Adobe to Birchbox, Nespresso to Netflix, Sock Panda to Spotify … Why the subscription model will be your company’s future

September 30, 2018

Tien Tzuo, author of Subscribed: Why the Subscription Model Will Be Your Company’s Future, and What to Do About It, says: “I think everyone would agree that brands are still very important, but today you communicate your brand through experiences, not ads.” In this model, marketing isn’t an appendage to each enterprise’s business model — it’s at the heart of it.

Tzuo is the founder and CEO of Zuora, which creates software that companies use to manage subscriptions. And to a degree, the book is an effective pitch for the company’s services. Yet Subscribed resonates so deeply because if you look closely, you’ll notice the subscription model has been building momentum in surprising places.

Until recently, subscriptions were limited to magazines, newspapers, and the book- or wine-of-the-month club. But now, consumers can — and do — subscribe to makeup (Birchbox), razors (Dollar Shave Club), clothes (Stitch Fix), food (HelloFresh), socks (Sock Panda), and flights (Surf Air), along with any number of digital services, such as software (Adobe) and video entertainment (Netflix).

The benefit for the consumer is obvious. The convenience of having razors, or carefully curated recipe items, or Drake’s latest release simply arrive on your doorstep or in your Spotify app is hard for today’s harried masses to resist.

However, it could be argued the benefits that consumers reap from subscriptions pale in comparison with what companies gain: vital data that helps them constantly iterate offerings and deepen relationships with their customers, along with a recurring revenue stream that can be transformative for businesses. Subscriptions also enable companies to evolve from the 20th-century business of selling products to the modern model of providing services.

Take the snack box company Graze, which sends its subscribers boxes of healthy snacks every few weeks and asks them to fill out a simple online form about what they liked and didn’t like. Because of the insights the company has gained through this continual feedback, it saw no reason to immediately switch up its offerings when it launched in the US. “We just took our existing product line and dumped it on the U.S. market, because the system adjusts itself,” the company’s CEO, Anthony Fletcher, told Tzuo.

Graze had no success in turning U.S. customers on to Marmite, a yeast extract spread — they soon made clear their preference for spicy barbecue snacks — but the CEO emphasized that expensive market research efforts made prior to entering a market had very often failed. With the market research “baked into the service,” as Tzuo notes, the feedback is immediate and comparatively cheap.

Companies like Netflix, Spotify, and Salesforce are just the tip of the iceberg for the subscription model. The real transformation–and the real opportunity–is just beginning.

Subscription companies are growing nine times faster than the S&P 500. Why? Because unlike product companies, subscription companies know their customers. A happy subscriber base is the ultimate economic moat.

Today’s consumers prefer the advantages of access over the hassles of maintenance, from transportation (Uber, Surf Air), to clothing (Stitch Fix, Eleven James), to razor blades and makeup (Dollar Shave Club, Birchbox). Companies are similarly demanding easier, long-term solutions, trading their server rooms for cloud storage solutions like Box. Simply put, the world is shifting from products to services.

But how do you turn customers into subscribers? As the CEO of the world’s largest subscription management platform, Tien Tzuo has helped hundreds of companies transition from relying on individual sales to building customer-centric, recurring-revenue businesses. His core message in Subscribed is simple: Ready or not, excited or terrified, you need to adapt to the Subscription Economy — or risk being left behind.

Tzuo shows how to use subscriptions to build lucrative, ongoing one-on-one relationships with your customers. This may require reinventing substantial parts of your company, from your accounting practices to your entire IT architecture, but the payoff can be enormous. Just look at the case studies:

*  Adobe transitions from selling enterprise software licenses to offering cloud-based solutions for a flat monthly fee, and quadruples its valuation.

*  Fender evolves from selling guitars one at a time to creating lifelong musicians by teaching beginners to play, and keeping them inspired for life.

*  Caterpillar uses subscriptions to help solve problems — it’s not about how many tractors you can rent, but how much dirt you need to move.

In Subscribed, you’ll learn how these companies made the shift, and how you can transform your own product into a valuable service with a practical, step-by-step framework. Find out how how you can prepare and prosper now, rather than trying to catch up later.

 

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