Many companies are probably wondering, “What are the benefits of a subscription business?” Subscription business, which is a recent trend, has benefits for both consumers and businesses, and has become one of the business models that is attracting attention.
It is no exaggeration to say that whether or not you incorporate a subscription business into your company will bring about major changes in various aspects such as increasing business sales and developing your company.
Therefore, this time I will explain the following topics.
- What is subscription business?
- Advantages of subscription business
- Points to note about subscription business
- 3 points to make your subscription business successful
- What is the future of subscription business?
This article explains various points about subscription business from a company’s perspective. If you are thinking of introducing a subscription business to your company, please refer to it.
What is subscription business?
A subscription business is a business that provides services on a regular basis, and allows users to pay for a fixed period of time and enjoy the service whenever they want. Famous examples include video distribution services such as Netflix and Hulu.
Recently, various companies are utilizing this business model, so much so that it has been frequently featured on TV and in the news. Let me explain in detail why it has become such a big trend.
Why subscription businesses are increasing
There are two reasons why subscription businesses are increasing: changes in customer values and stable profits for companies.
The consumer behavior of modern people is becoming more “sharing” than “owning,” and there is an increasing trend among young people to become “minimalists,” who do not own many things. Therefore, rather than having to go through the trouble of purchasing CDs and downloading music or purchasing DVDs and watching dramas, services have been developed that allow you to listen to and watch as many songs as you want, whenever you want. did.
Subscription businesses also have great benefits for the companies providing the services. It is about being able to earn stable profits. Modern times are rapidly changing, and the cycles of going in and out of fashion are becoming more rapid. Therefore, even if you create a business that makes a lot of money, there is a high possibility that it will go out of business.
Subscription businesses operate on a flat-rate billing system, so as long as there are no large-scale cancellations, you can continue to receive sales and maintain stable management. In fact, companies that have been in business for many years or that are operating stably are often developing businesses that can significantly increase sales while building a foundation based on stable revenue from the subscription business. I am.
Market size of subscription business
The subscription business market has expanded significantly in recent years, and it is said that this trend will continue to accelerate. In 2019, the market size of the subscription business was approximately 1.1 trillion yen, and it is predicted to grow to approximately 1.4 trillion yen by 2023.
Furthermore, if the subscription business, which is mainly BtoC, expands in the future and starts to involve
the BtoB
market, it is very likely that the domestic market alone will reach approximately 6 trillion yen in size.
Advantages of subscription business
Subscription business is a business model that brings various benefits to companies. Let’s take a look at the four benefits that actually exist for companies.
Continuation of stable earnings
Subscription businesses can continue to generate stable income. Users themselves sign the contract with the understanding that a flat fee will be charged at the beginning, so basically they will not cancel the contract unless they are dissatisfied with the service. Therefore, very long-term and stable profits can be expected. Therefore, rather than spending money on a business that can make a lot of money, it is wise to start a subscription business that can generate stable income.
Easy to acquire new customers
Since the subscription business is a business model that assumes that the business will continue, it can be said to be a relatively inexpensive business, with the price being less than 1,000 yen at the lowest, and around 10,000 yen at the most. Therefore, from the consumer’s perspective, it has the advantage of being easy to start if you are interested. From a company’s perspective, this feature can be said to make it easier to acquire new customers.
Additionally, if you offer a free period, the hurdles will be lowered, making it easier to acquire new customers compared to other businesses. This is a huge benefit since it is said that acquiring a new customer generally costs about five times as much as retaining an existing customer.
Easy to check customer data
Subscription businesses have the advantage of being able to obtain customer data such as address, age, gender, and usage history when signing a contract, and that it is easy to check that customer data. This is a huge advantage, and if you look at the data leading up to the purchase, you will be able to see why the customer made a purchase, how often the customer is using the product, etc. In other words, AIDMA and AISAS ( Aisas) can be understood.
Furthermore, when information is collected and analyzed many times, it becomes an important source of information for creating new services to satisfy customers. By doing so, you will be able to generate more consistent and stable income.
