful for subscriptions that fall into the ‘replenishment’ category, such a razor blade refills, food products, etc.
Importance of payment processing
How effectively these recurring payments are processed is certainly of the utmost importance in the success of any subscription product or service. In a single-bill scenario, the consumer buys a product or service and at the point of sale the merchant knows whether or not the sale went through.
But take that same credit card and endeavor to bill it monthly. Very quickly a merchant will find there are issues with account number updates, expiration data changes and more that cause you to lose a subscriber. The fix for this could be as simple as the consumer had their credit card account updated.
This is where the services provided through a merchant’s credit card acquirer, along with a specific retention plan for these customers can help repair this chain of recurring billing and continue the satisfaction-cycle for both the consumer and the merchant.