Subscription based services: challenge or opportunity?

Subscription services have gone mainstream and we’re all aware of their benefits, but they also come with plenty of challenges. What are those challenges? And how can we use them to increase long-term value?

Lisa van Hesteren

Subscription based services: challenge or opportunity?

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Words by Lisa van Hesteren
Reading time 6 min

Most of the subscription services we love today were little more than ideas that grew from the seed of another, bigger idea. One of the first ever subscription boxes came in the 1920’s when journalist and adman, Harry Scherman, came up with The Book of the Month Club.

Aimed at providing literature to the wider masses, Scherman wisely decided there was no better way to do this than to send people a random book each month. This fostered dependability between the club and the consumer. It saved them time spent looking through a catalogue and introduced them to books they wouldn’t know existed.

People might be complicated, but our lives are so convoluted that one thing is true for all of us: We really like getting the most for doing the least. From drive-thru food to on-demand television, speedy technology, and robots who vacuum for us, we’re suckers for having things as quickly and easily as possible.

And this is exactly why the subscription-based marketplace has expanded at such an explosive rate.

Subscription boxes and the modern world

Once upon a time, Netflix used the post to mail out movies. Now it’s one of the biggest streaming services in the world and a business model that inspired many other brands to jump on board. Amazon, Disney, HBO, you name it. Netflix was one of the first internet subscription-based services that made its mark on the modern world.

Now, you can get just about anything you like in subscription boxes. Recipe kits from HelloFresh, toothpaste so you don’t have to remember to buy it, toilet paper. Whatever you’re looking for, there seems to be a subscription service for it.

Over the last decade, we’ve seen subscription-based services increase tremendously. These days, it’s hard to even glance at social media or listen to a podcast without being alerted to the next best one. They’re also popular for a reason: they work. For brands and their consumers.

McKinsey research shows that 15% of online shoppers have signed up for one or more recurring subscriptions. Be it for streaming services, cosmetics, wine, or cat litter, it’s so much easier for people to hand over banking details and have products delivered than it is to organise it all themselves.

But with such a convoluted market, is it really all sunshine and roses?

The challenges of subscription services

Let’s be real for a second. Subscription services are attractive. After all, a recurring revenue from dedicated customers? Wow. Sounds like a dream. But it’s not as simple as that. There are many challenges to running a subscription service all brands need to be aware of.

Capital

Launching a subscription service costs money. Whether you’re footing the bill yourself or looking into capital investment, you’re looking at a lot of risk. Both to your pocket and your business.

A lot of subscription boxes offer deals and freebies to hook people in. But a lot of people cancel their subscriptions once their free trials are up. In fact, there are even websites dedicated to helping people find freebie deals on premium products and journalistic articles that do the same.

When this happens, you’re footing a lot of bills and seeing no return, which can be a problem if you don’t have a solid financial plan in place.

Expanding Market

Competition in the subscription service world is unrivalled. It’s hard to stand out in such a convoluted market. With so many subscription providers out there, chances are there’s another brand doing exactly what you’re doing.

For example, if a competitor’s services are slightly cheaper but the same quality and value, consumers will be swayed by that. As a result, you need to work harder to differentiate your product by figuring out your competition and staying one step ahead. Or, provide something that makes your product unique to the market.

Churn

Did you know nearly 40% of eCommerce subscribers cancel their subscriptions? Your job as a subscription service is to retain their business. No matter what.

A demanding market means churning out consistent, quality products. Even during times of financial hardship. It’s already hard to get people to sign up for the subscription. Not only does it require a monthly commitment to attracting those people, but you also must keep them signing up for more. You need to plan to avoid burnout, while also churning out ideas for the future.

By identifying and overcoming these challenges, you can increase your subscription service’s long-term value.

What can we do to increase long-term value?

While the subscription market is booming, there are more brands who don’t make it than do. Those who consider the long-term value of their service fare better than those that don’t.

Luckily, there are some ways of increasing the long-term value of your services.

Customer Experience

The McKinsey study shows that people expect great experiences overall. They want experiences that transcend the subscription itself or the price they pay. Everything needs to be what they’re looking for, from quality to offering to customer service to value. You want your subscribers to be proud of it. And to do that, you need to provide an unbeatable end-to-end experience.

Lifetime Value

Unlike fast fashion, subscription services are long-term relationships between you and your customers. You need to pay attention to competitor business models, just in case they’re offering something you’re not. But you also need to pay attention to your existing customers. If you’re only providing discounts to new subscribers, your existing ones might end up cancelling after a few months.

Invest in and nurture those you already have onboard. It’s more cost-effective. And then word-of-mouth or peer marketing will do its job.

Know Your Customer

Nobody wants to be one of many. We’re all the heroes of our own story and that goes for customers, as well. You need to know your audience to provide for them. For this reason, it’s essential to focus on a niche and offer a product that fits your target customer. Look at it this way: casting a wide net won’t net you any profit. Talk to your customer. Get their feedback. Learn what they want and listen to them if they have a problem or suggestion. This is where a solid customer service department is super important.

Personalisation

We’ve said it before, and we’ll say it again: personalisation is key. A great example of this is when meal-kit companies like HelloFresh, Simply Cook or Freshly provide different menu options. They consider allergies, dietary requirements, and even allow you to change quantities. People will cancel if they can’t personalise their subscriptions to get exactly what they need. Nobody needs a room full of unused items. So, make sure you’re giving them what they need as individuals.

Creating a loyal relationship is the most important step

While subscription services are on the up-and-up, that doesn’t mean every one of them is going to be successful. Furthermore, while your product is your defining factor, it’s essential to think outside of the box — literally.

Some of the most important things to do is focus on creating long-term relationships and a provide a great customer experience. In doing so, you’re inspiring loyalty which breeds and strengthens brand-customer relations. And you need customer advocates who can deliver that.

CX agents and brand ambassadors can help with creating this long-term relationship with your customers. At 5CA, we’re passionate about creating the best customer experience by connecting customers to agents that truly love the brands they’re supporting.

We believe that this connection is a vital step towards creating the ultimate long-term value of your services and protect you from the fierce competition in the world of subscriptions.

Lisa van Hesteren

Global Strategic Relationships

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