Subscription business models allow businesses to strategically plan for growth because they generate repeated cash flow that is steady and predictable. But not all businesses are comfortable with a recurring income model.
During a client discovery call, I was baffled to learn that a company was going to launch a monthly experience box, but they weren’t going to use a subscription business model for their product. They had the impression that monthly billing in a subscription model was a shady practice and consumers felt the same way.
Here are my thoughts on why a subscription business model is welcome by cannabis consumers just as much as cannabis businesses and how you can execute the model successfully.
Consumers Love Subscriptions
Consumer adoption of subscription-based products has exploded in the last ten years. Never before have we been so frazzled for time as we are in our modern times. Technology shrunk the world and sped up the clock, and we all have to use it just to keep up.
One way this is accomplished is through the use of convenient subscriptions, especially for anything that is consumed on a regular basis. I personally belong to subscriptions for meat, coffee, and supplements for consumer goods. You can triple that number when talking of the service based subscriptions that I pay for every month.
I am sure you can think of several things in your life that are provided to you on a monthly billing cycle. We do this for the convenience of not having to worry about refilling things when we run out. And we will pay extra for this convenience, because it isn’t always price that motivates the purchase.
Consumers also love the access that our modern retail and service businesses can provide. Think about Amazon Prime – a prime example of a well executed subscription model. Amazon recognized the value of having customers paying them on a recurring basis and so they built a product that provided access consumers wanted.
Amazon Prime, if you aren’t familiar, gives you free, two-day shipping on anything purchased on Amazon. In addition, you have access to video, TV, music, and books with your subscription. Now, Amazon Prime produces exclusive content for their members, so access becomes even more desirable.
This is a win-win situation for both the consumer and the business. The consumer has access, control, and convenience for a small, monthly subscription, and Amazon has solid, predictable recurring revenue.
Businesses Love Subscriptions
We’ve already covered a little how Amazon transitioned from selling consumer goods exclusively, to adding a subscription-based product to their line up and profiting immensely from the additional revenue.
Another famous example of a business transitioning to a recurring, subscription model from a one-time, consumer sales model is Adobe. As software makers, they have sold licenses to their software on a one-time purchase, for a hefty price. For example, Photoshop, which is one of the software platforms that Adobe creates, was once sold on a per computer license for well over $500.
They saw the value of the subscription model (as well as the slump in license sales at such high prices) and decided as a company they were going to change their licensing from a one-time to a recurring membership purchase.
And they quadrupled their revenue. There were growing pains at first, but once they worked through the transition, they have not looked back. There are other examples as well.
IBM transitioned from selling business machines to business services.
Apple added subscription based products and services (Apple Music, iCloud, etc.) to their impressive lineup of products.
How to Execute a Subscription Model Successfully
Coming back to the original call that sparked the motivation for writing this article, I want to address that for a company that actually cares about its customers (which I assumed was the case with this company), a subscription model is the ultimate litmus test proving that to be true.
Customers are in control of their shopping experiences. But a subscription model holds the business accountable to focusing on what their customers need and constantly providing value.
Giving customers solutions to their problems in an environment that they control is the only way to ensure that your subscription is a success. You need to build trust through engagement and experience. You need to constantly listen to your customers so you can continue to solve their problems.
Do this, and the lifetime customer value for your products or services will only go up, and you will know that you have successfully executed a subscription business model.