According to a white paper, Journey to a Subscription Business, published by Navint, established companies feel the daily pressure to digitize, innovate, be customer centric, be pro-change, train new young hires and be seen as cool. It’s the rapidly growing “cool” businesses that get high valuation multiples, while steadily growing legacy enterprises are trading for single digit Price/Earnings ratios. The start-ups with innovative business models are achieving rapidly rising growth and hitting important success milestones. The much too familiar Airbnb – largest hotel group that doesn’t own a single room and Uber – the fastest growing transportation provider that doesn’t own a single vehicle are just a couple of examples in a wide playing field of out of the box thinking enterprises.
What’s common amongst these companies is that a subscription-based business model figures prominently in their core go-to-market strategy. Products ranging from yogurt, shaving blades, legal services, toilet paper, heavy industrial equipment and enterprise software are now sold on subscription. But as businesses seek to adopt these recurring revenue models, these key questions challenge them:
- How imperative is it to embark on the subscription model journey?
- How far is the end point from the starting point?
- Can mature companies experiment and succeed in this space, while avoiding expensive acquisitions, high customer churn and failures?
- Must companies with a proven, profitable business model adopt new monetization platforms to stay competitive?
- Will a subscription model benefit their customers and improve customer lifetime value?
Despite the technological and knowledge gaps these companies are challenged by, it benefits a company to answer the last question first! Consumers across all industries are seeking increasing alignment of price to value and greater sense of control through self-administration and transparency. In particular, price and billing clarity begets greater trust and stronger brand affiliation. B2B industries are embracing transparency and clarity with increasing speed. Customers of all types are demanding closer alignment of the pricing model to the perceived value of the product.
Organizations that successfully embark on the journey to adopting subscription offerings start by mapping out key drivers, opportunities and risk factors. Four major factors impact the course of the journey:
- Being customer-driven
- Strategic decisions
- Business agility
- Disruptive competitors
What is the impact going forward? While much of the customer-generated shift to subscriptions is being driven in B2C environments, B2B relationships are moving in the same direction rapidly. Strategic objectives are a big reason to start evaluating the move such as revenue growth, better margins and increased market share. Benefits include not only improvements in customer satisfaction and retention, but also a growing customer base due to lowered entry costs. More over, it is an opportunity to gain speed and push the organization toward rapid time-to-revenue. An important element is assessing competitive opportunities and risk vs the status quo. Companies that stick with the status quo tend to lag behind their peers in basic business agility. They stay stuck with outdated technology and traditional legacy billing systems that are not scalable with modern business or consumer needs.
Once you have boarded the subscription model voyage, the journey is far from simple. Success depends on having a deep understanding of the impact it will have on the entire business and financial infrastructure. Companies will find themselves needing to re-invent their core business practices and acquire the training and hands-on skills in marketing, finance, technology, sales and customer support specific to subscription-based business models. To sum up, a successful shift to a recurring model depends on a factual assessment of opportunities, risk of the status quo and opportunity threats. Apart from a well thought out subscription business strategy, companies also require subscription platform expertise built into various functions like management, technology, finance, product management, sales and marketing. Plus incorporating modern technology tools and business practices can reduce the cost and risk of the journey to a subscription business.
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