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The subscription model is gaining momentum - among businesses and consumers alike

Written by Ryan McChrystal on Friday, 09 January 2015. Posted in Sales & Marketing

Striking a balance and coming up with the right model is the best route for customer retention in the subscription service world

The subscription model is gaining momentum - among businesses and consumers alike

Whether it’s watching movies, listening to music, reading the papers or drinking craft beer, there’s a subscription service for it. Last summer, the video-streaming service and subscription trailblazer, Netflix reached a three million customer peak in the UK, double what it was the previous year. More than one in ten households are now paying between £7.99 – £11.99 to watch unlimited TV shows and movies on a plethora of devices. Likewise, Spotify is bringing music to over one million consumers in the UK for a reasonable monthly fee, and may soon take over Apple’s iTunes as the biggest music service in Europe.

Smaller subscription-based companies are also on the rise in the UK as the product economy gives way to the subscription economy. Within this market, companies need to handle customer loyalty, pricing and selling very differently. Running a subscription company means there is a continuing relationship with the customer and therefore the need to please is ever greater.

Not Another Bill is a subscription service with a difference, in that, for the most part, subscribers don’t know what they’ll get in the post. The company has been going since 2011 and is essentially a lucky bag for adults. As a subscriber you will be sent a surprise gift each month based on your style and preferences. Out of a choice of 12 broad areas, you can choose gifts, ranging anything from homeware products to art and stationery. There are even ‘nostalgic’ gifts. The point of Not Another Bill is to offer not what people may need but what a lot of people might want. Founder Ned Corbett-Winder says: “Because we have such a wide range of products on offer, our customer base ranges from 75-year-old women to 19-year-old men; the key to uniting them all is the interest in unique products. We’re not going to be for everyone but I’m sure everyone can think of someone this would be useful for.” Finding broad appeal is certainly one way to ramp up the subscribers.

Corbett-Winder had previously worked as an art director for an ad agency and as such had access to a range of designers and artists – the same people who supply a lot of produce to Not Another Bill today. When a friend complained that he never got anything interesting in the post, the novel idea was planted in Corbett-Winder’s head.

However, a novel idea will remain just a novel idea unless you have the infrastructure to support it. “We have a very easy-to-use website that we’ve spent a year improving. It’s all about automation,” says Corbett-Winder.

Fashion subscription service JustFab uses its website to ensure subscribers – or ‘VIPs’ – get exactly what they want. It offers an engaging and personalised shopping experience to over 35 million members worldwide, providing the celebrity treatment every month.

For a fee, customers receive a new and customised selection of shoes, handbags, jewellery and denim as and when they want them.

“I’m going to be biased, but our website is very, very easy to use,” explains Gerrit Mueller, head of Europe for JustFab. “If you are an online service and you have a website that’s not easy to use, then people are not going to be using your service and won’t be converted into happy shoppers.” As a fashion company, it also wouldn't really bode well if your site didn't look good, he adds.

Personalisation is of utmost importance for JustFab. Based on customer preferences, a combination of simple algorithms and the work of a personal stylist, VIPs are presented with their very own showroom. Every item at Just Fab costs £35 – which is an exclusively lower price than buying as a non-VIP from the site – but the pricing system is a little more complex than that. The only obligation a VIP has is to visit their showroom once a month and say whether they like or dislike what’s on offer – which helps with personalisation. If they don’t want to buy anything they can simply skip that month. However, if they fail to like or dislike their showroom, they will be charged the £35 that can then be spent on the site. This opt-out model ensures that customers don’t end up buying something they don’t actually want – and a happy customer is a returning customer.

Subscriptions aren’t all about what people want but are often borne out of necessity. Warren Fauvel is CEO of Nudjed, a subscription service that helps people set and reach health and fitness goals – for example, to lose a stone or run a half marathon. It works by providing customers with a series of simple, step-by- step challenges that gradually change the person’s behaviour, with plenty of reminders and encouragement along the way.

For subscriptions, the price is central to the customer and each customer must think they are getting greater value than the recurring payment they make. Nujed allows subscribers to sign up on free, bronze, silver or gold packages. Despite the name, the freemium model is typically used by digital offerings such as software, media and gaming as a way of making more money. Take the telecommunications app Skype for example. It allows anyone to sign up for free computer calls but in order to receive voicemails, call landlines and various other add-ons you have to pay.

Most of Nudjed’s customers come via B2B deals with businesses that have an interest in wellbeing but it recently began a pilot scheme with health retailer Superdrug in order to gain more commercial customers. Superdrug pharmacy staff will be trained to give better informed health advice to its customers, who will also be able to subscribe to the new online service through their local store. This method of finding partners – whether commercial or B2B is popular among many subscription services. Spotify, for example, has a ‘partners’ service, which allows other companies to create playlists, a process that has mutual pay off.

One of the biggest challenges for any subscription services these days is compiling and understanding big data. Managing the intricacies of customer data is what keeps a service like Netflix on top. By keeping track of which movies a customer watched until the end, which they switched off pretty early on and what actors they seem to like, Netflix can tailor its recommendations to suit the punter and with such a wide offering of TV shows and films, keep you watching for days, weeks or even months. Maybe this is how you ended up chain- watching Breaking Bad.

DataStax is a subscription service that helps other subscription services deal with their big data. It provides the database that is used to capture information on what users watch on Netflix, as well as the personalisation functionality that fits within Spotify. “We are a database company which sells software that a lot of companies use, mainly an opensource project called Cassandra,” explains Matt Pfeil, chief customer officer at DataStax.

“One of the things we’ve done differently actually is to sell our software as a subscription rather than so the customer buys it on a year-by-year basis,” he says. This is good for the customer as it forces the vendor to really earn the money every year. “In other words, if we’re not doing our jobs, the customer can walk away. There’s no huge up-front cost, it’s broken into sub-costs, and that’s something that’s happening a lot right now.”

To succeed in the subscription world, companies should focus on some key factors, including digital infrastructure and price. However, in such a customer-retention driven business, variety and personalisation will ultimately leave your company grow its subscriber base. 

About the Author

Ryan McChrystal

Ryan McChrystal

In a previous life McChrystal wrote about asset management in the Middle East. A history and politics graduate from the north of Ireland, he now focuses his efforts a little closer to home. 

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