Subscription Models Can Inspire Innovation in Stagnant Industries
Innovation has taken on renewed importance for many businesses. In fact, McKinsey & Company found that more than 70 percent of senior executives expect innovation to be a top driver of growth for their businesses. However, 65 percent of those same executives lack full confidence in their ability to fuel innovation.
I've interviewed 100's of companies via the NAACP and found people and culture are two important factors in driving innovation, most companies don’t have the structure in place to identify and capitalize on innovation opportunities. An earlier McKinsey & Company survey found that 62 percent of executives said their companies used multiple models to try to structure their innovation efforts.
That type of approach often results in haphazard efforts that are difficult to track and even harder to replicate. By siloing innovation efforts and focusing on products and services rather than customers, companies lose their focus and fail to keep a pulse on audience needs. Instead, businesses should take a step back to develop a comprehensive model that puts the customer at the center and enables innovation to develop around him. Some experts think they’ve already found that in the subscription model.
The irony of a customer focus.
Most businesses would be offended by the suggestion that they’re not focused on customers. After all, they spend nearly $45 billion on market research so they can better understand customers’ wants and needs. That information, however, often doesn’t play into the innovation development process the way it’s intended.
What typically happens is that a brand will develop an idea, build it in a lab and launch it in a controlled market to get feedback, explains Matt Cronin, founding partner of House of Kaizen, a company helping others acquire and retain subscriber revenue through optimal digital experiences. “It’s a slow-moving old-school approach to evolving a business,” he says. “A much more aggressive approach is optimizing the customer experience and putting the customer at the center, giving her experiences that can be altered and evolved in real time.”
MoviePass, which offers unlimited moviegoing excursions for a monthly fee, is one subscription service that’s done just that, iterating quickly to balance the needs of customers with the demands of the industry. Embracing a “fail fast”-style methodology has enabled the company to grow quickly, resulting in some growing pains as it tries to scale to accommodate its large customer base in the U.S., where it doesn’t have any direct competitors.
It’s able to do that because of the subscription model’s metrics. By keeping a close tab on churn and the factors influencing it -- in a model based on customer retention -- companies can immediately identify problems and pinpoint possible adjustments or solutions. This gives them a quick-footed agility their competitors can only hope, not plan, for.
Tien Tzuo, the co-founder and CEO of subscription management platform Zuora and the author of “SUBSCRIBED: Why the Subscription Model Will Be Your Company’s Future — and What to Do About It,” explained to Bloomberg that every industry can benefit from the subscription model. Nontraditional businesses have turned to the model to become successful, but it requires them to rethink their customers. Manufacturing, he says, has declined in both production and employment for half a century, but it’s undergoing a resurgence because brands are realizing that everyday products can become something else -- say, hardwood floors can become smart floors driven by sensors -- and can provide the background to the many services attached to those products. It’s made possible thanks to the data these subscription platforms provide.
The model knows no bounds.
Tzuo’s prediction that every industry could benefit from the subscription model appears to be playing out. When Dollar Shave Club debuted in the stagnant razor category, the brand transformed people’s view of shaving products through an engaging and clever story. It delivered a simple message that carried a strong proposition -- mailed razors at a regular cadence -- that people could connect to.
Other replenishing consumer product goods brands, such as Harry’s and Gillette, have jumped on the subscription bandwagon as well. The model has shifted to include other categories now, from food to clothing. While Jelly of the Month clubs had their heyday in the 1980s, subscription wine and coffee services have offered a new spin on the food subscription model. “Personal shopping” companies like Stitch Fix have combined the subscription offering with convenience, highlighting their ability to bring the dressing room experience to subscribers’ homes.
Wide-ranging businesses like Amazon also offer subscriptions via Prime and Prime Pantry. National discount chains and regional grocery stores have followed suit, offering door-to-door grocery delivery that can be set up as a routine subscription.
Perhaps most surprisingly, automobile manufacturers have joined the fray. Volvo launched its XC40 on a subscription model. Similar to a lease, the package includes maintenance and insurance in its subscription price, making each individual product easier to purchase than it was in the past. Porsche has launched a subscription product as well, and it likely won’t be long before more “me, too” subscriptions crop up.
How to push beyond the current limits.
“Just the use of the subscription model is effecting change in major corporations, resulting in greater alignment with how consumers would prefer to engage with companies,” Cronin says. “It provides an opportunity to align with evolving consumer behaviors and expectations, which traditional retail and even now e-commerce struggle to do.”
He recommends that those interested in exploring the idea of a subscription model gain an understanding of how customer expectations are being set by this shift toward subscriptions. “Consumer expectations are being set by companies like Amazon, not direct category competitors,” he says. “It’s important for any subscription company to realize that customers are getting subscriptions in other categories, too, and those influence their expectations.”
Many companies are focused on customer research in terms of how customer interact with their brands or with their direct competitors, but the subscription arena is one in which a company’s reach -- no matter its industry -- may extend far beyond its usual bounds. That means businesses looking to enter the subscription ecosystem need to incorporate other industries in their market research; it’s an efficient way to sidestep unexpected failure.
Innovation is more important than ever, even for companies in stagnant industries. The subscription model is designed to help brands shake loose the cobwebs by reorienting them around the customer, not the product or service. A company that centers itself -- and its business model -- around customers will stay self-aware, making failure much less likely.