Over the last decade, we have seen a massive shift from the traditional model of selling products or services towards a subscription-based model. This tectonic shift is at the heart of Anne Janzer’s new book Subscription Marketing. Marketing imperatives that underpin subscription-based models are inherently different from those in traditional models, and Janzer walks us through the main differences.
The shift towards the subscription business model typically leads to several important changes in our behaviors: greater appreciation of valuable content, more frequent instant gratification, and an added sense of convenience. Advanced connectivity, digitalized supply chain and, in the future, Internet of Things, - are the technologies that allow us to have seamless access to these products and service without the necessity to own them.
Janzer identifies three ways to facilitate the shift of one’s offering to the subscription model:
Try out the subscription model in a small part of the business
Make use of the subscription model to come up with new ways to segment
Pivot towards the subscription approach by abandoning the old way of doing business
Of many managerial challenges that accompany the switch to the subscription model, two stand out as central:
How to provide meaningful incentives to ensure great performance?
Who and how should handle churn?
“Follow the revenue!” With this injunction, Janzer reminds that one should start by having a good idea of how much revenue is generated per customer. This allows one to assess how to attract and keep exactly the most relevant customers. A good test of potential success of the new model is to examine the extent to which these valuable existing customers see value in complementary offerings which they might subscribe to. Cultivating customer trust is key in that regard. In fact, one can think of marketing in the subscription context as a tool to develop trust, i.e. to create and deliver on a promise! This focus on the development of trust must also be maintained after the customer has made a decision to subscribe. Value marketing is thus essential! But what are some ways to achieve this?
Support a customer’s way of being successful
Make it absolutely clear to customers that one’s particular model offers good value
Create additional value dimensions, such as developing social networks of subscribers
Add more in-depth thoughtfulness in interactions with subscribers
Try to align one’s subscription offering as much as possible with particular values of subscribers
Janzer identifies 16 additional ways to develop such value-marketing strategies. Some of those are similar to the issues just discussed. But then again, essential issues lend themselves to being repeated.
Creating a customer launch plan represents a good step towards communicating value. Essential here is to understand what motivates a person to become a customer. Then it is key to identify ways to make it easier for customers to use the service, i.e. to build on their positive confirmation bias. Early success can be guided, through development of support materials, such as videos or other tools (e.g. diplomas and certificates) to help educate and train one’s customer. The point is to create new customer values!
Another way to communicate additional value is to share relevant stories with customers. It is critical for the business to pick the most relevant storyteller and the best propagandist. Who has the best reputation? Who is the most credible? Who are one’s customers listening to? Salient relevant stories attempt to focus on the core values that one’s subscription model is offering. And customers’ success should be applauded! To that end, one may consider sending out congratulatory emails, letters or making personal phone calls to customers.
In the end, it is all about creating relevant subscription value, as experienced by the customer. One should strive to create a community of likeminded users. Podcasts, for example, and other social media channels can be an effective tool.
If a community of users and customers is created, the business can then tap into the community, nurture relationship and develop “brand advocates” from within the customer base. This tactic is called “advocacy marketing” It is important, however, to approach the customer community with honesty and humility: one must stay away from flattery and strive for advocacy, which must be earned! Some traditional customer loyalty tools, like rewards programs, club memberships or gifts, might be useful. However, it may be more effective to engage customers directly, ask for feedback, and listen carefully to what they say.
Regrettably, some subscribers may decide to leave. This process should be handled gracefully, without clinging to customers who have already made up their mind. To reduce the likelihood of such “breakaways”, some non-controversial values must be shared with one’s customers. One such value, for example, may be “practice what you preach”. Hopefully, one’s core values are relatively non-controversial and can be shared. One possible way to illustrate showcase core values is to offer free trials, so that prospective customers may experience what the business stands for.
This brings us to the third and final part of the book, which focuses on putting strategies into action. It is important to concentrate on developing highly valuable customers. High-value customers are those who spend more on subscribing to higher margin products and are less likely to cancel the subscription (i.e. lower churn). To generate, develop and nurture relationships with such customers, a long-term focus is critical. Organizational silos typically represent a major roadblock in cultivating these relationships and, therefore, should be removed as much as possible. At times, there may be a conflict between nurturing deep relationships and going for ultra-rapid growth. Growth at all costs, at the expense of added value, should be avoided!
For subscription-based models, scale is of key importance. At the core of operating at scale is software. Still, non-scalable dimensions (e.g. customer meetings, answering e-mails) are also important.
The book concludes with the discussion of some of the most common “traps” of a subscription model. Of those, three stand out:
Avoid unnecessarily complex pricing and stay away from complex discount schemes.
Upsell meaningfully. Add only those services that add value to the customer. Avoid non-related services!
As a rule, remember that value starts with the customer.
Ultimately, the main implication of the shift towards a subscription business model is a shift in the customer orientation. The new model demands that an entire customer journey must be embraced as a long-term priority, as opposed to traditional marketing models that see customer interactions as sales transactions which must be maximized. The long-term focus on the customer helps build a relationship, the primary focus of which is to create value on an ongoing basis.
Summarizing this book review, I am left with a clearer understanding of what marketing is all about when a subscription business model is pursued. In this context, marketing is different! The book challenges the classic marketing focus on trying to influence a purchase decision. Instead, it argues that long-term relationships, focused on building trust, are what truly matters and helps differentiate a business. This book is highly recommended – a must!
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