Welcome to this week’s newsletter! I wanted to talk about something that affects all of us – subscriptions. I’m sure you’re familiar with them, whether it’s streaming services, subscription boxes, or even software. It seems like everything can now be purchased through a subscription, but why is that?
Well, companies have realized that subscriptions are a great way to generate a steady, predictable stream of revenue. Instead of trying to sell you something every time, they just need to convince you once and then the money keeps coming in. It’s like a goldmine for them. But, it’s not just limited to newspapers and magazines, now it’s everything from music and movies, to food and clothes, and even animal bones. I know, it sounds crazy, but it’s true!
So, the question is, why does every business need to be a subscription? It’s something worth thinking about. Let me know your thoughts on this topic in the comments!
The growth of subscriptions.
As the subscription model continues to gain popularity in various industries, it’s important to understand the reasons behind its growth. There are two primary reasons for the rise of subscription models:
- Customer retention
- Recurring revenue stream.
When it comes to customer retention, subscriptions provide companies with the ability to keep their customers coming back for more. By offering a range of products and services on a recurring basis, companies are able to establish a loyal customer base that can be counted on for recurring revenue. This is in contrast to traditional business models where companies must constantly acquire new customers to generate revenue.
The second key factor is the recurring revenue stream. Subscriptions provide companies with a steady, predictable stream of revenue, rather than the fluctuations that can occur with traditional business models. This allows companies to better plan and budget for the future, and to invest in growth and development.
Types of subscription.
Looking more closely at the subscription industry There are two different kinds of subscriptions, referred to as product subscriptions and service subscriptions. I’ll tell you a little bit about them both.
In order to access a wide variety of features or content, such as streaming services, which are typically not sold separately, a service must be subscription-based. These services frequently charge a monthly or yearly fee to access their content, and they may also provide extra advantages like ad-free streaming or access to exclusive content. Services like Netflix, Amazon Prime, and Spotify are examples of this group. These services charge a monthly or yearly subscription fee to access and provide a variety of content, including movies, music, and exclusive shows.
Products that are typically more expensive or complicated to buy outright, like software, cars, or houses, are rented instead of sold. Customers who purchase these products on a subscription basis pay a monthly or yearly fee to access the product.
The bad side of subscriptions
Although a well-liked and successful business model, subscriptions also have some disadvantages. The subscription-based business model has been criticised in two key ways. The first is that consumers do not actually own the product and must make ongoing payments for it. The second is that some people might see it as a money grab. Furthermore, some clients might find it challenging to justify the monthly or yearly price of a good they will never truly own. In a subscription-based model, customers never fully own the product and continue to pay a monthly fee indefinitely, in contrast to a car loan or a housing lona, where customers pay a monthly sum for a set amount of time and eventually own the product. Others counter that because subscribers have access to so many different goods and services, subscriptions offer customers a practical and affordable choice.
Customers feel as though they are being forced to pay more for something they already own, which has been widely reported as a negative reaction to businesses switching to subscriptions. Some businesses have experienced customer losses as a result of their conversion to a subscription-based business model.
The good side?
Even though subscriptions have been criticised, they can be good for both companies and customers. Subscriptions give businesses a steady, predictable stream of income, which lets them focus on keeping customers instead of constantly getting new ones. You can look at this in two ways. If the company sets the price of the subscription low, they can get more people to sign up and pay the fee. This means that the company will make more money from a larger number of low fees. On the other hand, if the company charges a lot for the subscription, they will have fewer customers, but they will make a lot of money from these customers. So, it can be a win for the company either way.
Customers may find subscriptions to be a more economical choice, giving them access to a variety of goods and services for a lower overall cost. Customers who subscribe may also have the flexibility to cancel or modify their plan as their needs change. Customers will only benefit from this if the subscription cost is low because it increases their likelihood of paying the monthly fee.
Let’s talk about Subscription fatigue. With the number of subscriptions available growing all the time, some people are feeling overwhelmed by how many they have and how much it costs to keep them all. It means that a person feels overwhelmed by how many subscriptions they have or how much it costs to keep them all going. It’s becoming more common as more and more companies switch to a business model based on subscriptions and offer more subscriptions. Customers may decide to cancel their subscriptions or not sign up for new ones. Subscription fatigue makes people feel financially weighed down, overwhelmed by the number of subscriptions they have, and less likely to sign up for new ones. Also, as subscription fatigue gets worse, companies may have to find other ways to make money if they don’t want to see a drop in the number of subscriptions they sell.
Alternative Business Models
Fixed cost models are the only other business models available. Fixed cost business models are those where customers pay a one-time fee rather than a recurring subscription fee for a good or service. In other words, the customer owns the good or service outright and is no longer required to make payments in order to keep using it.
There are businesses that employ fixed cost models, enabling customers to buy their software outright rather than incurring ongoing costs. Customers were pleased to have the option to buy the software outright and responded favourably to this move. We did use this model, at least for the first five years. Adobe Photoshop comes to mind as one illustration.
As we conclude this discussion on subscriptions, I would like to express my personal perspective on the matter. I firmly believe that subscriptions can be a highly beneficial option, provided that the value obtained from the service is commensurate with the cost incurred. For services such as streaming, which are characterized by a consistent influx of new content, subscriptions are a logical and pragmatic choice. However, when it comes to products, I personally prefer to pay a one-time fee and acquire full ownership. It is imperative for consumers to carefully evaluate the value they derive from a subscription in relation to the cost, and make well-informed decisions on which subscriptions to retain or discontinue. Ultimately, it is a question of finding the optimal balance between cost and value.