Key Messages
Subscriptions: The Secret To Igniting Word Of Mouth And Beating The Competition
As businesses and consumers become increasingly aware of the benefits that subscription models offer, more and more companies are turning to this model of doing business.
With a subscription model, customers agree to receive a product at regular intervals for an agreed-upon price.
This type of perpetual competition not only improves a company’s bottom line but it can also create loyal customers who return time after time.
For example, simply look at WhatsApp; their subscription service was so geniusly done that it almost made itself into an advertisement – with its $1 a year charge after the first year the app gained 450 million-strong customer base without spending anything on advertising.
Through these types of successes, other companies are starting to see just how powerful subscriptions can be.
In “The Automatic Customer” we cover various different aspects of the subscription model as applied by successful companies like Dollar Shave Club, World Of Warcraft, Amazon, Walmart and Target.
This will provide any readers insight into why customers have become automatic signups for certain businesses and how you too could benefit from setting up a similar service.
The Subscription Model: The Rise Of Access Over Ownership In The Digital Age
Subscription-based services are a major part of today’s business world.
Many large companies have embraced the trend and adopted subscription products and services into their strategies, allowing them to better compete in the market.
Examples of such companies are Apple, who launched Joint Venture in 2011 to provide customers with Mac products on an annual subscription basis, and Microsoft who offer Office software through subscriptions instead of physical stores.
Amazon Prime has also been successful for Amazon in recent years, by giving members two-day shipping on most purchases as well as access to stream movies for just $99 per year.
Furthermore, with their new grocery delivery service AmazonFresh, customers can now have fresh groceries delivered straight to their door with no shipping charge for orders over $35.
These examples demonstrate how businesses are utilizing subscription-based services to create opportunities and introduce competition into the marketplace that wouldn’t otherwise exist – something that could not have be achieved without transitioning to this new business model.
How To Make The Switch To Subscriptions: Benefits And Practical Steps
Using subscription-based models instead of one-time sales gives your company financial value, stability, and ease which makes the process of running a business enjoyable.
Not only do subscriptions give you predictable cash flow making it a viable option for potential investors, it simplifies the process of managing labor and raw materials, decreases inventory counts while still offering reliable payment from customers.
The switch from one-time sales to subscriptions also builds customer loyalty; clients make consistent payments trusting in your product’s consistency.
Since customers are paying regularly for their needs, that often leads to exploring further services from your business.
In conclusion, subscription-based models allow for more financial value for your company and an improved relationship with customers – both factors make running a business easier and more profitable.
The Benefits Of Subscription Services: The Consumables Model And The Surprise Box Model
E-commerce businesses should look into the consumables and surprise box models for getting their products out to customers.
The consumables model is perfect for companies that have a product that people need to replenish regularily – an example would be Dollar Shave Club with their disposable razor blades.
Once they’ve gained customer loyalty, brands like that can take control of their brand and service without making their own blades – they don’t even put the manufacturer’s name on the packaging!
Whereas, the surprise box model is more suited to businesses whose customers are passionate about a particular theme.
Bark Box sells different dog treats and toys every month, while Conscious Box specialises in all-natural products.
While it can be challenging to keep providing new products every month from different manufacturers, these subscription services act as Trojan horses that attract customers and entice them to buy full-size products online.
Whether Your Goal Is To Build A Community Around Your Product Or Service, The Private Club Or Network Model May Be The Right Choice For You
If you want to create a community around your product or service, there are two main models to consider: the private club model, and the network model.
The private club model is built around exclusive services or experiences, with customers paying high annual fees to gain access.
Joe Polish’s Genius Network is an example of this – it charges an annual fee of $25,000 for entrepreneurs and innovators to come together 3 times per year for networking and idea-sharing purposes.
Additionally, services like Exclusive Resorts offer luxury holiday homes, but require a six-figure membership fee in order to join.
This allows customers to obtain social status in their purchases.
On the other hand, in the network model each new customer makes the product or service more valuable for everyone.
As members of the network benefit from its growth they also become marketers of sorts by encouraging others to subscribe.
A great example of this would be apps such as WhatsApp – when you convince people in your friends circle to subscribe you can communicate virtually free!
Of course building a subscription based on networks alone comes with its limitations; Zipcar learned early on that people need assurance that there will actually be cars available when they need them so their first task was to build up their region one at a time before attempting large-scale expansion efforts.
Finally remember that having a huge base of marketers can be both a blessing and a curse – if subscribers become dissatisfied then this could have damaging effects on brand reputation (as happened with World of Warcraft after quickly gaining large market share through word-of-mouth advertising only to subsequently lose millions of players.) Consequently if you want to build an effective community that provides good networks for people to use then understanding your customer needs will be key!
The Simplifier, Peace-Of-Mind, And Cross-Selling Models Can Help Subscription Businesses Provide Value To Their Customers
If you specialize in providing services that make your customers’ lives easier, it’s best to keep things simple and focus on offering peace of mind.
