The subscription economy: An end to ownership?

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Netflix is a prime example of subscriptions done well. (Source: Getty)

The subscription economy always used to be about magazines – but not anymore. It now varies from long-term car rentals, to websites that allow consumers to have flowers, steak, and even socks delivered regularly to their doorstep.

Today consumers are more likely to subscribe to services than ever before, thanks to the likes of Spotify and Netflix. The UK revenue from music, TV shows, films and video games hit an all-time high of £6.1bn in 2015. The huge spend means that four in five people now have at least one subscription service, bringing about the start of the end of ownership.

The subscription-based model has many advantages for businesses. First, it offers regular, predictable cash flows for companies who develop an effective, simple and pain-free recurring billing system. This streamlines various essential tasks, from financial planning and investment, to capital raising.

Operating a subscription-based model also means that the lifetime value of customers is far higher for businesses. If value is delivered, customers purchase recurrently, instead of just once. In turn, this cuts down marketing costs – brands no longer need to convince customers to buy again, so the return on initial investment is far better.

Another benefit of the subscription model for businesses is the data it generates, allowing them to track what people want, when they need it, and how they behave. This benefits both brands and consumers: the former get to know their customers better; the latter receive personalised services and experiences. Sixty four per cent of British consumers like to discover new products and services based on their previous preferences, and data produced by repeated contact enhances the value of the overall experience provided.

Netflix is a prime example of subscriptions done well. It has been successful in tapping into a passion for content when and where customers want it, without a need to spend on a case-by-case basis.

Recently we’ve seen the arrival of Adidas’ “Avenue A” subscription programme, where customers receive celebrity-curated athletics apparel boxes, and the “Gillette Club” razor blade subscription scheme in the UK. The subscription economy has changed attitudes towards the ownership of products, creating a shift from the purchasing of goods to the buying of services, offering more efficient and cheaper access to what customers need, when they need it.

As technology and innovation develop, shifting trends of consumption will continue to stretch the horizons of the subscription economy. The opportunities for business to change tact are endless – its future shines bright.