Exploring the Subscription-Based Business Model

You’ve probably noticed a trend in the last five years or so, where more and more businesses are promising to deliver a specific good to you every month. Sites like Blue Apron, Green Chef, and HelloFresh, for example, will ship fresh ingredients for multiple meals every week. You’ve got Dollar Shave Club delivering razors, Quip delivering electric toothbrush heads and toothpaste, Ipsy delivering makeup samples, Barkbox delivering dog treats and toys, Amazon’s “subscribe and save” option—the list goes on and on. If you can name it, chances are you can have it delivered to you door.

What we’re talking about is the subscription-based model, and it is decidedly different from the traditional pay-per-product model. What are entrepreneurs discovering about this business model, exactly, and is the “subscription economy” the way of the future? Here is a brief look at what experts have to say about the subscription-based business model.

Subscriptions are relationships.

Forbes contributor Kimberly Whitler made a key point in her article “How the Subscription Economy Is Disrupting the Traditional Business Model” when she wrote, “[The Subscription Experience] is a relationship. It’s not static, it’s fluid.” In other words, the business-customer relationship under the subscription-based model is entirely different from the business-customer relationship under the pay-per-product model. Under the pay-per-product model, a consumer would purchases a product online or in the store, and then that would typically be the end of it—unless something was wrong with the product. Under the subscription-based model, on the other hand, the business and customer have a continuing relationship, where the customer is investing in a continuing service rather than in a one-time purchase. This is convenient for the customer, of course, and it is convenient for the business because it can predict revenue through recurring sales.

Relationships are a two way street.

Whitler made another key point in her article when discussing subscriptions as relationships. She stated, “Remember that subscriptions are relationships, and relationships are a two-way street!” She then brought up the example of Netflix, which is currently a thriving subscription company but lost 800,000 customers back in 2011 when it proposed a major price increase. So while it seems like the subscription-based model is a surefire way to ensure customer loyalty, it can also be a surefire way to lose a large portion of your consumer base all at once if you aren’t careful.

Now, more than ever, it’s about the experience.

The subscription-based model calls for businesses to put even more effort into nurturing their relationships with their customers. When your product becomes a continued service, you must constantly be listening, assessing, and improving in order to ensure a positive continuing experience for your customers. Subscription companies today are doing this not only by increasing their customer service efforts but also by focusing on excellent packaging and convenient price points.