Unlike the simplifier model which involves frequent contact between provider and subscriber for cross-selling purposes, the peace-of-mind model does not involve close contact and is better suited for something that your customers deeply care about, like their pets.
A good example is the pet-tracking service Tagg – it monitors pets and sends alerts if they leave designated areas.
For this kind of service, it’s important to charge more for the subscription than the cost of performing the required services to keep yourself profitable.
Site24x7 is a great example of a company who offers peace of mind – they monitor websites so they don’t go down.
Regardless of what business you’re in, if your goal is to ease your customers’ lives then keeping things simple and offering them peace-of-mind through subscriptions is a smart way to achieve that goal.
Using Information And Expertise To Succeed In Business: The Membership Website And All-You-Can-Eat Library Models
If you’re selling content rather than a concrete product, then it’s important to consider two models that could be right for your business: membership websites and an all-you-can-eat library model.
Membership websites are great if you offer expertise or knowledge.
Many B2B companies make use of these, as people are more likely to pay monthly fees for information that applies directly to their businesses.
ContractorSelling.com is one example of this, offering advice and insights in exchange for $89 a month.
The all-you-can-eat library model is another option for those selling content.
With this model, the customer gets unlimited access to different kinds of content–like streaming services like Spotify do with music.
It doesn’t have to be used exclusively by big media organizations either–New Masters Academy does this with art classes, allowing users access to multiple instructors with just one subscription fee.
Utilizing Front-Of-The-Line Subscription Models To Offer Prioritized Customer Service
Subscribing to a service or product can give customers the chance to experience premier access and priority treatment.
This is a great way for businesses to provide enhanced services for elite customers who are looking for faster, more attentive service.
Take Salesforce.com’s model, for example; customers who purchased the most expensive package get customer support within fifteen minutes.
Beyond software companies, this model can be used in any industry with customers seeking quick responses from customer service queues.
Thriveworks, for example, provides counseling sessions within 24 hours of request for $99 subscription fee.
If you decide to use this front-of-the-line model in your own business, it’s important that you make sure you properly deal with and flag these special customers accordingly.
For instance, having an exclusive line of communication or even a designated counter specifically directed towards prioritized customers will guarantee customer happiness as well as keep them loyal.
Ultimately, remember to also maintain a good reputation when it comes to basic customer service expectations too—subscribers should just receive extra attention beyond regular guests.
Subscriptions Can Be Complicated, But There Are Ways To Measure Progress And Obtain Funding
If you’re running a subscription-based business, you’ll need to learn a new set of metrics in order to properly measure your progress.
Traditional profit-and-loss (P&L) statements simply don’t work with subscriptions, as the payments that your customers will make in a year only account for a fraction of the original cost, while expenses remain the same.
In order to get accurate assessments of your business viability threshold, venture capitalists generally suggest that customers should be worth at least three times what it costs to win them over.
When it comes to raising capital while trying to build up revenue from subscriptions, there are a few options available.
One is to reinvest all profits back into the subscription business – this is how software company ‘Basecamp’ got their start.
You can also try and look for outside investors who can bring valuable expertise and experience with them; however be aware that this comes with risks and may leave founders with nothing if the buyout doesn’t go well.
Finally, another option is to simply charge upfront for a whole year’s worth of subscription – this is one tactic the exclusive investment club TIGER 21 employs successfully.
How To Acquire New Subscribers And Reduce Churn
Convincing potential customers to subscribe to your product can be hard at times, especially if they’re initially resistant.
If you want them to take the plunge, there are some tricks you can use to make it happen.
One is reaching out with comparisons – showing how your subscription model is much cheaper in terms of cost than other options on the market.
For example, New Masters Academy offers a $29 monthly subscription fee whereas private art classes typically cost $600-$800.
You should also set ultimatums if possible and make your subscription a unique offer so that people don’t have much of a choice but to sign up for it.
John Warrillow did this when his consultancy company began offering subscriptions rather than billing each assignment.
Additionally, it’s beneficial to give people trial periods so they can experience your service firsthand and be more confident about their decision.
A great example of this is Osler Bluff that charges $2,500 for trial membership with full membership costing $57,000 annually.
Finally reducing customer churn rate by making your product essential and offering promotions like Wild Apricot’s 10% discount off upon pre-payment are ways you can ensure customers remain committed long-term users of your services!
Wrap Up
The Automatic Customer by John Warrillow is a must-read for anyone looking to understand and take advantage of the increasing trend of subscription-based businesses.
It gives clear instruction on how to transition your business away from traditional practices in favor of a new data-driven approach, helping you attract new customers and keep up with ever-changing markets.
The key message of the book is that subscriptions offer convenience for both clients and businesses, so it’s important to find the right model that works for your company.
To get started, Warrillow suggests letting go of traditional practices while embracing new methods of analysis to make the most out of subscriptions.
All in all, this book provides a great final summary on why subscription models are becoming more popular than ever and what steps you can take to ensure success.
