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The Origin Of The Subscription Model – Forbes

Front Door of House with Stack of Delivery Boxes from Online Ordering and E-commerce
Where do subscription services come from? Well, the concept has been around for hundreds of years. In fact, in the UK, individuals were able to subscribe to deliveries from milkmen as long ago as the 1860s, while magazine subscriptions began in the late 1800s.
Now, subscription services make up a huge part of our lives, from our phone contracts to the music we listen to, the meals we cook, the films we watch and even the glass of wine we enjoy with our dinner.
Subscriptions are usually focused either on products (beauty, food, etc.), experiences (travel, sports, etc.) or digital (video, music streaming, etc.) and the subscription economy is now so large that there has been a rise in companies that exist purely to provide the framework for subscription services.
The amount consumers spend on subscriptions is also at an all-time high. According to a recent survey from consulting firm West Monroe, Americans are spending on average $273 a month on subscription services, this is up from $237 in 2018. The pandemic has accelerated the growth of the subscriber model at a rapid rate. Those businesses that aren’t waking up to this could miss out or lose ground to their competitors.
So, what’s the advantage of a subscription model for businesses? Well, the simplest way to answer this is to compare the average profile of a subscriber and a transactional customer. The transactional customer tends to have lower brand loyalty and a higher churn rate, they also cost more to acquire. Compare this to a subscription service customer who has higher retention and lifetime value; the bonus this business model offers to brands is obvious. What’s more, with younger generations notably favouring the subscription model, this offers the opportunity for these consumers to remain loyal for years to come.
The crucial factor to consider here is the recurring revenue these return customers offer businesses; an appealing prospect considering the uncertainty the pandemic has created for many sectors. This is evidenced in the compound annual growth rate projected for household brands such as Amazon, Spotify and DoorDash.
For business models to have longevity they must go beyond adding value to just a business, they must also offer value to customers. Therefore, we must also ask what subscription models offer consumers. The answer is simple: An improved and personalised customer experience, convenience and a saving on cost.
Despite these benefits to consumers, growing a subscriber base and developing a subscription model can take time and patience, and requires a successful transformation strategy. In fact, the majority of companies that have a mature subscription model have been operating it for more than 10 years, and in most cases the growth over this time has not been at a rapid rate. There are some exceptions to the rule, especially if businesses are the first in their industry to offer a subscription service, Netflix is a great example of this, growing from 400,000 subscribers in 2001 to 18.2 million in 2010. What is certain is that subscription-based businesses grow five to eight times faster than traditional companies, according to the Subscription Economy Index.
Travel isn’t the only industry which has recently discovered the subscription space. According to CB Insights, many other industries are beginning to adopt this offering. Consumers can now subscribe to a whole host of goods including cars, in-home fitness and home maintenance. It will be exciting to see who the front runners are in these industries and how this lucrative business model continues to evolve over the coming years.

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