24 Aug 2018
Surviving Subscription Economy
Harish Thyagarajan
#SaaS | 4 min read
Surviving Subscription Economy
Harish Thyagarajan

In order to thrive in the subscription economy, companies have to think beyond just setting a monthly pricing on products.


The subscription-based model has to be rethought from the customers perspective, as the shift to this subscription economy is mainly driven by the customers.



Customers of the modern era are expecting a real-time experience with instant fulfillment. Subscribers also have the choice of switching between service providers, which puts the vendors at threat, therefore, they will have to earn the loyalty of their subscribers by providing ongoing value.


In order to do this, they should be able to efficiently market, sell and deliver based on a proper understanding of consumer behavior.


In order to ensure long-term association with customers, companies migrating to a subscription-based model must work on certain key areas:


  • The identity of a subscriber: The details of the customers should not be restricted to just their names and contact numbers. A subscriber identity record has to include purchases, payment history, refund details, renewal details, usage data and much more.



  • The Journey of a Subscriber: Companies have to create and manage the subscriber journey, which deepens the connect from initial signup to include upgrades, new services or renewals.


  • Offer Discounts for longer-term subscriptions: By offering subscribers a variety of payment options, and offering a reasonable discount to those who agree to pay upfront on a quarterly basis or a yearly basis, you have a better chance of attracting more number of customers.



  • Automate the renewal process: Collect as much data as you possibly can about your customers and send out personalized emails on offers to convince them to renew before they churn, which is usually at the 6 or 12-month mark.



Just a decade ago, Blockbuster dominated the movie rental business and was valued at $8 billion in 2005. Around the same time, Netflix was using the postal service to distribute DVDs, and it didn’t seem to have a chance to compete with Blockbuster.


Yet Blockbuster filed for bankruptcy in 2010 and around the same time Netflix gained 16 million subscribers by streaming movies online.

So, how did Netflix upset Blockbuster?

The executives of Netflix understood that the emerging technology was rapidly changing the delivery of movie rentals. They quickly developed a strategy around internet streaming, prompt customer service, and a remote/virtual firm to offer it flawlessly at an affordable price.


Netflix also improved its service and outmoded pricing. Blockbuster had charged $5 for each movie, and customers hated the fees that were charged for late returns.


Learning from Blockbuster’s mistake, Netflix used a monthly subscription option that allows unlimited rentals without any late fees. These critical strategic moves helped Netflix become one of the best in the business.


The Growth of Atlassian Stack

Going with the Subscription trend, the popular enterprise software company launched Atlassian Stack, (a new subscription service that puts together all of the self-hosted developer tools into a single offering). Starting at $186,875/ year for 1,000 licenses, this new bundle is meant to make the procurement process for enterprises easier and cheaper. At 1,000 licenses, the average price per user comes out to around $15.50/ month. For large enterprises that have more than 10K users on the platform, Atlassian dropped the price to $6.50 per user per month.


The Story of Adobe Systems

Adobe Systems transitioned from a product-sales business model to cloud-based subscription 5 years ago. At this time the prices on its creative suite package were ranging from $1,300 to $ 2,500. Many customers openly went against this idea of renting cloud-based versions. However, subscription to Adobe’s popular creative cloud software has powered a 44% increase in revenue since 2013.

The shift to the subscription economy is rapidly growing. Companies that aim to be ahead of its competitors and maintain long-term customer relationships must start planning their transformation. Afterall, a job well begun is half done.

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