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How brands are championing the subscription revolution

(Image credit: Image Credit: Denys Prykhodov / Shutterstock)

Today making a voice call is now one of the least likely things you’ll do with the device you call a phone. Instead, we use our phones to message friends, check social media, order food and flick between media channels, be that Spotify, Netflix, YouTube or The Guardian. And most importantly, our phones are full of different apps that we hold subscriptions to. In reality, to be comfortable we no longer live pay cheque to pay cheque, but subscription to subscription. 

Today’s consumers are less interested in owning products, and instead are more concerned with subscribing to services. They want control over a vast multitude of products and they want the flexibility to adjust them to reflect personal preference. But unlike before, they’re not interested in possessing them in the long term, they want them until they no longer find them necessary – or even until they get bored and want to move on. We’ve seen this mentality trickle down to create a new product model that has transformed several industries, including entertainment with Netflix and Spotify, catering with HelloFresh and automotive with Volvo’s Care subscription service. 

According to Tien Tzuo, our CEO and author of SUBSCRIBED (opens in new tab), the shift away from a product-centric model to that of a customer-centric model is the "defining characteristic of the subscription economy". 

This affinity towards subscription services isn’t an isolated trend – as a whole, the subscription economy is booming and is now valued (opens in new tab) at over €350 billion a year, the equivalent of 5% of all household spending within the EU. 

Subscribe to a new type of consumer 

The millennial generation is a prime example of a group that is particularly interested in owning as little as possible. Why? Because they aren’t as rooted as the generations before them. They place significant importance on the convenience of having instant access to what they need. 

Think back a decade or so ago. Most kids would spend years saving up until they could afford a car that would be able to get them from point A to point B. Today? Teenagers spend their money elsewhere and often depend on popular ride sharing programs such as Uber and Zipcar. 

This transition away from long-term possession is also known as the end of ownership.

And while this may be being heavily driven, so to speak, by millennials, it’s not limited to them – the end of ownership is reaching all generations. Being able to subscribe to a service and pick up the products when and where they want them, without actually physically owning them, has given consumers of all ages a sense of freedom that did not exist before. So much so that according to a recent report by Zuora, 78% of consumers over the age of 55 already claim to have a subscription to a service. 

Subscribe to a new business model 

Spotify’s recent IPO was not only a testament to its commercial success, but a strong indication of how businesses who have embraced a subscription business model are reaping the rewards of a loyal fan-base and consistent customers.

Another example? TV streaming services. According to the same report, almost twice as many 16-24 year olds subscribe to VOD services (47%) as they do traditional TV licences (25%). One company that listened to the demand? Netflix. Once a DVD service, they completely flipped their business model to reflect the growing affinity towards streaming services. And it’s working. Just in the first quarter, Netflix’s revenue shot up to an unexpected level of £2.6bn with over 5.4m new overseas users.

Netflix’s success and Spotify’s unique IPO illustrates how companies that embrace this new approach to business are beginning to beat out the FAMGA’s of the world to become non-traditional yet established market leaders. 

Subscribe to a new level of innovation 

A conventional business model supports the idea that when a customer makes a purchase, they will forever own that product as it is. This meaning that if a brand updates its product with new innovations, in order to reap the benefits, the consumer would have to buy the new product in its entirety.

Once again, the perfect example of this is within the automotive industry. If a consumer purchases a Volvo, and then one year later the company releases an upgraded version, that car that was originally purchased is already considered to be out of date. Unless the consumer goes through the various complicated steps required to sell the original car, they’re left with an old version and likely no opportunity to enjoy the amenities of the upgraded version. 

On the other hand, when a business offers services rather than products, the technological innovations can be automatically offered to the consumer – with little to no hassle. Meaning that consumers are consistently receiving top level customer experience and in turn, are likely to remain loyal in the long term to a particular brand.

Volvo however, has its “Care by Volvo” service. The subscription model allows the customer to choose his/her favourite car in the moment; it does not require them to buy it. Simply, he/she subscribes to the service, allowing them to use it when needed. Meaning that when Volvo releases a new and improved version, the consumer has the immediate flexibility to change cars.  

As an early adopter of the subscription model in automotive, Volvo has the opportunity to nurture loyal customers who appreciate the flexibility and rich consumer experience it offers, ultimately making it harder for their head to be turned by competitors. 

Subscribe to the subscription economy 

The success of Volvo, Spotify, Netflix and their forward thinking peers show the that subscription economy is here, and the early adopters of it are already seamlessly disrupting industries. Those businesses that don’t consider utilising a subscription service model are more than certainly going to find themselves left behind and unable to transform in time to keep up with their customers changing behaviour.

Because in reality, if you’re not catching up to Amazon Prime for retail, Spotify for music, and/or Netflix for TV, you’re already too late.  

John Phillips, Managing Director for EMEA at Zuora (opens in new tab) 

Image Credit: Denys Prykhodov / Shutterstock

John Phillips is the Managing Director for EMEA at Zuora, a post he had held for the nearly 4 years. John has spent over 25 years in the enterprise software industry at major software vendors including Oracle, EMC Corp, and OpenText, but has demonstrated expertise at much smaller firms designing and implementing growth strategies within innovative/early adopter markets.