Subscription economy The subscription as a business model

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Subscriptions are already displacing the traditional sales model in various areas. The customer pays for the service, while the software or hardware remains the property of the manufacturer. This changes the relationship between customers and providers. What must companies consider?

Providers like Netflix, Spotify, or Amazon have led the way, and now more and more hardware manufacturers are discovering the appeal of subscription models. This is because, while customer and provider typically only have contact once or twice in the traditional sales model, a successful subscription creates a lasting relationship.

It is obvious that this new type of business model is far more than just selling and billing in a different way: the so-called subscription economy is fundamentally changing our business life.

On one hand, it offers providers the opportunity to better retain customers than before. At the same time, subscriptions require a consistent focus of the company on the customer, their requirements, needs, and desires. Those who are not satisfied with their provider's service will cancel their subscription. Especially since customers today demand high flexibility. Restrictive contracts have little chance in the market.

Providers and customers thus have a clear mutual interest: the product or service should meet the customer's needs so well that a permanently fruitful business relationship is established. It is clear that the further development of products is also a central concern for both parties. In light of rapidly changing markets and requirements, it is an essential quality feature for a product to be able to adapt flexibly.

The path to lasting relationships

Providers of subscription models are only successful if they place their customers and their interests at the center of their entire work. On the other hand, this also creates the basis for new, digitally driven business models.

Providing continuous access to an ever-improving service replaces the one-time product sale. This also means that the provider must continuously enhance its performance—both internally and towards customers—even more so than with traditional business models. This requires strategic rethinking across the board. Three points illustrate this:

1. A consistently customer-oriented company needs a profound cultural change. A new mindset, at all levels.

2. Customer centricity requires new processes that are designed to learn and improve together with the customer.

3. The required speed and flexibility today can only be achieved if products and services continue to develop as automatically as possible.

Corporate managers should therefore strive for a continuous improvement process embedded in the system. This is an essential prerequisite for shaping the relationship between company and customer in a long-term and sustainable manner, as well as for remaining competitive in fast-paced markets and effectively managing crises.

Cooperation as the key

It is also clear that extensive, lengthy product releases and long-term contracts are outdated. They simply no longer meet customer expectations and the demands of the subscription economy, and they weaken competitiveness.

Instead, cooperation and an end to silo thinking are gaining importance. Research, development, and go-to-market teams are required to work closely together. It is essential to establish processes that promote and implement their cooperation organizationally.

The common goal is to continuously analyze customer needs, identify gaps between demand and supply, and constantly develop and provide new, value-added features based on this. The closer and more dynamically the teams involved collaborate, and the faster and more efficient the information flow, the shorter the so-called time-to-market—and the clearer the advantage over the competition.

Consistently high performance level

It's in the nature of the business: the subscription economy requires companies more than ever to maintain consistently high performance. The ongoing expansion and improvement of the offering is now a central part of every product and service. Customer retention now takes the place of the previous purchasing process. And this retention only works as long as the customers' cost-benefit analysis is in favor of their provider. If this is no longer the case, the subscription is quickly canceled.

Flexibility and individuality are also in demand in pricing. To avoid price wars and downward spirals and to maximize customer benefit, providers in the subscription economy rely on highly personalized pricing. The prices are aligned not so much with short-term margins or the general market situation, but rather with the added value the product offers to customers.

A scalable and extensible product catalog, along with clear communication of customer benefits, is crucial. Only a customer who recognizes their added value is willing to pay the required price.