Get Ready for the Subscription Economy

This month, Jaguar Land Rover announced its intention to join the subscription economy – an industry that has grown an eye-watering 100 percent a year over the past five years. Find out what’s driving this trend, why brands are getting involved and what you as a marketer can do to launch your own service.

This month, Jaguar Land Rover announced its intention to join the subscription economy – following in the footsteps of Volvo, Cadillac and Mercedez Benz.

Jaguar’s Carpe offers drivers unlimited servicing, maintenance, insurance, roadside assistance and delivery from £910 per month, setting the stage for a complete re-imagining of the traditional car purchase.

 

SO, WHAT ARE SUBSCRIPTION SERVICES?

Today, subscription services have exploded in popularity – with 9 out of 10 UK consumers now having some sort of subscription service. In fact, 19% of Brits have signed up to a subscription within the last six months alone.

So quick has this change occurred that the subscription market has grown an eye-watering 100% a year over the past five years, with the largest retailers now generating more than $2.6B in sales – up from $57.0M in 2011. This meteoric rise in adoption has resulted in the average UK adult spending £56 per month on subscription services, with 35 to 54-year-olds spending the most, at £62 every month.

According to the latest research from McKinsey, there are now three types of subscriptions: replenishment, curation and access.

 

WHAT’S DRIVING THIS CHANGE?

Greed is good, and to own is to be successful – or, perhaps not…

Those were the messages which drove the last century, telling consumers that the pre-requisite of living the capitalist dream was to own whatever your heart desired.

This has proven to be a fallacy.

As we enter a more self-aware 21st century, the fashion for owning things is now being replaced with simply the ability to access them. It’s a view which has been at the core of what has made Spotify and Netflix such a success. If you’d have told music executives 20 years ago that most consumers wouldn’t want to own their own music, and instead would choose to lease it, they’d have looked at you as if you were insane.

Now, that’s the norm.

As consumers, we want access – with 80% of people demanding new consumption models, be that subscribing, sharing, or leasing. Why should you own a car throughout the year when you only use it 5% of the time?

In parallel to this change in consumption has been a shift in the way we, as consumers, value our own time. When compared to previous decades, we place much greater importance on the brief moments we aren’t working. It’s in these moments, where we’re bombarded by an abundance of different choices, that we now prefer to delegate these decisions to a third party – allowing others to pick the right solution, customised to our specific preferences.

When time is money, it’s easy to see how wasting precious minutes picking the right cleaning detergent can be seen as an unnecessary expense

 

WHY ARE BRANDS MOVING TO A SUBSCRIPTION MODEL?

Subscriptions have been around for centuries, yet have only now catapulted into popularity across different verticals. So, what’s been behind this shift in business?

While technology is the key factor behind the how, the why is more nuanced – and can be broken down into three key areas.

  1. It’s better for the supply chain

Subscription models are the antithesis of wastage.

No longer do businesses need to produce more than they need, leaving warehouses filled with unused stock.

With a subscription model, a business knows exactly how much they need to be sending out and when – creating a blueprint which not only makes for a more agile business, but can scale more effectively, too.

  1. It’s better for your business

When your customers are signing up monthly, quarterly or annually it’s easier to forecast what your revenues are going to be.

That’s the reason why subscription services are no longer perceived as risky by investors – and it’snot just in forecasting where businesses can find a benefit to their bottom line.

Subscription servicesalso find it easier to grow the value of their existing customers through better cross-selling and upselling opportunities – when you know what your customer likes, it’s easier to sell them more of that.

  1. It’s better for the product – and customer

 A subscription service allows for the ultimate feedback loop, in which a business understands what their customer wants – and,in turn, can be confident in creating a product that meets it.

It’s an approach Netflix and Amazon have adopted, through the use of data they gleaned from users to influence their own commissioning decisions.

It’s also an approach which wouldn’t have been possible without big data and machine learning – and one which allows brands to focus on making the very best product, according to what their customers actually want.

 

WHAT DOES THIS MEAN FOR MARKETING IN A SUBSCRIPTION WORLD?

It means you can no longer expect people to hear about your product, visit a store and buy it.

It’s less about selling a product in a subscription world, and more about building a lasting relationship with customers while listening to what they say – scary stuff for those stuck in the broadcast-only mode of old!

However, for those wanting to take advantage of this, it’s important to not throw the advertising baby out with the bath water.

Marketing a subscription brand doesn’t require a completely new approach (Byron Sharp still has a role to play!) – instead, it’s about adapting existing practices around the following 5 stages:

 

  1. Go out and meet people

Advertising isn’t dead, and neither is broad-reach targeting. With subscription services now seeing mass adoption, the need to target based on niche behaviours or marketing criteria is no longer necessary. Subscription brands need to be reaching as many non-buyers as possible to convert them into members.

  1. Invite them over

 Participation is key in a subscription world in which free trials have been instrumental in the success of brands like Spotify and Amazon (out of Spotify’s 157 million users, 71 million pay a monthly fee to subscribe).

It’s important to offer free trials to customers so they can ‘try before they buy,’ but it’s equally important to be clear when payments start, as no one likes to be sprung with a bill they weren’t expecting.

  1. Get to know them

Really take the time to understand their needs – after all, subscription services gather vast quantities of information based on a customer’s preferences. Use this data to understand how they’re using your service, when they might be dropping off, and what improvements they want made. It’s what has made Netflix such a runaway success, and can feed into every element of the business – from product development to marketing.

  1. Engage and nurture

Build value by focusing on the subscription experience, and ensuring the journey is as painless as possible.

All it takes is one bad experience to lose a customer forever­ – which, in a service reliant on forging long-lasting relationships, is the kiss of death. In 2011 this happened to Netflix – they lost 800,000 customers and their share price dropped 80%. Why? Because they introduced new pricing packages without consulting their customers.

Netflix violated the No.1 rule of subscription businesses – it’s all about the relationship

  1. Foster and share those relationships

Create a community, keep them loyal, and encourage them to get out there and spread the word.

Subscription services are as reliant on word of mouth and positive reviews as they are on advertising. Find ways to develop your customer community, allowing them to steer the direction of your business, and ensuring they develop a sense of identity from being a member.

Your service should become a badge of honour that they publicly share, reflecting to the world who they are, and what they stand for as a person.

 

How Collider can help

If you’re considering adopting a subscription model, and want to know what this means for your marketing, we think we can be of assistance.

Know your audience

In a world where the customer is king, understanding what their needs, aspirations and dislikes are is critical.

We bring together the world of search, social and planning to develop a nuanced understanding of what makes your customers tick – ensuring we create memorable marketing which resonates with who they are.

Finding the best route to market

With the rise of channel fragmentation, and with the abundance of digital channels now available, it can be hard to figure out what channels are most effective.

We look holistically at the customer journey, and approach the best route to market based on what’s best for the brand, ensuring you’re getting the best bang for your buck.

Creating experiences that matter

When building long-lasting relationships, the experience you provide is key – irrespective of whether it’s online or offline.

That’s why we see every customer touch point as an opportunity to capture the imagination, delivering experiences that not only engage people, but drive them seamlessly through to purchase.

Next Steps

From product launches to live events and exhibitions, we have a history in engaging audiences in fresh and unexpected ways.

In order to help marketers launch a new brand or service, we’ve developed a launch radar self-assessment tool that allows brands to score and quantify their launch strategy – ensuring the most effective launch possible.

In a changing world, brand momentum is everything, and creating great ideas that move people will take you from ordinary to extraordinary.

Get in touch with Collider at hello@wearecollider.com

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