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Subscription Economy: Business Impact of Rapidly Changing Consumer Needs

Tag: Subscriptions

Subscription Economy: Business Impact of Rapidly Changing Consumer Needs

Subscription Economy: Business Impact of Rapidly Changing Consumer Needs

Technology has changed the way businesses are conducted. This is primarily due to change in consumer needs and perceptions. Technology has brought newer avenues to the customers and has offered them more choices. One of the most disruptive innovations facilitated by technology is the proliferation of subscription economy. This mode has changed the way consumers pay for different products and services. It also means that the businesses are now able to better handle their cash inflows and improve their liquidity.

What is Subscription Economy

In simple words, it may be defined as the practice of businesses to offer subscription to their customers. This implies that instead of charging a lump sum amount to the customers, the goods or services are provided in lieu of periodic payments. Such periodic payments are called subscription and the model is known as subscription services model. Currently, many companies are moving away from traditional model towards subscription economy due to change in consumer taste and needs.

Under this business model, the consumer is willing to use the goods or services on periodical basis instead of making a one-time commitment. While the payments under this model are expected to be made regularly, the plans may be customized to best meet the individual requirements of the consumers. However, it should be noted that the model has proved to be so successful that it has not only been implemented in B2C segment, but also in B2B sector. It is likely that by 2023, 75 percent of the companies dealing in direct selling will adopt subscription model for their clients.

Subscription economy may have different meanings for different businesses as firms may choose to implement their own versions to suit their requirements and resources. The main types of subscription economy models are a) Pay as you Go, b) Curation model c) Replenishment model and d) Access model. Pay as your Go model is simple and hence highly popular. Under this model, the consumer is charged for periodic delivery of goods and services. Since it takes away the worry to remember the need to renew, the model is also known as convenience model.

Curation model is mainly used by the businesses which provide personalized goods or services instead of the mass ones. This model allows the consumers to discover new products by sampling them, instead of committing to them in the first go. Such subscription boxes are especially popular in food and beauty segment. Replenishment model, on the other hand, is more suitable for goods and services related to regular, day to day life. With such subscription model, the customer can automate the delivery of their consumables. Access based model offers need based access to goods and services on payment of periodical fee.

Impact on Business

Subscription economy has impacted the businesses in a prominent manner. Subscription model implies that businesses are now required to remain in constant touch with their clients since one time interaction is now converted into periodic interactions. The businesses are now required to be more savvy with their customers as every interaction with them forms the foundation for the next one. It is also more important now to keep the customers engaged and interested in your products as they may choose to switch their loyalty if there is any slack in the services. While this factor can keep the businesses on their toes, it also provides them the opportunity to innovate and grow.

With subscription model, the firms can make their cash flow more predictable, allowing them to better manage their liquidity and funds. The higher predictability of the cash inflows let the firms undertake better planning for their future endeavors. Subscription economy also helps the firms by reducing their customer acquisition costs. Further, the firms can also personalize or customize their marketing strategies to best suit their client base. The model is helpful for the clients as well since they are not forced to make lump sum payments.

Conclusion

Subscription model is here to stay and for the ultimate success of this model, it is important for businesses to have a robust and reliable payment processing system. Such system should be able to handle frequent payments in an efficient manner. With such payment systems, the firms can boost their sales and client base.

How can Brands Benefit from Using Subscription Services

How can Brands Benefit from Using Subscription Services

The subscription-based revenue model is fast emerging as one of the most sought-after option for businesses. While the model has been around for quite some time, its popularity has sky rocketed in recent times, owing to advancements in technology and changing consumer preferences. The subscription model has proved to be successful for various services such as health clubs, magazines and newspapers in the past, but now it has been extended to several other segments as well. Here are some of the main benefits offered by subscription model.

Promotes Customer Loyalty

Subscription model is highly customer centric and provides robust value to the clients. This proposition, in turn, promotes customer loyalty towards the business as it helps in building long-term relationships. Automation of the purchase process leads to brand awareness while the convenience of the model prompts customers to come back. The model also offers various other benefits such as flexibility and savings. As the customers are required to sign up and then set up the schedule only once, it also saves time for them. A subscription-based model promotes accountability as well, since the businesses are required to ensure that they keep providing their products and services at existing standard of quality or exceed that.

Scalable

The subscription-based model is not only good for customers, but it is highly convenient for businesses as well. One of the biggest advantages of this system is that it is very flexible. As the business grows and the customer base expands, the revenue model should be able to accommodate higher volume. This feature is beneficial for the customers as well since they can adjust their purchases without undergoing additional paper work. This model is suitable for scalability as it is easy to set up and understand. The companies may plan their work load in advance since they can predict the demand in a more reliable manner. Such forecasting may also help businesses in designing their marketing strategies in a way that their operations become more efficient and economical.

