Subscription models are very profitable – until they’re not. Will consumers keep signing up?
Several DCA members have mentioned subscription loyalty programs to me in conversation lately – a strategic option, a competitive threat, a thing that has to be considered. The promise of loyal customers and steady, recurring revenue has all sorts of companies asking themselves: should we become like Sam’s Club, Amazon Prime, or Netflix? Or can we venture into food subscriptions – like Prêt à Manger or local biker-bakers?
People have been doing subscriptions for a long time. Milk trucks, newspapers, the Columbia House Record Club – which you thought was gone, and it is, but it’s 2023 so the kids are into vinyl subscriptions again . . .
What is Driving the Conversation?
Subscriptions are a play for the customer’s whole category spend, and they can be a very efficient way to retain customers. If a program gets enough buzz, it might even be an efficient way to acquire customers through word of mouth. Then it’s just a matter of ensuring there’s a profit margin.
Some industries have been quietly transformed, sometimes with difficult consequences. Ski resorts, once fragmented, have rolled up into a handful of big players each with a network of destinations and a strong preference for selling season passes. (If you’ve heard that lift tickets have become eye-wateringly expensive, it’s because resorts want consumers to buy the season pass instead.) Turning skiing into a subscription business hasn’t come without problems, as season pass holders can all decide to show up on the same day – and then everyone’s mad. Selling everything you have all at once feels good in the moment, but companies should be careful.
There’s also the question of whether consumers get enough value to renew, and whether the company will be drawn into building more infrastructure than future subscriptions will support. Newspapers built some of the 19th century’s great fortunes, but by the end of the 20th century they were turning billionaires into millionaires.
Questions DCA Members are Asking
- What would people really be paying for? (Flexibility, convenience, cost savings, a feeling of belonging, top-customer treatment, unique perks?)
- Would putting a price on our product/service increase its perceived value?
- Would a paid membership model generate free media, or a word-of-mouth flywheel?
- How could we get the first 100,000 subscribers?
- Is it possible to sell too many subscriptions, or is our fulfillment capability unlimited?
- Could a competitor harm us by launching a subscription model first?
- If we launched a subscription model and it failed to get traction, what harm would it do?
Related DCA Resources