• April 1, 2014
  • By Brent Leary, cofounder and partner, CRM Essentials

Subscriptions Boost Customer Engagement...and Business

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As consumers adopt new technologies and adapt their lifestyles to take advantage of them, they gravitate to companies that shift how they do business to make their lives better.

One of the major shifts is the growing adoption of subscriptions for goods and services. In a 2013 Economist study of business executives commissioned by billing/subscription management platform provider Zuora, 80 percent of respondents said customers are changing how they obtain access to goods and services.

New lifestyles call for new behaviors

Previously, organizations focused on selling units and counting transactions. Once products were manufactured, they had to be sold and the transaction would clear. Customers most likely didn't hear from vendors until they needed to sell more units to them.

Consumer behaviors and expectations are forcing organizations to focus more on building relationships and less on individual transactions. Which is why companies such as Adobe, Dell, and others from the PC era have added subscription-based offerings for customers. New companies like VideoBlocks.com--a service for downloading audio/video clips to create better content--put subscriptions at the center of their business models.

Zuora CMO Brian Bell says it's time to think about business as a collection of customers and find ways to drive loyalty, repeat purchases, and greater revenue.

Creating value creates a collection of customers

One company using subscriptions to create a collection of customers is the Tie Society, which describes itself as the Netflix of ties, because you can go on the site, pick a tie, and have it delivered to your doorstep. When you're tired of wearing it, you can put it back in the mail and wait for the next tie you want to show up.

According to CMO Jake Kuczeruk, anybody who enjoys a good value can see the benefit of the Tie Society. You can either pay $20 per month to buy one single decent-quality tie, or you can spend that same $20 on one of their plans and end up with three different ties per month.

"The best way to look at it is the Blockbuster example," Kuczeruk says. "People aren't going out there buying DVDs anymore, because it just didn't make any financial sense. Ties enjoy one of the most healthy mark-ups of any menswear item, hands down."

The metrics of engagement

Tie Society CEO Zac Gittens says the company uses a couple of metrics to track customer happiness. "A lot of that is on shipping volume. If we know customers are actively using the system, it tells us that they are generally happy and fully engaged."

The company also tracks the amount of time people spend on its site and what ties they pick. Gittens says they are collecting analytics like these to help keep a finger on the pulse of their system. He says customer feedback and engagement are what matter most.

The Amazon Effect

There is no doubt the rise of subscription offerings is driven by the need to offer consumers a pricing and ownership model more in line with their needs. And that the onus is on the vendor to continuously provide value to customers or risk them dropping the subscription. But for those that deliver ongoing value, the benefits can be substantial.

In 2005, Amazon.com rolled out a program called Amazon Prime, which provides free two-day delivery on hundreds of thousands of items for a $79 yearly fee. Over the years, they've added things like free video streaming from their library of digital movies and TV shows and the ability to share digital books with other Prime members.

More than 20 million people have signed up for Amazon Prime, with retention rates well above 90 percent. According to a 2013 Morningstar report, Amazon Prime members spend twice as much as non-Prime Amazon customers. They spend a higher percentage of their online dollars with Amazon, shop in more departments, and buy higher-priced items.

By providing ongoing value, companies like these are rewarded with longevity, loyalty, and more transactions. Adding subscription offerings to a company's portfolio is not only good for customers, but for business too.

Brent Leary is cofounder of CRM Essentials, an Atlanta-based CRM advisory firm focused on small and midsized businesses. He is also the author of Barack 2.0: Social Media Lessons for Small Businesses.

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