Once upon a time, subscriptions used to be limited to newspapers and magazines. Now you can't get through a day without seeing or hearing about a different type of recurring delivery. In this day and age, virtually anything you can think of that one can possibly purchase or use can be automatically renewed. We have everything we need at our literal and proverbial doorstep.
Though subscriptions are nothing new, they have boomed in recent years, starting with wine-of-the-month clubs in the consumer space, and SaaS (software as a service) led by Salesforce in the B2B space.
Cut to more recent examples of recurring sales strategy: Birchbox, the leading provider of curated cosmetics boxes, is a pioneer for recurring revenue in retail sales and has been valued at $484 million; and where it once stood alone, it is now competing with dozens of businesses with similar offerings (the likes of Ipsy and FabFitFun).
Even United Airlines has now incorporated a subscription billing service for frequent fliers, with a fixed monthly fee for privileges, such as checked baggage and extra legroom. And never one to shy away from a trend, Apple even started permitting subscription sales across all categories in the app store.
Types of Subscription Models
Here is a list of eight types of subscription models in the market; as you can see, it goes far beyond the box of consumables delivered to your door:
- Knowledge membership: website allows unlimited access to information—works best in a niche market where experts are hard to find
- Buffet content: streaming services such as Netflix and Hulu—works best when new and diverse content is added regularly
- Peace of mind: takes insurance to a new level through monitoring and alerts—think AmberAlert, Radian6, credit/identity theft monitoring
- Front of the line: works well with products or services that are complex and require specialists to fix (such as IT services)—particularly useful for customers who are not price sensitive and like to feel special
- Consumables: automatic renewal delivery of items that typically run low—such as office supplies, coffee, household goods, diapers, razors
- Surprise box: curated/customized packages of items—encompasses everything from pet supplies to cosmetics, art, clothing, and lifestyle items
- Network: sharing services such as Zipcar, Lyft, and BeatsMusic—ideal for a product or service that gets better as more people join
- Private club: product or service that is limited in supply—status offerings, such as American Express Centurion
Why have these subscription models become so popular? If you look at the immediate benefits from both sides, it makes sense:
- Customers buy on convenience. Whether they want to make their job or their life easier, automatic renewals are as easy as it gets.
- From a business standpoint, it guarantees repeat business, which is the lifeblood of any well-run organization. Also, subscription services put more focus on the long-term relationship with the customer, rather than on transactions (or, in some cases, rather than the product or service itself!)
Continuing to provide goods or services automatically ensures not only recurring revenue for the supplier but also a feeling of commitment on the part of the buyer. When buyers are committed, it's easy for them to become loyal.