Is the subscription model still the future for businesses?

According to Forbes, the concept of the subscription model dates back hundreds of years ago. Magazine subscriptions started in the late 1800s in Great Britain, and individuals started to subscribe to milkman delivery services in the 1860s. 

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From newspapers to digital applications, the subscription model has become an integral segment of the current economy and a prominent part of consumers’ daily lives. Compared to those who use the traditional transactional model, companies that apply subscription models tend to have higher customer loyalty and lower churn rates. Moreover, the nature of the subscription model contributes to sustainable growth of businesses. To be more specific, companies nowadays would only last if they are able to provide valuable products or services to customers. The subscription model answers this challenge by offering higher conveniences, lower costs, and more personalization opportunities. What’s in return for businesses is a stable recurring revenue stream, pushing subscription-based companies to grow five to eight times faster than traditional ones (Subscription Index). 

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Therefore, it’s not surprising that more and more companies are trying to transform into subscription-based businesses. However, transformations are not easy with the increasing competition. Those who were pioneers to offer subscription services in their industries get the most market share. Take Netflix for example, it grew more than 180 million subscribers since 2011. 

The subscription economy reached an all-time high during the pandemic era - the industry experienced a 26% increase in subscriptions because captive consumers were forced to find other ways of entertainment. However, as people’s daily lives gradually return to normal, the subscription industry starts to experience a downturn (Financial Times). Netflix, for the first time in a decade, lost more subscriptions than gained, causing the share of the online streaming service industry to shrink by approximately 40%. One reason is that consumers are becoming more price-sensitive due to increasing subscription choices. Further, the friction of subscription management started to grow and feel heavier for users. Another reason is that the rising cost of living has forced customers globally to consider cutting down on their subscription expenses. 

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So, is the subscription-based model still an inevitable trend for future businesses in the post-pandemic era? The answer is certainly positive. Businesses are starting to realize that the “one-subscription-fit-for-all” model does not work as well anymore. More and more companies are starting to reform their subscription models to reduce users’ fatigue. The core reason for churn is that subscribers fail to see the value of the offerings. Therefore, companies are trying to address this challenge by adding new subscription bundles or leveling up personalizations. For example, The New York Times offers an independent subscription vertical that caters to specific audiences who love puzzles. Substack highlights its brand value for customers by offering a versatile newsletter publishing infrastructure that allows writers to launch newsletters on any topic. The conclusion is that subscription services are thriving to provide customers with better and more customized experiences, and businesses are entering the phase of subscription 2.0. 

How do businesses stay competitive in the market? The key is utilizing data to achieve hyper-personalization. 

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“Using the data at your disposal, hyper-personalization may be the answer to providing tangible value to your subscribers. To get as close to a “segment of one” as possible, aim to tailor your product offering to a single customer without adding additional stress to your marketing efforts.” (Forbes)

Therefore, an accurate data-driven model can help businesses make personalized offerings to individual customers and prevent churn in the best possible ways. Many platforms promise fully data-based models, however in most scenarios these models are built with “gut feelings” and therefore are rule-based. It is important for businesses to identify between an AI-based model and a rule-based model because the latter is not capable of adapting to the ever-changing data environment. On the other hand, artificial intelligence creates a model that gives subscription businesses the opportunity to offer hyper-personalized offerings to prevent churn and expand the subscriber base. In this way, subscription-based companies can reach the ultimate goal of attaining a reliable recurring revenue stream.

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