It can also be said to be extremely valuable information as it can be used in a variety of ways, not only to improve existing customer satisfaction and prevent cancellations, but also to gain hints for acquiring new customers.
Easy to carry out upsells and cross-sells
A feature of subscription business is that it is easy to upsell and cross-sell related products. This is because people who have purchased a product once tend to purchase other products.
Additionally, once you sell a product, you collect customer data, so you can use that data to think about cross-selling products, such as what products are likely to sell, and what products are compatible with that product. You can. Not only that, but there is a high probability that customers will purchase products that are in high demand and are repeated every time when their performance is improved. This allows you to upsell and further increase your profits.
Points to note about subscription business
Even though subscription businesses seem to have only benefits for companies, there are some points to be aware of. There are two major points to note, so I will explain them in detail.
Immediately after starting the service, profits are low
Subscription businesses tend to have low revenue, especially right after the service launches. The reason is that subscription businesses aim to increase revenue by accumulating users through recurring payments, so contract fees tend to be low, and in order to generate revenue, a large number of people need to register. .
In fact, in the subscription business, the key is to break even, and in many cases companies that have failed in the past have been unable to attract enough subscribers to break even.
Continuous efforts are needed to avoid cancellations
In order for users to continue signing up for the long term, you must provide services that keep them satisfied. Therefore, it is necessary to continue improving services and providing support. If you do not collect customer data, analyze it, and make corrections, the number of subscribers may decrease, so you will need to continually improve your services.
Three points to make your subscription business successful
Even if a business model has great benefits for a company, it has the disadvantage of being time consuming, so the company’s true intention is to see results as quickly as possible. So, here are three points to make your subscription business a success.
A wide range of plans to suit your needs
When running a subscription business, it’s a good idea to have a variety of plans to suit your needs. Many subscription businesses make it difficult for customers to select and customize services, so some customers settle for limited service plans even though they are a bit inconvenient to use. I’m sure there aren’t many.
In order to eliminate such dissatisfaction, companies need to prepare various plans that meet customer needs. By offering various plans such as trial plans, basic plans, and premium plans, you can attract a wide range of customers, so be sure to think about your plan carefully.
Set up campaigns and trial periods
Even though the contract amount for a subscription business is low, there are still many people who do not want to waste money. Therefore, it is a good idea to set up a trial period or discount campaign to let users know what kind of service you are offering. Subscription businesses become profitable when there are many subscribers, so it is very important to lower the barrier to entry and let people experience and learn about the business, even if it is in the red at first.
However, if you run a campaign forever, you will only continue to increase your deficit, so think about how long you want the free period to last, and how many subscribers you need to collect before quitting the campaign. Since various factors are involved, such as the break-even point and the allowable deficit, we recommend that you decide carefully.
Continuous efforts to prevent ruts
Continuous innovation is extremely important in a subscription business. Subscription businesses generate significant profits by building long-term relationships with customers. Therefore, it is extremely important to never be satisfied with the current level of service, and to maintain the mindset of creating something better while listening to customer feedback.
Also, measure customer loyalty by providing opportunities to listen to customer feedback, such as offering additional services if they respond to a survey when providing a service. Loyalty is a numerical expression of the degree of attachment and trust one has toward the company providing the service, and serves as an indicator for future activities. In order to understand the current situation and improve the service, it is recommended to understand the loyalty.
What is the future of subscription business?
The subscription business will continue to expand. It can be said that this business model has benefits for both companies who want to generate stable profits and customers who want to use services at low prices. Therefore, it is expected that various services will become subscription businesses in the future. A subscription business with high customer loyalty and long-term relationships will be used by customers over the long term and will be able to operate stably.
In order to survive in the rapidly changing world of the future, if you don’t have that essence, you may easily lose customers. It is important for everyone who is looking to grow their company or starting a business to think of valuing customers more than one-off profits.
summary
Although the subscription business has already penetrated various aspects of daily life, there is a high possibility that the market will continue to expand. There is no doubt that a business model that generates stable profits through long-term relationships with customers is one way to survive in the rapidly changing business world of the future. If you are thinking about expanding your business in the future, why not consider it?