Ties Luijendijk, Consultancy Director
From transaction-driven to relationship-
driven business with subscription
99% of all Dutch people have one or more subscription (source: Nibud*). Did you know that the Netherlands is a real subscription-minded country, with a rich history going back more than 100 years? And that subscriptions to newspapers or with the milkman are 'typically Dutch' and that you will hardly come across those subscription forms abroad?
If you are reading this blog, you are probably already familiar with subscription services and the subscription economy and you may be wondering which trends you could respond to based on the offering of your organization. If so, read on!
*Eventuele uitleg: NIBUD, the Dutch National Institute for Family Finance Information
Due to the rise of subscription models and the explosive growth of the subscription economy, subscriptions are everywhere these days. It is now becoming clear that not all products that were previously purchased and that the buyer became the owner of are equally successful in a subscription form.
“The most successful subscription services are in the areas of food, (multi)media, care and mobility. In short: necessary services that customers repeatedly need. So it's no surprise that food boxes, razor blades, contact lenses, music, shared cars and bicycles are popular as a service,” says Timo Zuidgeest, founder of Subscription Factory.
But anyone who thinks that you can sit back and relax after launching a successful subscription service is wrong. “As a brand or supplier, you have to continue to surprise and stimulate customers and users of subscriptions. That is why Spotify and Netflix are constantly adding to their offering, and Swapfiets now also offers electric bicycles. To continue to be successful and to retain customers,” Zuidgeest explains.
Brands see that they can make a difference with direct customer contact and by acquiring customer data. They want to know who their customers are. These brands are increasingly using subscriptions for this.
Take consumer electronics brands, for example. Traditionally, their products were primarily sold through electronics stores and major retailers such as MediaMarkt and Coolblue. The direct contact then takes place via those resellers and customer data also remains with these sales partners.
Philips is a good example of such a producer of electronics products, which is building up relationships with customers again by means of subscriptions. They are doing this by offering the products along with supplementary repeatable services, in subscription form. One example is steam ovens, which are usually expensive. For these they provide additional access to suitable recipes via the internet.
Direct contact with subscription customers enables brands to collect a lot of data themselves. They can then use that data to add new features and services to their products and subscription platform and thus continue to surprise users and retain existing customers.
It doesn't stop with the introduction of subscription services - that's just the start. Even if it is already generating loyal customers and predictable revenue. More and more companies are integrating the subscription business model into their business operations.
In many cases the subscription model is introduced 'alongside' the main offering, and subscriptions to a lesser extent 'replace' the transactional model. The reason for this is that the introduction of an additional source of revenue is seen as attractive and less risky. After all, this gives customers an extra option to choose a brand and it does not endanger the existing business.
The subscription model is not just another payment model; it's a different business model. If a conflict occurs between the traditional and the subscription model, you often see that the established model wins because it generates the majority of the revenue.
Companies often aim for a long-term, ongoing relationship with the customer. This also involves the customer asking for attention more frequently. With a one-off transaction, the after-sales period is temporary - for example the duration of a warranty period. With subscriptions, there is an expectation of a continuous guarantee, in other words that the product or service will always function properly.
Because of the two-way continuous commitment between customer and brand, it really becomes a (customer) journey. Companies that do this well can realize a higher customer lifetime value (CLV).
Below is an example of what such a subscription journey could look like, based on the fictitious case of a car manufacturer.
Automotive brand X sells cars and also offers these cars as a subscription. This could be a traditional lease form or through a modern method, like that of Lynk & Co.
Automotive brand X connects the cars to the internet, so that it can offer its own connected services. These include remote technical support, car sharing, offering/selling additional features (or map updates) and fleet management for business customers.
Automotive brand X offers services from third parties in addition to its own connected services. These can be, for example, new navigation or entertainment options, but also parking, fuel and charging services. A common way to make those third-party offerings available to customers is through marketplaces or app stores.
If you want to offer subscription services effectively and successfully in all phases of the subscription journey, there are a number of technical matters that you need to take into account. Below are a few tips.
The platform should always work, especially in phases 2 and 3. Keep this in mind during the build and technical design of your subscription and ensure high availability for both customers and third parties.
Once you have reached step 3, it is a good idea to determine — before you start building — how open or closed you want to make your subscription platform. Prepare your platform for different types of customers and users and ensure that you are in control of your marketplace and the relationship with your customers.
Once you have built a subscription platform, you want that technical basis to be future-proof. You can take this into account in the design phase by considering which other systems you want to integrate with now and later. Determine your API strategy and API management in advance so that you will not be faced with surprises in the future and have to replace your subscription platform.
Do you want to get started building or upgrading your subscription platform yourself and could you use some help with that? Call us!
Do you want to get started with subscription services within your organization after reading this blog? Or do you have questions about the topics discussed? Then contact:
Ties Luijendijk
Consultancy Director
+31 (0)299 200 800
