The Subscription Economy: Transforming Business Models and Customer Relationships

When was the last time you paid for an app single-time to make a payment, download it, and own it without any regular subscription payments?

Chances are — quite a while back, and even if you did that recently, it must have been a pretty simplistic kind of app with limited features. The IT industry was one of the first business niches to recognize the potential of the subscription economy, but today, the trend has also started monopolizing other industries. Even Walmart, which remains a budget store despite its huge retail chain, offers regular customers a paid subscription for additional features such as priority parking, no-queue cash registers, and enhanced delivery options. 

So, it looks like the subscription economy is here to stay, and while some goods will remain available for a single purchase, both customers and businesses will have to accept a subscription-based model as a general practice. Like everything else in life, this type of B2C interaction has its upsides and downsides for both parties concerned. On the face of it, customers get regular access to updates and new features, while businesses enjoy a steady money flow and finally get a more or less decent chance to predict their revenues. But it’s not quite so simple in practice — especially not for businesses that need to invest constant effort into retaining their subscribers. Below, we will take a look at the top pitfalls of subscription-based plans for businesses and try to figure out ways to avoid them. 

Subscription fatigue 

This is the primary reason for unsubscribing, which may stem either from a lack of content/feature updates or from not figuring out one’s target audience in the first place. Some services, like Netflix, for example, are unlikely to face this challenge, considering how many new shows the provider introduces in different languages and regions. But think of the massive amount of effort, budget, and human resources it takes to film a show! 

In contrast to that, there are language learning apps, like Busuu. This is a very cool, colorful app with lots of content and a dozen methodically crafted language courses. The problem is that more than a single language course is needed to accommodate a serious learner’s needs for over a year (often even less than that). It’s true that some courses (especially English, French, and Spanish) have more updates than others. But anyone trying to learn German, Italian, or Japanese will run out of study material in about six months. 

In general, hobbyist, recreational, and especially educational apps have the highest chance of user subscription fatigue. And the only chance businesses have to retain those users is to keep updating all the time. Alternatively, it is possible to narrow down the audience and offer more specific content for smaller demographics. For example, anyone working with lots of text will unlikely stop using Grammarly, just like professional recruiters will not abandon candidate tracking systems or contact finders — not without an excellent reason, at least. But businesses trying to cast a wider net will have to make do with short-time hoppers rather than loyal regulars. That’s a monetization strategy, too, and totally worth considering. But as far as revenue is concerned, a loyal customer is worth more than a short-term client, especially considering that the marketing cost of attracting new buyers is constantly growing. 

Steady competition growth 

Competition growth and increasing market saturation are challenging for any business, especially when using a subscription-based model that has to leverage value and price to constantly retain customers. The good news is that people are naturally lazy, so if a service value is not too out of balance with its price, most customers will not bother looking for a new service provider. But this tricky balance relies on constant market research and analysis — on top of ensuring uninterrupted quality service.

One way to minimize the dangers of market saturation and constantly growing competition is to highlight the exclusivity of your services. In practice, we all know that no unique value proposition is truly unique, so it goes down to building a community rather than offering any revolutionizing features. Think Amazon, for example. Its Prime subscription does not offer anything truly outstanding — in a nutshell, it’s about faster shipping, access to file streaming, books, songs, and a few extra discounts on certain goods. But Amazon Prime customers get it all in one package — even if most of them are only interested in one, maximum two, aspects of the deal. 

Still, in the case of Amazon, the Prime subscription builds a sense of community and exclusivity. Of course, this business model faces a lot of criticism, too — if you can ship certain items sooner, why don’t you just do it for free? Yet, as a major retail chain with reasonable prices, the marketing trick seems to be working for Amazon, just like it’s working for Walmart, with its priority parking and cashing-out options. 

Cybersecurity concerns 

Besides regular investment in updates, marketing, and innovation, businesses running on subscription payments need to invest in cybersecurity measures regally. Any service storing its clients’ financial data is particularly vulnerable to cyber-attacks. Experts estimate that over 10% of an enterprise IT budget is dedicated to cybersecurity. Of course, a business that ensures higher quality services and data protection should have no problem compensating for additional expenses with regular subscription payments from loyal users. But once again, a subscription economy is about constant improvement and innovation — both when the user-end and the technological aspects of the service are concerned. 

This pitfall can be especially challenging for non-digital companies that run on subscriptions — simply because, unlike tech giants like Google and Microsoft, smaller on-site companies may take a while before they recognize all the dangers of lax cybersecurity. And even though a cyber attack on a meal kit delivery service, like Blue Apron, or a clothing rental like Runway, may seem less likely than an attack on a major tech provider, this is a misleading ‘security.’ The technical vulnerability of small local businesses makes them very likely victims of phishing attempts, too.

The solution here is obvious — invest in more cybersecurity. There is another, more affordable but generally less effective option of encouraging customers to follow security procedures as well — at the very least, to avoid using repeated passwords, which is still a common practice among users. Still, no matter how many security guides you email your regular customers, they will unlikely bother about data protection until they find themselves in a breach. It is up to a business to ensure this does not happen — because, as already mentioned, people are naturally lazy, which is probably one of the top reasons for the spread of the subscription economy. 

Conclusion

The bottom line is that a shift to a subscription economy requires more effort from businesses, even though it also offers them a chance to reap higher rewards. More importantly, it offers an opportunity to nurture meaningful, lasting customer relationships — which eventually transform into higher customer retention rates and additional client acquisitions through user recommendations. Ultimately, a business that maintains quality service wins — along with its loyal customers.