The subscription business model is a business model A business model describes the rationale of how an organization creates, delivers, and captures value - economic, social, or other forms of value. The process of business model design is part of business strategy where a customer must pay a subscription price to have access to the product/service. The model was pioneered by magazines Magazines, periodicals, glossies or serials are publications, generally published on a regular schedule, containing a variety of articles, generally financed by advertising, by a purchase price, by pre-paid magazine subscriptions, or all three. Magazines can be distributed through the mail; through sales by newsstands, bookstores or other vendors; and newspapers A newspaper is a regularly scheduled publication containing news, information, and advertising. By 2007 there were 6580 daily newspapers in the world selling 395 million copies a day (55 million in the U.S). The worldwide recession of 2008, combined with the rapid growth of web-based alternatives, caused a serious decline in advertising and, but is now used by many businesses and websites.
The first UK subscription newsletter was the London Property Letter launched in the early 1960's by Sylvester Stein, previously editor of South Africa's Drum magazine. The London Property Letter utilized the Standing Order payment, the subscriber signing up for a continuous annual payment from his or her bank account. Around the same time, The Consumer's Association launched Which? magazine using the same standing order techniques.
In 1982 Running Magazine was launched by Sylvester Stein to cater for the new jogging and running craze that had arrived from the USA. The Standing Order subscription model was adapted for use on this and other consumer news trade magazines by Peter Hobday, appointed Publishing Director of Running magazine by Sylvester Stein in 1982. Peter Hobday increased the subscription sales of Running Magazine to become the highest circulation title the athletics field.
Running magazine has since evolved into Runner's World.
Rather than selling products individually, a subscription sells periodic (monthly or yearly or seasonal) use or access to a product The noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce '(to) lead or bring forth'. Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing or things or service A service is the intangible equivalent of a good. Service provision is often an economic activity where the buyer does not generally, except by exclusive contract, obtain exclusive ownership of the thing purchased. The benefits of such a service, if priced, are held to be self-evident in the buyers willingness to pay for it. Public services are, or, in the case of such non-profit organizations as opera companies This list of opera companies lists the most important opera companies in the world by virtue of their long history and size. These companies are full-time professional opera companies that present a minimum of six fully staged opera productions during an annual season. To search more inclusive lists of opera companies by location see the following: or symphony orchestras An orchestra is an instrumental ensemble, usually fairly large with string, brass, woodwind sections, and almost always a percussion section as well. The term orchestra derives from the Greek ορχήστρα, the name for the area in front of an ancient Greek stage reserved for the Greek chorus. The orchestra grew by accretion throughout the, it sells tickets to the entire run of five to fifteen scheduled performances for an entire season.
Thus, a one-time sale of a product can become a recurring sale and can build brand loyalty. It is used for anything where a user is tracked in both a subscribed, and an unsubscribed status. Membership fees to some types of organizations, such as trade unions A trade union or labor union (American English) is an organization of workers who have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members (rank and file members) and negotiates labor contracts (collective bargaining) with, are also known as subscriptions.
