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July 23, 2017 | BoD & Startups

Turning your Customers into Subscribers (for Startups et al).

Turning your Customers into Subscribers (for Startups et al).

As consumers, we are all aware that you can subscribe to a magazine, a newspaper, a Pay-TV services, etc...

But, let’s turn this thing around: as a company that provides a service or creates/ manufactures a product, can you create a subscription service and turn all (or at least most) of your existing and new customers into Subscribers?

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Why a Subscription Business?
Let’s start with addressing the question why would anyone want a subscription-model/-based business?

  • If you utilize any (usually raw) materials for manufacturing your products or for offering your services, knowing what your demand is at the end of the month, helps you to optimize your supply chain and thus reduce inventory needed, saves on warehousing costs, and even frees cash flow for other business needs.
  • Better planning if not just about raw materials – it is also about knowing how many employees you will need to produce that item or to better-serve your customers.
  • More and possibly Positive cash flow. Whenever you sell a subscription, your cash flow is guaranteed for the length of that very subscription. I f you have a type of subscription where your subscribers pay upfront (e.g. a 6- or 12- month magazine or newspaper subscription), the truth is that the more subscriptions you sell, the more money you have in your banking account.
  • Less Expenses for advertising or any other activity needed to stimulate demand of your product or service, since you have pre-‘sold’ for the next few months. This is hmmmm very ‘weak argument’ if you really want to constantly expand your business.
  • Enriched Strategic Options for Growth. You are in better control of your future business activity since you have a relatively accurate forecast of the demand of your product/ service. You are basically proactively offering your product/ service to your numbered customers on a monthly basis. That predictable cash flow, might help you adjust your growth strategy or create new ones.

How old is the Subscription Business Model?

This is not 100% accurate, but at least since 1605 there were newspapers sold by subscription.

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10 Pragmatic ways to create subscriptions.

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#1. The Modern Website Membership Subscription.

This is probably the most dominant one nowadays and possibly the most dominant in the African geography. Simply reasons for that: there is nothing to be delivered at a physical address, just access to a website that contains either items of information or entertainment. Forrester Research, or Bloomberg or AP or Reuters are well- known examples of this. So is a dating site.

It originally started as an avenue of delivering specialized information /publishing news or specialized know-how to members. Then magazines and newspapers adopted it.

Now you have sites that for a fixed amount per month, you can play all the computer games you want, or read all the eBooks your desire or even watch all the movies that are available. Another membership example: reading the complete product tests of a Consumer Association.

Membership is also defined in very ‘loose’ manner. Your company’s usage of a hosting plan for your website, it can be seen as a membership to a data plan.

#2. All- you- can- Eat Subscription.
Obviously, that is a model that you can offer unlimited access to your product or services for a fixed amount per month.

Simple example… people got tired of paying 99-cents (or less) for a song, or even fighting to recover it from this or that service etc. Now they prefer a simple all- you- can- listen music subscription. and something that does not even require a computer or complex login plans. Think of Spotify, Rdio, etc.

And… obviously, this model can be combined with any other subscription model.

The basis of this model is that you have some sort of ‘library’ people can use (e.g. music files, movies, ebooks like a Kindle subscription). On the other hand you have Amazon Prime that provides free next day shipping to an unlimited variety or products for a fixed annual fee.

#3. FMCG Consumables/ Replenishables
To my own experience and knowledge, this was possibly given birth with the growth of ecommerce, especially with ‘e- supermarkets’. The idea is simple: You choose what you consume the most (e.g. toothpaste, soap, pasta, etc.) and have them automatically delivered to you at specific frequencies, ideally defined by you (e.g. soap every 2 weeks, toothpaste every 3 or 4 weeks, etc.).

Very practical for working adults, or for those times you will be arriving home too late to do grocery shopping.

Given that distribution is still a challenge in most of Africa, I am not sure how soon you will see such subscription models.

#4. Exclusive Memberships.
Think of a golf- club. The idea is that members/ subscribers have access to a very exclusive product or service that has limited supply. It is usually tailored to high- income individuals.

Another example is Davos. Yes, you do not need to be a politician or someone of high influence to attend the Davos conferences. Last time I checked (and that was long time ago) prices started at 50.000 US$; extras where stupid things wile how close to the building your driver can drive you, who will you be having a short talk with etc. Google, it please.

PS: Is TED-Talk a sort of exclusive membership club? Well if in principle you get to pay ~8.000 $US to give a talk. Think about it. If it allowed for people to give multiple lectures (i.e. become subscribers) it would have been like an Exclusive Membership Subscription Business.

#5. ‘Make Life Simpler’ Services.

