Disrupt or Be Disrupted: Subscription Models for Your Business [Video]

Now that you have entered the era of customer experience, you have to deliver continuous value to build long-term relationships with your subscribers. That means providing a good customer experience from payment to product and back again.

In this video Craig Vodnik, cleverbridge Co-Founder, explains how to protect your business by (gasp!) disrupting it. In other words, you have to defend or improve your market position against competitors with newer, creative business models that are ultimately more attractive to consumers.

Subscription billing models comes in all shapes and sizes. As more companies apply subscriptions to their businesses, they explore different ways to bill their subscribers. Your job is to figure out the way that works best for your customers and your business. Because your next disruption might be from a billing model, not a new product, you need to be flexible and support multiple subscription pricing models.

Transcription

If your business is centered around your customers, and those customers are subscribers, what you need is a real subscription billing platform if you want to be as successful as possible. Why I say that is because typical, sort of solutions, point solutions — transaction based solutions — offer very limited functionality in terms of upgrades, downgrades, prorations, coterminous, things like that.

You need the most flexibility for your business in order for your customers to be as satisfied as possible. If you are selling a product, and your customers don’t like one part of the product, they’re not going to use it. If it’s a pricing issue, if they’re thinking about an alternative: Let’s say you’re selling insurance on an annual basis, right? Customers are buying that insurance on an annual basis. They get it no matter how much they use it. Then a company comes along like Metromile, who essentially offers a flat rate per year and then a per volume based usage component. That is very disruptive.

And so consumers, while they might be happy with the product or service they are getting from State Farm, now they might be enticed by this new business model, when in fact the product itself is the same. It’s just the business model that has changed in that example.

Analysis

In our previous video, Craig emphasized that when a business switches from perpetual licenses to subscriptions, they are committing to delivering positive ongoing customer experiences. This shift in mindset also has to accompany a shift in how you approach reporting and measuring success.

In this video, Craig elaborates on challenges from competitors. Disruption comes from many places. Some companies offer better service, some embrace newer technology, and some devise more attractive business models for their customers. Whatever the issue is, your competitors offer something in the way of customer experience that you don’t, and that is what allows them to siphon off your subscribers. If the issue is about service, you had better figure out how to deliver world-class customer service. If the issue is related to your product, you need to monitor your product usage data to find out what is working and what is broken. If you find your customers prefer your competitors’ pricing model, you have to get creative about how you earn your recurring revenue.

Delivering Consistent Value

With subscriptions, the sale is the start of the relationship. If you ask customers for recurring payments, you have to give them recurring value. You have to build long-term relationships through superior customer experiences. As Craig says, if your customers don’t like certain aspects of your product, they’re not going to use it. A dissatisfying user experience is more likely to raise churn rates. Because the relationship is ongoing in a subscription model, you have to seize the opportunity to learn more about your buyers’ behaviors. One way to diagnose the problem is to monitor product usage data. You can see which features customers interact with the most and which are being ignored.

But there are also challenges to long-term subscription success when it comes to pricing. Startups often come along and disrupt the old pricing models of established brands. Customers then seek out those disruptive startups who provide them more value.

Craig uses the example of insurance providers Metromile and State Farm. Let’s illustrate the difference between the two models. State Farm, which has been around for almost a hundred years, uses a traditional, annual, flat-fee subscription. Metromile, a San Francisco startup founded five years ago, charges an annual flat-fee that is much lower than State Farms, but they also charge a per mile usage-based fee.

So imagine two customers: one subscribes to State Farm and the other subscribes to Metromile. The first, let’s say, pays $600 every year for coverage. The second customer pays, let’s say, $300 every year, but this customer also pays $.02 for every mile driven. If these are two urban customers who drive infrequently, which deal provides more value to them? Unless the first driver is driving 15,000 miles every year, the State Farm customer is overpaying (this assumes coverage is identical under both policies).

Now, you might object and say, “But you’re charging customers less! How can you sustain that business model against State Farm which seems to collect more revenue per user per year?” At the end of the day, the $50 a month that State Farm earns is a short term gain. Long term, customers realize they get a much better deal with a disruptive company like Metromile who provides a better customer experience in terms of price and value. With more customers churning away from State Farm, the disruptor Metromile actually stands to benefit in terms of customer acquisition and retention. This puts them in a position to maximize renewals and increase overall customer lifetime value.

Keystone

Just because you’ve chosen to implement monthly or annual renewals to your service, doesn’t mean your business is safe from disruption from startup competitors. Disrupting your business now by exploring different billing options that provide more value to your customers can decrease churn rates later on.