Access vs. Ownership: How to Win at the Subscriptions Challenge
A trend playing out across industries shows that consumers are increasingly forgoing the security and prestige of owning objects for the affordable flexibility of on-demand access and upgrades to the latest and greatest products without up-front investments. And like many things, the trend is driven by changing preferences of new generations.
Think of the baby boomers compared to millennials. To baby boomers, owning a car and a house in the suburbs was a symbol of success and financial security. On the other hand, we’re seeing millennials migrate to cities and opting out of big-ticket purchases (e.g., cars). Instead, they're embracing a “sharing economy” in which they access products and services, such as Uber or Zipcar, without the burdens of ownership. What’s more, this new on-demand attitude of today’s consumers is spanning a wide range of industries and forcing merchants to change their thinking about what it means to sell products or services in order to stay competitive.
One way online merchants are responding to consumers’ growing preference for access over ownership is by deploying new subscription-based business models as part of their e-commerce strategies. However, in order to be successful, what must merchants consider in a subscription-focused world?
1. Respond to consumer preferences. Rather than thinking about subscription options as “either or” propositions, why not put a combination of models to work to grow your online business? If your e-commerce platform supports a variety of subscription models and cart abandonment is an issue on your site, you can quickly offer another, more attractive pricing structure. The alternative offer could be a free trial; low-priced, limited-term access to a product or service; or a variation on a time-based subscription (monthly, annual, quarterly, etc.). The great thing about e-commerce is that it allows your company to respond very quickly — at a relatively low cost — to a wide range of consumer preferences so you can offer an alternative sales model and convert shoppers into subscribers on their preferred terms.
2. Curate and leverage actionable data. In addition to responding to buyer preferences, successful online merchants also learn how to gather data to gain valuable insights into consumer behaviors. This allows them to tailor future shopping experiences in the most helpful and personal ways that transcend the mere transaction.
Over time, providing multiple offers to drive buying behavior can generate critical data on how your prospects and customers want to buy. For example, you can offer shoppers a monthly subscription at one price, while simultaneously offering a lower monthly rate if they instead commit to an annual or multiyear subscription. Some shoppers value flexibility and, as a result, are willing to pay more for the service; others are more price sensitive and want to see a discount before they purchase.
Elevating the relevancy of the shopping experience can lead to increases in customer loyalty and recurring revenue streams.
3. Monetize the experience. Finally, beyond adapting to buyer preferences and leveraging actionable data, businesses are also being challenged to reinvent what it means to sell. Merchants need to shift from monetizing products to monetizing relationships and experiences. Subscriptions provide a natural platform for this change. Merchants can use subscriptions to not only serve as a point of commercial transaction, but also create multiple touchpoints throughout the customer journey that enable them to sell inside or alongside their product.
For online merchants, this strategic move multiplies the opportunities for customer interaction and ultimately opens new revenue channels. For end customers, it delivers added value. For instance, instead of emailing your customers about their subscription renewals, why not send them a personal message with a tailored promotional offer when they're actually using your product? Or wrap a complementary, subscription-based service around your product and offer it to your brand-loyal customers to ensure ongoing value beyond their initial purchase. These techniques enable more seamless “in context” transactions and more relevant experiences for your customers.
The evidence of today’s shift to access over ownership is already reflected in our everyday lives. People are streaming music and movies rather than owning them, and even subscribing to replenishment programs for consumable household goods, such as razors and detergent. The opportunities certainly don’t end there. The future possibilities for subscription models are constantly expanding as consumer acceptance grows and technology evolves to make new subscription strategies practical.
Embracing this shift in business is key for online merchants to stay competitive. When adopting a subscription model, remember to consider the preferences of your consumer, collect and leverage all actionable data, and then monetize the entire customer experience. By embracing the evolution of subscription commerce, you have the potential to unlock new recurring revenue streams, all while building relationships with a new generation of consumers.
James Gagliardi is vice president of product and innovation at Digital River, a global provider of Commerce-as-a-Service solutions.
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