The Value of the ‘Subscription Model’

Let’s hear it for the subscription model!

Too many firms are quite content to “acquire” a customer and then push the relationship along, one transaction at a time. They hope that each transaction deepens the relationship, but they’re often surprised when the customer suddenly jilts them for another provider in the same category—or drops out of the category entirely. Worse yet, many firms have no idea that the customer is “dead” until long after the last transaction took place.

Enter the subscription model, in which customers willingly choose to lock themselves in for a period of time, and don’t need to be nudged along. They appreciate the option value that the subscription offers, particularly if it has an “all you can eat” aspect to it. This keeps them around for a long time, even if they don’t make any active decisions for a while.

Furthermore, inertia kicks in, and they keep renewing the relationship for numerous periods, even if they’re not actually doing anything. This combination of option value and inertia is absolutely delicious from a revenue standpoint. And, as icing on the cake, the customer needs to announce that he’s leaving (by failing to renew the subscription), so the firm can take action relatively quickly to try to salvage the relationship.

With this contrast in mind, every firm should strive to create a subscription relationship with its customers, even in settings where such an arrangement is relatively unconventional. Think about the items and services that you buy (or at least consider buying) on a somewhat periodic basis already: flowers, oil changes, vitamins, batteries and manicures. Even big-ticket items (such as cars and copy machines) can be treated as subscription relationships—with greater profits to the seller and more convenience/satisfaction for the buyer.

So stop pushing products and services and start to focus more on creating “customer lock-in” instead. You’ll be glad you did.

  • Tereza Nemessanyi

    I couldn’t agree with you more, Pete. I’ve been meaning to ping you to fill you in on what we’re doing with, which is in private beta.

    We are big believers in the power of premium subscriptions, in fact more specifically, the “freemium” model, where lots of users use and internet service for free and a segment upgrades.

    Key is to define those critical benefits that the premium customer is willing to pay on a recurring basis.

  • matt

    As a web publisher of B2B subscription websites, I certainly agree. Would be very interested to see posts from you about the development of new subscription products, case studies, etc. I’ve long thought that using a conjoint study to determine the features of an optimal subscription service would be interesting, but I’m unaware of any successful precedents. Are you?

  • Tonio Palmer

    Peter, As a sat. TV consumer I absolutly HATE this model. Paying
    for tons of stuff that I don’t want. If you had to buy squash,
    corn and chips every time you wanted a soda you wouldn’t be too
    happy either.

    Is it sustainable if you force people to pay for things they don’t
    want or need? Only if they have no choice.

Wharton Magazine - Background

Type to Search

See all results