IDC MaturityScape: Subscription Business Model Management

IDC Opinion

A subscription businessis a relationship business. One of the best aspects of the subscription model is that it enables a company to build a strong relationship with its customers. These relationships evolve differently than those involving a one - time transaction. Subscription approaches need to support customers that wish to ease into a relationship with the product or service as well as those that are deeply committed. For companies that wish to move their subscription businesses, the following topics should be considered.

  • Start looking at your business from the customer perspective. What can you do to make it easier and more compelling for customers to do business with you over time
  • Even if a supplier is 100% B2B, it really has to think like a B2C company. People are bringing consumer-like expectations into the workplace.Suppliers need to reduce or eliminate the friction associated with acquiring and managing subscription services in the B2B world and make it look more like what people are used to in the consumer world.
  • Order management is more complex with subscription because of the potential for a much shorter customer lifecycle. With subscription, every single order will potentially be renewed in a monthly or annual relationship. Companies that are building subscription businesses on a systems backbone built to support one-time orders and purchases will run into scalability and agility issues and risk death by spreadsheet. Customer experience will be impacted.

IN THIS STUDY

This study is designed for suppliers of products or services that are sold via subscription business models, and it provides a framework of stages, critical measures, outcomes, and actions required for the effective management of subscription approaches. IDC's Subscription Business Model Management MaturityScape can be used to assess current competencies and maturity and identify steps for improvement as well as help identify the critical process, technology, and customer experience strategies and the corporate values that help drive effective subscription businesses.

SITUATION OVERVIEW

For decades, industry has been focused on convincing buyers that they need to own more stuff. Along these lines, success in any business required making a killer product, driving down costs, and selling as many units as possible. "Value" has been equal to the product as defined by the vendor. Therefore to increase customer value, the traditional strategy is to add features. As a result, many markets are cluttered with products that are feature-rich but often customer experience–poor.

In addition, the traditional focus of a product supplier and its value chain is to transfer ownership of the product to the customer. Today's customers are looking for access to positive experiences, and ownership is not a prerequisite to access. In many industries, the business of enabling experiences and nurturing relationships is augmenting or replacing product catalogs, shopping carts, and ownership. Value is not equal to the product itself; instead customers find value through the experience of using the product. Business models are evolving to help enable the flexible monetization of experiences, and subscription has proven to be an excellent foundation for this approach.

In the technology markets, the move toward software as a service (SaaS), a rise of connected devices and associated monetization models, and a shift from products to services are driving the rise of subscription. Elsewhere, industries such as media and communication, retail, education, and healthcare are also experiencing a shift toward subscription-based approaches. Markets that have been dominated by ownership-centric business models are attracting new customers that are enticed by the ability to afford a premium experience through a subscription approach. For example, Rent the Runway provides an online service that allows customers to rent designer dresses and accessories for a fraction of the cost of purchasing a high-end dress.

In addition, while the value of ownership-centric offerings is calculated and priced upfront, subscription models support the co-creation of value over time and provide the flexibility required to account for the heterogeneous nature of a customer base as well as the role of the individual in value creation. Pricing and packaging must provide a level of granularity that enables customer participation in the value-creation process. Rent the Runway also sells an annual subscription service that gives the customer free shipping, free insurance, and a free birthday rental dress. The more dresses you rent, the more attractive the price of this service is, thereby encouraging the customer to see more value out of the relationship with Rent the Runway. Amazon Prime is another good example of a subscription service that is designed to help encourage customers to deepen their relationship.