People don’t want stuff, they want experiences. They don’t want products, they want services.
This core shift in our society is the underlying theme of Tien Tzuo‘s new book, “Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It.” It’s probably not a coincidence that Tzuo is the founder and CEO of Zuora, a service company that lets other companies manage subscriptions, but even with that bias, the book has some very good insights.
When a business sells a physical product or even a digital one, there is one sale. There could be add ons, upgrades, maintenance and support plans, but it’s still a traditional purchase model. The subscription model shifts the focus to what the customer needs from the product and makes that customer into a subscriber to a service that meets the customer needs.
This shift to focusing on customer needs helps businesses avoid gold-plating products for upgrades and upsells or planned obsolescence, since the subscriber is paying on a recurring basis to be able to listen to music or store photos or speak to a physician about medical care. The service is more responsive based on regular subscriber feedback and watching what makes people subscribe and what causes churn.
Subscription models are not new, Rolls Royce has been selling “power by the hour” for over 50 years, where aircraft operators pay per hour of flight instead of buying an engine outright. Not only does this make cost more predictable, it incentivizes a manufacturer to design engines for reliability and uptime instead of designing them to fail once out of warranty.
For those who want to look at their business from the perspective of subscriptions instead of traditional sales, Tzuo provides examples of different ways to look at the finances of a corporation, focusing on recurring revenue and churn rate instead of a traditional income statement. He also describes a new marketing model that is better suited for a subscription service, focusing on iteration and expansion of a subscriber base as opposed to massive rollouts and ad budgets.
Even if you don’t fully adopt a subscription model in your business, Subscribed provides a new way to look at how customers and businesses interact and can benefit anyone.