Budget Friendly

This revenue model helps both the businesses and clients in the budgeting process. As the businesses have useful data in the form of predictable revenue stream, the process of forming plans and budgeting becomes a lot easier and more robust. They are better able to form their expansion plans and strategies. Similarly, customers are also aware of their future expenses and are assured of no surprise escalations; they can design their personal budgets well in advance. They are also able to exercise better control over their expenses. The predictability associated with this revenue model makes future planning more convenient.

Economical

The subscription-based revenue model also tends to be more economical as it allows businesses to acquire customers for a longer period of time, thus reducing the costs related to customer retention. Once the customer has subscribed, the business may then focus on providing them with the best possible experience through their products and services. The model is economical for customers too as they are assured of a flat rate for a fixed period of time. Many times, such a model also allows the business to achieve economies of scale, which may then be passed on to the clients. The subscription model has also been found to offer higher margin and thereby bigger profits.

Value-Added Service

While the subscription-based model is related to revenue management, it offers a host of other services as well. The data provided through subscription plans can help you carry out better analysis. You can get detailed information about the type of subscriptions which become more popular and the various criterion used by the customers to make their decisions. With the help of such data, the business may tweak their marketing and operational activities. It can also aid the funding process of nascent firms as they can get more reliable data about their future revenue and expenses, thus providing better business valuation.

The subscription-based model is now prevalent in almost all the business segments. The model helps in optimizing customer acquisition and retention costs, improving the margins for the organization. However, it is important to design the subscription model as per the features of your target market.

The Rise of the Subscription Business Model

The Rise of the Subscription Business Model

Subscription business model is one of the most promising emerging models and involves charging the customers a recurring price at regular intervals. This model eliminates the need to make a large upfront payment for buying a product or service. While earlier this model was popular with print media and other specialized domains such as service providers, now more and more business segments are experimenting with subscription business model.

Subscription model is quite resilient and may be customized to meet the specific requirements of a business. While some models provide a fixed menu of products or services, others may offer unlimited use of their offerings for a fixed period of time. The flexibility of the model is one of the biggest reasons behind the success of this phenomenon. However, this is not the only advantage of this model. With a subscription business model, you can reap the following benefits:

  • Predictable Revenue Stream: The subscription model allows a business to make educated prediction about its future revenue and therefore is immensely helpful in planning and budgeting.
  • Customization: The subscription model is also conducive to customization of plans. You can design different types of subscription payment schemes to meet diverse demands of your customer base. Such customization also enables the business to attract new customers as they can get payment terms and conditions to suit their requirements.
  • Optimizing Costs: Since the subscription model allows businesses to predict their demand pattern, it becomes easier to design purchase plans in an efficient manner. Such planning enables the business to optimize their costs and processes.

Once you have decided that you want to turn your business into subscription-based enterprise, there are certain pointers you need to keep in mind. These points will help you in smooth transition and efficient execution.

  • The Right Pricing: Just like conventional revenue models, even subscription model requires the business to determine the right price point. Since your subscription plan will not only impact your current customer base but also the size of your potential market and future subscriptions, it is important that you pay proper attention to different factors such as the income level of your market and the likely demand to determine the price to be charged.
  • Simplify Billing: While it is important to have simple yet clear billing in any business model, the need for simple billing is all the more important in subscription-based models since the invoices are sent more frequently. The businesses should ensure that the bills provide all the details in a concise and clear manner. Reliable invoices help in creating transparent and strong processes, inculcating confidence in customers.
  • Develop Deeper Customer Relationships: Robust customer relationships form the base of the subscription model. As the customers grow, it is important that the quality of customer relationship processes is maintained and improved over a period of time. As the subscription model entails more frequent interactions with the clients, it is important that the business is sufficiently strong to take on the additional burden.
  • Measure and Iterate: The success of the subscription model largely depends on a business’s ability to measure the results and take swift actions to remedy the situation. As the model is still in the evolution phase, it allows for customization and quick changes. It is equally essential that the processes are scaled in response to the introduction of the model. Such a model may also require frequent changes as you may have to introduce more innovative plans to meet customers’ requirements.

The subscription model is here to stay as more and more verticals pick it up for boosting their customer base. While the model offers many advantages, it also has certain shortcomings such as customer fatigue, wherein, clients may grow weary of the same products and services. The model also requires the business to stick to scheduled deliveries with minimal deviation. If the supply side is unpredictable, it may not be possible for the business to maintain such delivery schedule for its customers. Overall, it is important to ensure that the subscription model is suitable for the business in question and that adequate attention is paid to different factors while designing this model for implementation.

