The Subscription Business Model - What it is, Types and Why it is Gaining Popularity

Apparently, such a business model as subscription commerce or subscription revenue model will remain on the glossy pages of business publications for a long time, and the Internet will be full of cases of companies that have achieved incredible success in this area. Obviously, software firms benefit the most from this format of doing business, but today you will not find a niche or industry where there is not a single successful organization of this type.

This is why this strategy is so attractive.

By understanding how subscription model business works, what its benefits are, and how it will affect your current pricing strategy, you can lay the foundation for future success.

What is a subscription Model business?

This is a business in which a client gains access to a certain service or product by making regular (monthly or annual) payments to the firm.

Subscription Revenue Model

The subscription model business allows you to directly benefit from the growing value of your customer relationships. This means that as long as your customer sees value in your company, service, or product, they will continue to pay you.

Because of the subscription, the value of customers is higher the longer they use your services.

A subscription based model in which a consumer pays a recurring amount to access a product. Can be clearly distinguished two main types subscriptions:

1. Subscription Services - Include:

• Gym membership

• Media subscription (e.g. Netflix, Apple Music, YouTube Premium)

• SaaS - software as a service (e.g. Adobe, Microsoft Office)

• Subscription to premium access (for example, Google Plus)

In fact, these are subscriptions, which do not involve the delivery or consumption of tangible goods, but include access to a digital product, service, software, or access to a location - such as a gym or a premium lounge at an airport.

2. Material subscriptions: (subscriptions to something to touch/ Tangible Goods) - Subscriptions providing regular delivery of consumables / products such as coffee , snacks, razor blades, cosmetics.

Why is everyone so eager to use her?

If you think about it, a subscription can be applied to almost any product. In the countries of the post-Soviet space, it has already actively developed the first type of subscriptions (mentioned above). Subscribing to music has become commonplace, but subscribing to tangible products is still at the stage of conception. In many European countries, people are subscribed to:

• Spice

• Underpants

• Toothbrushes

• Wine

• Prepared food

• And the list is endless and even includes subscriptions to cars, guitars, and toilet paper.

This demand is justified by convenience and cost savings (since a subscription is often cheaper than a regular retail purchase). And here, we smoothly moved on to why subscriptions are becoming so popular among entrepreneurs:

• Predictability - It is much easier to predict sales if you have 1000 subscribers to your service (for example, coffee). You roughly understand that there are 5% of subscribers who never pay for the next delivery. But, the remaining 950 subscribers will pay, and will wait for delivery on a certain day, which is known to the entrepreneur in advance. Thus, we go to:

• Distribution of costs - through predictability.

• Increased customer loyalty - mainly due to convenience and other "tricks" that can be used with this business model.

A study by Chen et al. (2018) shows that the feeling of personalization and surprises are one of the main motives for continuing the subscription and loyalty to the company - what can you do, we are all human we want to be constantly surprised

And these are just some of the most obvious factors that make subscriptions attractive to companies of all sizes. From a startup to Amazon, Apple, Disney and so on.