Example of such a subscription: think of a service who will weekly arrange for your laundry to be done; they come, they pick it up, they wash it, they iron it and finally they deliver it neatly forded in your house.

Another example is subscription to a music channel for a bar or restaurant business for example: No CDs to play, no MP3 players to try to find the next song etc… you subscribe to the service, you just choose the type of music and that’s it… you don’t even have to think about how and to whom you have to pay the royalties for the songs played.

#6. The VIP Subscription.
That comes in so many varieties and flavours. It can be your front- of- the- line in a customer service situation.

E.g. IBM (and so do other companies- including Google) offers support-contracts that you can get a resolution to your incident within a few hours (usually 2- 4 max) or within the next business day or within a week. Obviously, the subscription of the 'resolution within a few hrs' is the costliest one.

Going through a special line for passport control and check-in is another one - common in several US & EU airports).

At Euro Disney, you can get a normal annual pass or one that puts you automatically in the front of the line of any queue (even if there are 200 people waiting for that ride).

Again, this is a subscription that can be combined/ ‘ride’ on top of another subscription model/ service.

#7. It’s a Surprise!
You all might have heard of the Book- of- the- Month- Club idea/ model. You get a book every month - some companies give you a choice out of 2 or 5 books, some they do not. Some of these are very specific -e.g. a History Book of the Month Club.

Another simple example: every Christmas, my kids receive a box from their uncle in the US that has an assortment of nuts and salty- snacks and every time is different; even he does not know what is going to be inside.

I had a weekly organic vegetable subscription in Amsterdam, but the company went out of business 1- 1.5 years later.

I have seen this model been quite successful in the US – I am not aware of it being successfully used in other parts of the world as a subscription model.

#8. The Consumer-Group / MLM Model.
The basic idea is that the more subscribers you have the cheaper the service it becomes and everybody profits from it.

Telephony has always been such a subscription case- the more the users, the cheaper it (at least in theory) becomes for everybody (since there are a lot more people to ‘absorb’ the initial and continuous infrastructure investments).

Another example is every MLM (MultiLevel Marketing- formerly known also as Network Marketing) company. The subscriber is also a seller, so every subscriber has a strong vetted interest in promoting subscriptions.

Any internet messaging & chatting service is the same… This is how WhatsApp grew to more new subscribers per day than Facebook and the main reason Facebook bought it in 2014.

#9. Peace- of- Mind subscriptions.
There are several alarm & security companies who will monitor your house 24x365 and will respond to break if, theft, water damage and other events taking place in your house, when you are away at work or even on vacation.

Companies who perform monthly building- maintenance for landlords who own several (and possibly big) properties, are also in this category.

Also almost any insurance service is a Peace- of- Mind subscription.

#10. Individual Services Micro-Subscriptions.

Again another example from my old neighbourhood in Amsterdam. Companies who will sell you a subscription to meal ingredients. Hat you buy, if a service that every day provides you with the exact amount of ingredients you need to prepare a meal for just one person, along with the relevant recipe. So, you have exactly as much meat you need and as many vegetables or potatoes or even butter and species (in mini packages) to prepare your meal. Nothing missing and no leftovers; choices of 2-3 different cuisines (e.g. vegetarian, organic, etc.).

I am not sure how this idea will transfer in another service or product subscription or in another culture (it will never be successful in Greece since culturally we never cook for just one persons, but culturally the average Dutch person goes to market and buys just one or two potatoes and 1 apple- rarely a kilo of potatoes or apples).

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In Conclusion
These are a few subscription models that I have seen implemented so far and I trust you are familiar with most of these.

Obviously 2-3 different models can be combined into a single subscription model for your product or service.

You really need to think / analyze which model is applicable for you so it can help your business general ‘predictable’ cash glow, and help your company grow.

You can use subscriptions either as your main ‘business model’ or as another opportunity/ distribution channel to increase your sales.

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Good Luck and thank you,
Spiros
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Spiros Tsaltas is a seasoned Technology & Operations Executive and Management Consultant; he is also a former University Professor (RSM MBA, CUNY, etc). Spiros has hands-on experience on setting up all sorts of Startups both in the US and in Europe. He is an active transformational leader and strategist who has also years-long experience with Boards of Advisors and Boards of Directors. He is currently assisting a couple of Ghanaian companies with the setup of their BoDs.

Spiros Tsaltas is associated with a unique Customer Loyalty Startup: HireLoyalty ( www.HireLoyalty.com ) which is coming out of stealth mode in the next few months.

As a NED (Non Executive Director) Spiros is also associated with HIREghana ( www.HIREgh.com ) and can be hired via them.

We welcome all your comments/ remarks/ feedback at [email protected]

© 2017 Spiros Tsaltas and © 2017 HireLoyalty

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