Subscription services: an introduction
Point of view: Building a subscription services business?
The key to success is lifecycle marketing with a twist
With increasing frequency, subscription-based business models are becoming a popular way for companies to deliver products and services. Everything from handbag rentals and movies to IT services are being paid for on a monthly basis through automatic recurring charges. Under a subscription model, customers pay a lower subscription fee to essentially rent the product or service over a set period of time, often with the option of receiving upgrades or enhancements. For the consumer, this evolution in selling offers tremendous value and choice; for companies, subscription selling provides the benefit of a steady stream of revenue. However, the shift to a subscription services model also requires that companies increase their focus on marketing efforts to keep customers subscribed to their services. And they have to develop opportunities to increase revenue per user through the sale of additional products and services.
All in all, selling subscription services requires a paradigm shift from a product lifecycle focus to a customer lifecycle focus.
“The average firm loses half its customers in less than five years.”— Philip Kotler, Marketer Lifecycle marketing: why it matters more than ever
AT&T and Netflix are two companies that have made significant investments in lifecycle marketing programs. A critical component of their business strategy is driving additional revenue from existing customers, as well as ensuring that existing customers don’t cancel their subscriptions. It can be eyeopening to calculate the potential loss of revenue from customers canceling their subscriptions.
In AT&T’s case, the estimated quarterly revenue hit is $49.2MM. Taking the analysis a little further, you can see that AT&T would save approximately $4.2MM in revenue for 10bps in churn reduction. Unlike product marketing, subscription services require a steady, constant investment to grow and retain customers.
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