Subscription Services Can Revamp Business But Challenge Contact Centers
Led by companies such as NetSuite and Salesforce.com, cloud computing has reshaped the way contact centers are designed, as well as the manner in which many businesses service their customers. The basic idea behind cloud (leasing, rather than buying) is having a major impact on various market sectors, including home improvement, rental cars, consumer goods, and health and beauty products. "The subscription-based business model is becoming quite popular," says Denis Pombriant, managing principal of Beagle Research Group, a CRM market research firm and consultancy, and author of The Subscription Economy: How Subscriptions Improve Business.
Subscription services are gaining traction for a couple of reasons. Consumers benefit from the change: In many cases, they are able to use items that cost more than what they typically could purchase. Corporations gain because they have more flexibility when building their business and a more stable revenue model once it is off the ground. Consequently, this approach is gaining traction in many sectors. For example, market research firm Gartner calculated that by 2015, more than 40 percent of media and digital product vendors around the world will rely on subscription services.
However, the subscription model requires a revamping of traditional systems and procedures. Tracking subscriptions is more complicated than monitoring one-time sales. As a result, more calls come into the contact center, and properly responding to them becomes a more complex process. So while it has great potential, the subscription model presents companies with noteworthy challenges.
Making an Old Model New
The subscription business approach has been used for many years. In it, a customer pays a recurring price to access a product or a service. Rather than a one-time fee, a subscription generates periodic (weekly, monthly, seasonally, or yearly) repetitive revenue. The model was pioneered by newspapers and magazines and adopted for verticals such as cable television, Internet services, and fitness clubs.
What has been changing recently is the reach of these services. With the rise of the Internet, many online businesses started to charge consumers for access to content. In addition, tangible goods, such as automobiles, razors, and designer handbags (see "Subscription Services' Ever-Expanding Base"), are now being sold via this model. The subscription theme is playing in various special interest markets—flowers of the month, candy of the month, record of the week, even cookie of the month. In the entertainment field, sports teams and theatres are focusing more on selling subscriptions and less on promoting single-event tickets.
Consumers are interested in these services for a couple of reasons. Key is that they avoid the large upfront charge typically seen with a major consumer goods purchase. The world's middle class is expected to grow by 1.8 billion people in the coming years, according to Pombriant. In many cases, these individuals do not have the income or the savings to make expensive upfront investments in items such as white goods (refrigerators, stoves), automobiles, or furniture, but they can pay a low monthly fee for such items.
Luxury Items at a Low Price
The list of possible subscription purchases is growing. Founded in 2004, Bag Borrow or Steal rents luxury accessories, including designer handbags, jewelry, sunglasses, watches, and luggage, to consumers. The items are rented in one-month increments. A Louis Vuitton bag costs $3,100, but can be rented for $300. The firm sends the item to the consumer, who has to return it within a month. Rent the Runway follows a similar model: A $1,400 Nicole Miller wedding gown can be rented for $225.
Corporations as well as consumers benefit from this business model. "Traditional companies are looking for new ways to get a