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Are subscription models the new normal?

Customers are driving a shift away from ownership and toward subscription models. Can companies benefit?

Subscription-based models have gained traction as a way to satisfy consumers' need for more flexible delivery and pricing options.

With subscription models, companies can charge customers an ongoing fee for services rather than a onetime fee. Often this takes the form of a monthly fee for services or products that are rented but not owned.

As a result of this leasing model, companies can build more ongoing relationships with consumers because they are more likely to communicate with customers on an ongoing basis as opposed to seeing products as a one-off.

Brent Leary, founder and partner at CRM Essentials, said that the subscriptions have become a critical new source of revenue. Customers are driving this change in product delivery, Leary explained.

"Behaviors are changing because the way subscriptions are working is much more aligned with the way customers are living today." Customers' experience with companies like Spotify, which streams thousands of songs for a monthly subscription fee, has created expectations for low-cost, easy-access subscription options.

Companies are also deriving benefits from these models, Leary said. It can be costly and time-consuming to acquire customers with the old model, he said.

"Let's face it: It takes a lot of time and effort and resources to bring on a new customer," Leary said. "You go through the marketing phase, the lead acquisition phase, then qualifying that lead, then going into the full-blown sales cycle. Then hopefully at the end you're able to bring these folks on board. [With] the subscription model … you are set up to interact with the customer in a more consistent, regular basis and that helps you stay connected over a longer period of time."

Brent LearyBrent Leary

There are cons to the model as well. With the subscription model, the onus is on companies to continually prove value or risk customers' termination of the subscription -- and continuing to prove value requires them to offer new goods and services. The constant need to prove one's value to customers requires effort and maintenance, Leary said, but can pay off in terms of greater insight into customer preferences and better relationships.

For more, check out this podcast.

 

Next Steps

Are CRM software subscription models the future?

When customer self-service is a bad idea

This was last published in June 2014

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