Industries that use this model include book A book is a set or collection of written, printed, illustrated, or blank sheets, made of paper, parchment, or other various material, usually fastened together to hinge at one side. A single sheet within a book is called a leaf, and each side of a leaf is called a page. A book produced in electronic format is known as an electronic book clubs, record clubs, telephone The telephone , often colloquially referred to as a phone, is a telecommunications device that transmits and receives sound, most commonly the human voice. Telephones are a point-to-point communication system whose most basic function is to allow two people separated by large distances to talk to one another. It is one of the most common household companies, cable television Cable television is a system of providing television to consumers via radio frequency signals transmitted to televisions through fixed optical fibers or coaxial cables as opposed to the over-the-air method used in traditional television broadcasting in which a television antenna is required. FM radio programming, high-speed Internet, telephony, providers, cell phone A mobile phone is an electronic device used for full duplex two-way radio telecommunications over a cellular network of base stations known as cell sites. Mobile phones differ from cordless telephones, which only offer telephone service within limited range through a single base station attached to a fixed land line, for example within a home or companies, internet providers An Internet service provider , also sometimes referred to as an Internet access provider (IAP), is a company that offers its customers access to the Internet. The ISP connects to its customers using a data transmission technology appropriate for delivering Internet Protocol Paradigm, such as dial-up, DSL, cable modem, wireless or dedicated high-, pay-TV Pay television, premium television, or premium channels refers to subscription-based television services, usually provided by both analog and digital cable and satellite, but also increasingly by digital terrestrial methods. Some parts of the world, notably in France and the US, have also offered encrypted analog terrestrial signals, available for channels, software providers, business solutions providers, financial services firms, fitness clubs, and pharmaceuticals, as well as the traditional newspapers A newspaper is a regularly scheduled publication containing news, information, and advertising. By 2007 there were 6580 daily newspapers in the world selling 395 million copies a day (55 million in the U.S). The worldwide recession of 2008, combined with the rapid growth of web-based alternatives, caused a serious decline in advertising and and magazines Magazines, periodicals, glossies or serials are publications, generally published on a regular schedule, containing a variety of articles, generally financed by advertising, by a purchase price, by pre-paid magazine subscriptions, or all three. Magazines can be distributed through the mail; through sales by newsstands, bookstores or other vendors;.
Renewal of a subscription may be periodic and activated automatically, so that the cost of a new period is automatically paid for by a pre-authorized charge to a credit card A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer from which the user can borrow money for payment to a merchant or as a cash advance to the or a checking account.
A common model on web sites, colloquially becoming known as the freemium Freemium is a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features. The word "freemium" is created by combining the two aspects of the business model: "free" and "premium". The business model has gained model, is to provide content for free, but restrict access to premium features (for example, archives) to paying subscribers. In this case, the subscriber-only content is said to be behind a paywall. The razor and blades business model Freebie marketing, also known as the razor and blades business model, is the concept of either giving away a salable item for nothing or charging an extremely low price to generate a continual market for another, generally disposable, item. The concept was pioneered by King C. Gillette, inventor of the disposable safety razor and founder of (also called the bait and hook model) is an attempt to approximate the subscription model, but with a formal agreement by both parties.
Contents |
Types of subscriptions
There are different categories of subscriptions:
- A subscription for a fixed set of goods or services, such as one copy of each issue of a newspaper or magazine for a definite period of time.
- A subscription for unlimited use of a service or collection of services. Usage may be personal and non-transferable, for a family, or under certain circumstances, for a group utilizing a service at one time.
- For example, a subscription to a rail pass by a company may not be individualized, but might permit all employees of that firm to use the service. For goods with an unlimited supply and for many luxury services, subscriptions of this type are rare.
- A subscription for basic access or minimal service plus some additional charge depending on usage. A basic telephone service pays a pre-determined fee for monthly use but may have extra charges for additional services such as long-distance calls, directory services and pay-per-call services. Often referred as Freemium Business model.
Effect on the vendor
Businesses benefit because they are assured a constant revenue stream from subscribed individuals for the duration of the subscriber's agreement. Not only does this greatly reduce uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires.
In integrated software solutions, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably greater than the revenue from simple one-time purchases. In some subscription schemes (like magazines), it also increases sales, by not giving subscribers the option to accept or reject any specific issue. This reduces customer acquisition costs, and allows personalized marketing Personalized marketing is an extreme form of product differentiation. Whereas product differentiation tries to differentiate a product from competing ones, personalization tries to make a unique product offering for each customer or database marketing Database marketing is a form of direct marketing using databases of customers or potential customers to generate personalized communications in order to promote a product or service for marketing purposes. The method of communication can be any addressable medium, as in direct marketing. However, a requirement of the system is that the business must have in place an accurate, reliable and timely way to manage and track subscriptions.
From a marketing-analyst perspective, it has the added benefit that the vendor knows the number of currently active members, since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates customer relationship management Customer relationship management is a broadly recognized, widely-implemented strategy for managing and nurturing a company’s interactions with clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing, customer service, and to a large extent because the analyst knows who is an active customer and who recently churned.[1]
Effect on the customer
Consumers may find subscriptions convenient if they believe that they will buy a product on a regular basis and that they might save money. For repeated delivery of the product or service, the customer also saves time.
