How Subscription Companies Have Proven Their Resilience

By Josipa Majic, CEO and founder of Revuto

Many aspects of our daily lives have changed in 2020 – more people are subscribing to services like Netflix, Disney+, and Spotify, and workforces have now adjusted to working remotely and staying connected through services  like Zoom, Slack, and Microsoft Teams.

The latest edition of the Subscription Economy Index finds that subscription companies continue to outperform their product-based peers even more convincingly. It also revealed that subscription businesses have actually grown their revenue about five times faster than S&P 500 companies’ revenues and US retail sales over the period of January 2012 to June 2019. With fast growing revenues and expanding sales, subscription-based companies have actually driven growth even in these challenging times.

Appealing to and maintaining long-lasting relationships with Gen Z and millennials

Appealing to Gen Z and millenials, and building lasting relationships with them, is the key to success in today’s market. It’s projected that Gen Z represents 40% of all consumers, so it’s important that businesses understand them and their needs. These are the generations that don’t own anything – rather than buying DVDs, they’ll have a subscription to a streaming service like Netflix. Instead of buying CDs or records, they’ll more likely have a Spotify subscription.

Millennials have four times less disposable income than “baby boomers” did at age of 34, and the attention span of a Gen Z is just 8 seconds, so these younger demographic groups need services that are both affordable and work quickly.

Josipa Majic

And, by quickly, this means there needs to be no barrier for entry or for leaving the service. Subscription-based businesses should keep the subscription process as simple as possible; this includes keeping the T&Cs light, and make unsubscribing as easy as subscribing. Outstanding customer experience as well as making the subscription service interesting and interactive at all times will build deeper customer relationships.

A happy customer is a loyal one, so any hidden auto-renewals should be avoided. The purchasing power of millennials and Gen Z to own assets is very low, so a small, recurring monthly payment works equally well regardless of if the product is a cloud-based entertainment content provider such as Netflix or Spotify, or an insurance company like Lemonade.

The future of the subscription economy: not just entertainment, everything around us will be a small, recurring payment

Big companies like Adobe and Microsoft originally came up with the idea to ditch the traditional one-time license options so that they could function as subscription-based models, resulting in a large increase in shares. And, as subscriptions are growing 100% year-on-year, we are sure they are here to stay and will soon be everywhere around us.

As consumers, once we experience the entire seamless process of a quality customer experience, and the value it may bring to our daily lives, we start to question (or even convince ourselves) why we might need to purchase it. This is exactly why we may have seen an extended number of free trials on offer in the past few months – this is a conscious and tactical decision to increase future customer-lifetime-value. If you start to regularly depend on a product or service while it’s free, chances are you’ll be willing to pay a small monthly fee to obtain it when it no longer is.

The pandemic is both highlighting and expediting the process of moving to a customer-centric, digital, subscription-style of commerce – and living. A subscription business model is going to be essential across industries you would have never initially deemed possible. As AI and automation, CX design, and compelling consumer-value-based marketing advances in response to trying times, and the social acceptance of the subscription infrastructure becomes a new norm, the more frequently such offerings will occur across different industries.

This is also because the subscription business model offers a robust yet elegant solution for attracting and maintaining a loyal customer base and has the potential to do various upsell due to the rich data being gathered throughout the process. It is also easier to grow and scale subscription-based products, and, apart from just consumer benefits and a simplified experience, the main guarantee that subscriptions are here to stay is the fact that they reward business owners with significantly higher valuations.