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Subscription Business Model's Rising Popularity
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Business Insights for Women
PNC INSIGHTS Magazine Spring/Summer 2014 Issue
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Appeal to consumers by offering fixed costs, certainty and convenience.

How would you like a steady source of revenue for your company, incrementally increasing sales, improved customer satisfaction and regular opportunities to upsell? That's the promise of a fast-growing trend in business models in which customers rent products and services month to month rather than purchasing them outright. This subscription model is central to the success of cloud-based software as a service (SaaS) such as SalesForce.com, Evernote and Dropbox. Even stalwarts such as Microsoft are getting into the act (with Office 365), and research firm Garner says that by 2015, more than 40% of global media and digital-products companies will use subscription services for their fulfillment, billing and renewals. Before you get in on the action, here are a few things to consider:

Customers love it. Besides their many benefits to companies that offer them, subscription models have tremendous appeal to consumers and business customers alike: The barrier to entry is far below the acquisition of new products; they can leave any time without commitment; and they never have to worry about their purchase becoming outdated.

It isn't all about the cloud. While subscription models are most associated with software and cloud services such as disk storage or server rental, they can encompass just about any product or service. In the new "rental economy," everything from private jets (netjets.com) to designer handbags (bagborroworsteal.com) to chickens for would-be urban farmers (rentthechicken.com) is available without committing to a purchase. So no matter what business you're in, chances are you can reformulate some portion of it into a subscription model.

It is all about service. In order for your subscription offer to be a success, you have to make your value proposition clear. After all, chances are your customers are paying a premium for it vis--vis outright purchase. The greatest appeal of a subscription is that it is "worry-free," so package the service in such a way as to make that promise a reality.

Good, better, best. Companies like SalesForce.com and LinkedIn have mastered the "good, better, best" model that provides stepped levels of service at increasing prices, so their offerings can grow with their customers' needs. Segmenting your market--and tailoring solutions to each segment--will make this even more appealing. For instance, you could offer personal, small business and enterprise versions. Or ones suited for healthcare, manufacturing and retail, if appropriate.

Think differently. Whether your subscription model is at the heart of your business or merely an adjunct, bear in mind that it involves entirely new ways of marketing, delivering and billing. Companies such as Zuora.com have sprung up to provide some of these processes out of the box. And like a new puppy, subscription customers require commitment. Rather than inventorying and selling products, you own them outright and must amortize that expense--along with maintenance and replacement--over the lifetime of your subscription pool.

 


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