Subscriptions which exist to support clubs and organizations call their subscribers "members" and they are given access to a group with similar interests. An example might be the Computer Science Book Club.
Subscription pricing can make it easier to pay for expensive items, since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customers from signing up.
An unlimited use subscription to a service for a fixed price is an advantage for consumers using those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently, but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been.
In addition, subscription models increase the possibility of vendor lock-in In economics, vendor lock-in, also known as proprietary lock-in, or customer lock-in, makes a customer dependent on a vendor for products and services, unable to use another vendor without substantial switching costs. Lock-in costs which create barriers to market entry may result in antitrust action against a monopoly, and consumers may find repeated payments to be onerous. Finally, subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of privacy Privacy is the ability of an individual or group to seclude themselves or information about themselves and thereby reveal themselves selectively. The boundaries and content of what is considered private differ among cultures and individuals, but share basic common themes. Privacy is sometimes related to anonymity, the wish to remain unnoticed or.
Christopher Lochhead, Chief Marketing Officer Chief Marketing Officer is a corporate title referring to an executive responsible for various marketing in an organization. Most often the position reports to the chief executive officer. The Chief Marketing Officer (CMO) is usually present in the C-suite with the other CXOs. This title is relatively new and the distinction between a CMO and a of Mercury Interactive dissents[2].
A subscription model may be beneficial for the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller.
This is in contrast to many one-time transactions, when customers are forced to make significant commitments through high software prices. Some feel that historically, the "one-time-purchase" model does not give sellers incentive to maintain relationships with their customers (after all, why should they care once they've received their money?). Some who favor a subscription model for software do so because it may change this situation.
The subscription model should align customer and vendor toward common goals, as both stand to benefit if the customer receives value from the subscription. The customer that receives value is more likely to renew the subscription and possibly at an increased rate. The customer that does not receive value will, in theory, return to the marketplace.
Effect on the environment
Because customers may not need all the items received, this can lead to waste and an adverse effect on the environment, depending on the products. Greater volumes of production, greater energy and natural resource consumption, and subsequently greater disposal costs are incurred.
Subscription models might also create the opposite effect. This can be illustrated by subscribing to a service for mowing your lawn. The effective use of a single mower increases when mowing for a collection of homes, instead of every family owning their own lawnmower which are not used as much as the service providing mower, the use of resources for producing lawnmowers therefore decreases while lawns stay cut.
See also
Finding related topics
- list of management topics This is a list of articles on general management and strategic management topics. For articles on specific areas of management, such as marketing management, production management, human resource management, information technology management, and international trade, see the list of related topics at the bottom of this page
- list of marketing topics Marketing refers to the social and managerial processes by which products, services and value are exchanged in order to fulfil individual's or group's needs and wants. These processes include, but are not limited to, advertising, promotion, distribution, and sales
- list of human resource management topics
- list of economics topics Behavioral · Cultural · Evolutionary
- list of finance topics Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects
- list of accounting topics Accounting ethics - Accounting information system - Accounting methods - Accounting period - Accounting reform - Accounting scandals - Accounting software - Accounts payable - Accounts receivable - Accrual basis accounting - American Institute of Certified Public Accountants - Amortization - Annual report - Annuity - Asset - Assurance services -
- list of information technology management topics
- list of production topics Categories: Outlines | Production | Production lists | Business lists | Production and manufacturing
- list of business law topics Categories: Business lists | Law lists | Business law |
- list of business ethics, political economy, and philosophy of business topics Categories: Business lists | Management | Business ethics |
- list of business theorists Contents: Top · 0–9 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
- list of economists This is an alphabetical list of notable economists, that is, experts in the social science of economics. There is also a separate list of politicians with economics training
References
- ^ J. Burez & Dirk Van den Poel, "CRM at a Pay-TV Company: Using Analytical Models to Reduce Customer Attrition by Targeted Marketing for Subscription Services", Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium on econpapers.repec.org, 2006
- ^ Alorie Gilbert, "Software Execs Bash Their Industry's Approach", CNET News.com article, March 3rd, 2004
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