Managing a Subscription Business – Do’s and Don’ts

As a proverbial “last mile” service provider, we have the privilege of working directly with the consumer and helping them fulfill their needs through add-on products and services portfolio. Typically, these are offered as a bundle or stand-alone, depending on the strategic provisions and consumer preferences.

For instance, cable companies may bundle their core service (video) with telephony, Internet, security, etc. Recently, a lot of research has been published, particularly as it pertains to Internet-of-Things (IoT), on what other services and products may be eligible for a place in the portfolio, such as, digital health, premium technical support, hardware, premium content, among others. As general managers (GMs), we have to hence consider a variety of factors when creating a portfolio that delivers “net” subscriber growth, and suits the company goals, core product offering and consumer preferences.

Here I want to share a few key findings – do’s and don’ts – about the “consumer preferences” that shape how well we forecast subscriber and revenue, and in turn, the portfolio performance.

• Do promote multiple products at the time of acquisition, as long as they complement the core offering.
• Don’t overload however – too many decisions at the time of initial purchase will usually put off the customer, and you may stand to lose a customer of your core product.

• Do consider pricing when offering multiple products at the time of first sale. Total price that a customer can commit to, requires an in-depth understanding of your target customers and their ability to afford the payment commitments.
• Don’t over-sell the products with higher price points. This may result in a good initial ARPU, but also causes churn sooner than predicted.

• Do take the buyer’s remorse into account, since most churn occurs within the first 30 to 90 days of subscription. The above factors usually contribute to it, besides the product/service quality delivered. After the first 90 days, the pattern sets in and customers are usually comfortable with the product, pricing, etc.
• Don’t over-emphasize the value delivered by your complementary products/services. It is OK for the customer to be a loyal subscriber to your core product – there will be other opportunities to up-sell and cross-sell.

• Do model and plan acquisition and retention targets that are consistent with industry standards and account for the unique motivations of your target market. For example, product “x,” may sell better in urban vs., rural market, or how easy it is for a customer to buy a complementary product through other vendors, etc. Model out the optimum product/price mix, based on customer propensities and limitations.
• Don’t set unrealistic expectations on acquisition and retention metrics. With more products in the portfolio, acquisition targets may need a revision. Similarly, retention is a challenge, if the customers are not happy with the quality or pricing, or are too invested in your portfolio.

I am sure there are more factors that may warrant a consideration and with continuous data analysis (Big Data anyone?), we may be able to further refine our approach to growing the subscription business, while maintaining a healthy product mix, margins and customer satisfaction.

Subscription Services – Unlimited Everything!

A recent consumer survey revealed interesting insights into customer expectations. Customers subscribing to a service plan preferred an unlimited plan as opposed to paying per use. Why do we like unlimited plans, even though they may cost more than we would have liked and provide for more than we need? 

There could be a lot of factors that determine this: peace of mind, high rates for pay-per-use, nature of service and consumption, affordability, etc. Or, in some cases, service provider's may have inadvertently created the "need" for the above factors to be relevant. From the latter's perspective, these plans often allow for easy management of customer expectations and accounts, support, data management, retention, etc. - all pertinent factors to consider when assessing the ROI models.

However, unlimited plans do tend to create (sometimes) unrealistic expectations among consumers and start to create undue pressure on service provider's resources and revenue. Needless to say there needs to be wider strategy to offset such pressure and create alternative/complementary revenue streams. The fact that each service has its unique requirements and customer need, we need to really look at the subscription business a bit creatively. 

Analyze the usage data to define various customer segments and create value plans that appeal to these segments – fairly obvious, right? However, it needs overt management approval and significant investments in data gathering, accuracy, regular customer feedback (surveys?), frequent usage analyses, industry feedback, back-end infrastructure, etc. Most importantly, organizations need to be flexible enough to stay ahead of the evolving customer need and sustain customer interest in the service. Add-on service options tend to help fill that gap and help increase customer longevity and retention. 

Adding incremental value to the core offering and managing customer expectations from the service are equally important, but value-added services enhance the core and add critical benefits through incremental revenue and customer loyalty. In markets served by "commodity type" services, it becomes even more relevant to differentiate ourselves from the competition and hence warrants enough incentive for the management to invest in providing services beyond the "unlimited" plans.