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12 Vital elements of the Subscription Business Model

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The subscription business model is one of the most promising business models regardless if you work for an established company or a young one. We have free downloads for you to develop your own innovation ideas.

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12 Vital elements of the Subscription Business Model

  1. 1. 12 vital elements of the Subscription Business Model (for innovators)
  2. 2. From Simon+Kucher Consumer Insights magazine, spring 2016 (pdf) The subscription business model delivery products & services on a subscription basis. And it has found its way into everything we daily consume.
  3. 3. Customer Business 1 Access to intangible assets: software, media,TV shows, music, movies, ebooks, magazines, video,TV shows, games, Software as a Service (SaaS) 2 Access to durable goods: cars, bicycle, smartphones (with contracts) 3 Regular delivery of goods: newspapers, clothing, toiletry, consumer packaged goods and any other consumer goods 4 Utilities: internet, phone contract, electricity, computing power, Infrastructure as a Service (IaaS). Note, many utilities providers use a combination of subscription business model and pay-per-use 1 1 1 Regular delivery of goods & services for recurring payment
  4. 4. (1) Value & quality (2) Clear offers & fair pricing (3) Convenient transactions (4) Improve offer continuously (5) Localise offering (6) Personalise (7) Build a culture of membership (8) Make deeper connections (9) Freemium to get started (10) The right metrics (11) Funding sources (12) Cost structure 12 Vital Elements of the Subscription Business Model
  5. 5. (1) Provide value and quality - Refrain from (purely) regurgitating the same-old - Add exciting, industry-leading, price-winning exclusive flagship offers - Amend your flagship offers with the same-old Netflix: from DVD / streaming provider to producer of their own exclusive shows
  6. 6. (2) Clear offer & fair pricing - Make clear offers - Avoid options-overkill (typically 3) - Make the different pricing clear & fair
  7. 7. Foxtel (AU): - 26 options —> overkill - Disingenuous disaggregation of channels - Massive price gap between entry and full package $26-$137 - Lock-in contracts: previously acceptable, now obsoleting
  8. 8. Netflix: - 3 options only - Differences are clear to understand - Transparent and fair price range ($9-$15)
  9. 9. (3) Offer convenient transactions (example: Dollar Shave Club) - Easy payment - Any time: cancellation, upgrade, downgrade - Skipping of month https://www.dollarshaveclub.com/how-it-works
  10. 10. 1 Exclusively shows (Amazon Prime TV) 2 Monthly “What’s new” MS-Office 3 Varying recipes on food subscriptions (4) Improve your offering continuously: - From big-bang product roll-outs to continuous evolution - This has impact on your R&D roadmap and processes
  11. 11. (5) Localise your offering - One size does (no longer) fit all - More relevant offerings “Narcos told Brazilians that Netflix is paying attention to Brazil and paying attention to talent we have here. It’s also elevating local talent to the world.” https://www.bloomberg.com/news/ features/2017-01-12/netflix-wants- the-world-to-binge-watch
  12. 12. (6) Personalise - Create personalisable elements in your offering - Higher customer engagement - Soft switching barriers myFT let’s you personalise what you are interested in
  13. 13. (7) Build a culture of membership - Increases direct network effects - Increase loyalty & customer lifetime value
  14. 14. (8) Make deeper connections through values alignment - Ambitious goal - bigger than profit making - Deeper connection with customers - No longer competing on price only Blue Apron aims to build a better food system which.These foods are then used in their subscription model recipes and food delivery
  15. 15. (9) Freemium: get started! - As a means of trial - To create a networked effect - To serve as a marketing channel Spotify: Freemium vs Premium
  16. 16. (10) Measure the right metrics - Future recurring costs & revenues - Customer lifetime value & Churn http://www.slideshare.net/Zuora/zuora-always-on20123-saas-metrics-that-matter-12301579
  17. 17. (11) Funding sources - Anticipate the moves of incumbents - Expect imitators - Have funding sources (cost of capital) Spotify’s long slog to not-yet-profitability
  18. 18. (12) Cost structure - Distribution, transaction costs, asset management, etc - Sourcing / supply chain, infrastructure - Differences/benefits to ownership offering With reliable low-cost distribution at no increased piracy risk, monthly subscriptions pricing models were introduced • Distribution: low cost via fast-speed, broadband internet • Transactions: Direct business to consumer (intermediaries eliminated) • Asset management: direct licence, piracy control, regular updates Consumption-based pricing was the legacy pricing model for utilities enabled by • Distribution: low cost via government-funded infrastructure • Transactions: business to consumer (if privatised) • Asset management: consumer-owned assets are to be purchased (e.g. handheld, metering) With location-specific, wireless technologies, the pricing model could be extended to mobile physical goods, incl cars • Distribution: low cost (compared to car rental); location-specific • Transactions: mobile, real- time, business to consumer • Asset management: GPS, wireless, security, user accountability Utilities Software Car sharing
  19. 19. Amazon Prime is probably the biggest subscription business model on earth and it just got another major boost …
  20. 20. The subscription business model is one of the most promising business models regardless if you work for an established company or a young one. We have free downloads for you to develop your own innovation ideas Click here to download: www.InnovationTactics.com/ subscription-business-model-pdf

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