Tuesday, June 22, 2021

You Can Build a Subscription Business Model, But Can You Measure Its Success?

Christiane Soto
May 11, 2020

3 minute read

Subscription pricing models make it possible to enjoy recurring product deliveries or services for an ongoing fee—a “set it and forget it” experience, so to speak. As part of this payment structure, customers have access to a much wider variety of goods and services—much more than they would with a one-time purchase. And customers love it. According to research by Jeanne Bliss, the number of customers migrating to subscription services will continue to grow. Nearly 60% of Gen Zers expect to increase or keep the same number of services they subscribe to.

Subscription business models are becoming more prevalent because consumers are demanding them. We often think of B2C and B2B companies having distinct habits and patterns, with little overlap. But the overlap lies in the customers themselves. Because of their experiences in their personal lives, buyers in the B2B space want and expect the same ease of purchase and consumptions. Subscription pricing fits that bill.

Data—the key to designing a subscription pricing model

Whiteboarding a subscription model is not difficult. Almost every company (B2B and B2C) can do so thanks to one asset that they own—data. Data has value, and it can add more value. Let’s look at a hypothetical example of how data could be monetized, used as a competitive differentiator, or both.

A foodservice distributor, who sells fresh ingredients to hoteliers, restaurants, and hospitality groups, “grades” all the food they sell, in terms of quality. Because of this grading process, they hold a vast amount of nutritional information.

So customers are able to not only buy foodstuffs, but they can subscribe to a service that provides access to the distributor’s nutritional data (calories, fat content, sodium levels, etc.). Then these restaurants and other establishments can turn around and provide that information to their customers on both digital and paper-based menus. Cheesecake, anyone?

As Sri Ayyeppen, President and CTO of Keste states, “It’s not just about selling a product; it’s about the data hook. Companies should determine what data they have to offer that provides additional value and streamlines their customers’ processes. If you provide that, your customers will partner with you more.”

The disconnect in subscription management—ERP

70% of business leaders say subscription business models will be key to their future success. But there are issues. According to the independent research firm, Manifesto, while 7 out of 10 businesses know that subscription models are the future, less than 1 in 10 are generating any significant revenue from them.

Managing subscription revenue is a struggle for businesses with limited (or no) integration between their new subscription management solution and their established ERP and front-office systems. The reason has everything to do with the ripple effect of subscription-based pricing. Subscriptions change the way businesses operate, shifting buying models from on-offs to recurring relationships, which (in turn) impacts both front- and back-office systems. Some examples include:

  1. The number of buying options increases exponentially, translating to thousands of consumption choices for the average B2B business.
  2. What customers buy (subscription, one-off product, or a mix of the two) affects how your product/service is fulfilled, delivered, billed, paid, and accounted for.
  3. Each subscription amendment, add-on, cancellation, and every other change/update triggers a vast amount of relevant data that needs to flow through (and to) different systems.
  4. The tracking of deal activity, opportunities, and customer buying habits shifts. Customer lifetime value (CLV) and churn are new KPI focal points.
  5. Subscription pricing models are subject to a new set of revenue recognition standards.

And that’s just scratching the surface. Modern, integrated subscription management and ERP solutions now allows businesses to create the same set-it-and-forget-it-experiences for the finance team as for customers.

Interested in learning more? Check out the following:

Christiane Soto
Christiane Soto is a Senior Content Manager for all things Oracle CX. With over 20 years of content marketing experience, writing on (pretty much) any subject you can think of, Chris (as her friends call her) loves to break down complex concepts around technology and make them understandable. Her rule of thumb is “write so your grandmother can understand it.” When not interviewing, researching, or sitting at her keyboard, clacking away, Chris can be found somewhere on a trail walking her dogs, at the Pilates studio, or mulling where her teenagers have run off to.
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