How Subscription Payments Work

How Subscription Payments Work

Subscription payments are a great option in case of regular purchases from a merchant site. The customer saves on time as there is no need to browse for the same product again. Besides, the customer would have access to price discounts and other offers by the e-commerce website.The merchant is assured of upfront revenues. It is a win-win situation for both. We shall now look at the mechanism of how subscription payments work.

What is Subscription Payments Model?

In a subscription model, the merchant or the seller debits the transaction amount from the customer’s bank account, at periodic intervals, towards regular purchases.

Also called recurring billing or the membership model, this is a model whereby the payment is collected upfront.

This is different from traditionally buying a product or service, where one makes a one-time payment at the time of purchase to close the transaction.

How Recurring Payments work:

  • A customer signs up with the e-commerce site or buys a particular product for an annual/monthly/weekly fee under the subscription option
  • While making the initial payment, the customer enters and saves the card details
  • The details of the payment mode are saved for the subsequent purchases
  • At the time of renewal of the purchase, the money is debited from the customer’s account
  • This is done periodically as per the frequency of the purchase or before the expiry of the subscription
  • This is convenient for the customer, who does not have to enter the payment details again
  • The customer is charged until the subscription is cancelled or withdrawn by the merchant
  • The income flow is steady and constant for the seller

How to Set Up Recurring Payments: The following are the methods in which a payment solutions company could help a merchant set up the recurring payments model.

  1. Recurring invoice: This is ideal in case the amount being billed on a recurring basis is an identical sum. The payments company would send an e- invoice to the customer, based on the plan, on a predetermined date as per schedule. The invoice would have options for the customer to enable the payment, update the payment mode, remove and replace the stored card information etc.
  2. Advanced payments: This is ideal in case of repeat clients. Here, the card details, provided by the client are stored in the payment gateway page. Thus, the client’s bank account is automatically debited on a pre-fixed date.

Role of the Payment Solutions Company: The payment gateway has an important role as an enabler in the entire process.

  1. Make plans: The payment solutions company facilitates the merchant to integrate subscription plans with the payment gateway. For example, a customer can choose a certain plan for a fortnight’s use of a service or product. The online payment platforms would charge each customer as per the selected plan. Also, there is ample flexibility like the option to change the active plan, offer an initial trial period waiver on charges or extend plans with discounted rates. Further, payment gateways would also cease charges in case of cancellation by customer.
  2. Maintain database: Payment companies help maintain a repository with the past and active plans of each and every customer. This is very useful to resolve any disputes that may arise regarding the tenure of the subscription or the amount debited from the customer account.
  3. Secure payment processor: Since the customer saves the confidential card related data, it is mandatory that the merchant integrate a secure online payment system that does not result in any data breach or privacy violations. It is hence prudent to opt for PCI DSS V3.2 Service Provider Certified gateway.
  4. Customized offerings: The payments company would also help automatically update the system of any plan changes by the customer, changes in the payment mode and card details. A global payments company with an inbuilt currency converter would be able to accept payments in multiple currencies.

Given its host of advantages, it is no surprise that subscription payments are on the rise. However, be sure to select a reputed, secure payments gateway, with experience in handling high volume of customer transactions, and established track record of accurate service delivery and multi-currency processing capabilities.

Don’t Worry About Your Subscriptions!

Don’t Worry About Your Subscriptions!

Subscribe Now!

You have implemented a subscription model for your online or offline platform. Well that action proves that you are ready to provide a service on a recurring basis. It gives you an opportunity to convert your customer base and make them captive. The advantage of having a long term captive customer base through a subscription model is immense for a business.

Having said that, you would also need to ensure that your subscriptions are being managed properly and as the volume grows, you would need a payment solution to manage the subscriptions/recurring payments. A solution that enables you to have the following features:

  • Customization in terms of integration with all types of subscription models.
  • In built information security: Data security is critical in today’s day and age.
  • Multiple Currencies: Today’s global customer demands flexibility in terms of paying in a currency of their choice.
  • Smart Saved Cards: Even if your customer changes his or her card number, the service should not be interrupted.
  • Quick Implementation irrespective of your recurring billing scenario.
  • Automated Invoicing: You should be able to schedule invoices and automate your invoicing process to save time.
  • Real-time Analytics: The solution should have in built real-time metrics related to recurring payments and subscriptions.

All of the above payment solution features are quintessential for your subscriptions to drive business value. Moreover, the delivery of these features should be done in a seamless manner, by enhancing your customer’s checkout and renewal experience. It is not only about your customer; you should also be able to manage your subscriptions in a seamless fashion.

Learn more about our recurring payments solution and sign up for a free demo if you wish.

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