The Subscription Business Model’s Benefits & Drawbacks

Subject: Management
Pages: 10
Words: 2985
Reading time:
12 min
Study level: Master

Digitalization today is a global, universal trend, transforming methods and tools of management, approaches to management decisions, and the economy (Peterson, et al., 1997). One such business model is the digital subscription. Subscription business standards are based on the concept of selling goods or services to obtain monthly or annual recurring subscription payments. They center on client retention and customer engagement. In reality, subscription business models focus on how income is created so that one customer gives multiple payments for long-term access to a product or service, preferably of a significant one-time payment. Subscriptions are regularly renewed and activated automatically with a pre-authorized credit card or current account (Lacy, et al., 2020). The benefit of business subscription models is a constant income, which also assists in developing strong connections with customers.

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The subscription business model comes in different shapes as people started to become more creative with it. This resulted in a wide range of variations, necessary to people distinguish between subscriptions to digital products on the one hand and subscriptions to physical products on the other hand. Both have again different subtypes that are laid out below and supported by illustrative examples. Digital products and services that are sold by subscription include subscriptions to media products such as Netflix and Spotify. Also, access to online newspapers and magazines like the Financial Times, Elsevier, and telecommunications (Birge, et al., 2021). A critical component is a subscription to creative services such as Adobe, Dropbox.

There are several types of physical products that are sold by subscription. The first type is replenishment, which facilitates the automated delivery of the same products in a systematic way to the consumer. Examples are Dollar Shave Club (razors), Pampers (diapers). The next variety is curation, which provides a collection of products curated per consumers’ preferences within a certain category. Often, there is a surprise element where the provider selects the final merchandise. Curation subscriptions are the most popular subscription subtype. Examples are Birchbox (Beauty samples), Stitchfix (Fashion), and HelloFresh (Food). The last type of subscription is access, which provides subscribers with exclusive access to its products. Key-value creation levers for consumers are lower prices or member-only perks and access. An example is JustFab (shoes) (Birge, et al., 2021). Subscription models for physical products are relatively new and upcoming.

That is, the subscription income system encourages the company to earn based on cooperation with already attracted customers. This means that as long as customers constantly understand the value they can obtain from using the tariff, they will continue to pay for services. That is why it is essential always to maintain the interest of regular clients in services. Therefore, it is important to receive a practice of benefits for regular consumers, which will benefit the payers and increase the company’s profits. Thus, the importance of researching the issue of loyalty for regular buyers is necessary for the business environment (Jiang, et al., 2019). In order to determine what concessions a company can offer; it is necessary to study market conditions and similar offers of competitors. Accordingly, the subscription business model must consider all variables to maintain the commitment of regular customers.

The next significant point is the question of how to reach customers who will become regular payers in the future in a highly competitive market. In order for a corporation to be competitive before entering the market, many factors need to be assessed (Jiang, et al., 2019). Studying the supply and demand of existing services and goods, competitors’ strategies, assessing market saturation will allow managers to create a viable business plan and choose the appropriate subscription business model.

Literature Review

In today’s world, the ability to subscribe significantly simplifies searching for information and entertainment for people. Instead of selling goods separately, the subscription suggests regular use or access to a product or service. Therefore, the market is saturated with a large amount of supply that is in demand. Accordingly, to create a quality business project to make a profit, the company needs to analyze market factors and possible supply options that the company can provide (Peterson, et al., 1997). Thus, a one-time sale of goods can become a periodic business, strengthen brand loyalty, and provide a stable flow of customers.

Therefore, this thesis aims to complement existing literature and research via empirical studies what are the factors that will drive the volume to sign up. Also, the thesis will assist create in the future a new business idea adopting the subscription business model for a home fragrances subscription box. Accordingly, the construction of the thesis will take place in the analysis of the development of the subscription model over the past decade. Consideration will also be paid to the choice of marketing, the type of communication channel with subscribers, and the subscription tariffs (Lacy, et al., 2020). That is, the study’s goal is to identify a market segment that needs certain services and create a new subscription business model in the digital business.

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The structure of the research will address the reasons that push companies to introduce a paid subscription service. Reflection also needs to be paid to the reasons for variability during the development of the concept and which are most relevant now. For example, such reasons are the global Internet market, which has become an alternative to paper and more profitable—also, the challenges entrepreneurs include market demand analysis and competition. The main point of work will be the formation of tariffs and their introduction to the market.

The company needs to create an effective channel of communication and notification of subscriptions to customers. An important point is the formation of tariffs and offers in accordance with customer expectations. Finally, suppose the previous steps are successful, the opportunity and need to maintain a leading position in the market. In that case, the paper will use scientific sources that will explain the nature of the market and the laws of its operation by the chosen theme (Lacy, et al., 2020). Attention will also be paid to the features of the digital business and the already existing study of the subscription model. Moreover, sources will be used that will admit the use of quantitative methods in the process of working on the task.

The sources will be related to the strategy of choosing a business model, which will allow the evaluation of the business model on the basis of subscription in accordance with the fundamental laws of the market and economy. Indeed, the choice of the business model itself is a strategic decision that depends on unpredictable market factors in the beginning. Still, a comprehensive analysis will allow choosing the most profitable area. Thus, the study of subscription models for goods will explore what factors affect profitability and market demand. Also, the analysis of the activities of companies that offer selected, unique and general products with an element of surprise will find out which of the products is most in-demand in the market (Danaher, 2002).Accordingly, by using subscriptions to add goods, people not only save money from not having to go to the store, but they can also try new things that they may not have purchased themselves. Hence, a business can determine the readiness of the market to accept a new business subscription service.

The paper will use sources that explore the benefits of introducing paid subscriptions in the market and how the firm’s marketing activities affect its profits. The authors quantify the loss of income if not to bring the company to the online marketers. Thus, it will be possible to find out why newspapers that were published only on paper ten years ago switched to the format of a paid online subscription. Also, on the grounds of basic statistics to determine the level of income after the introduction of the subscription service (Sinan & Paramveer, 2020). The analysis will also demonstrate the consequences of management decisions related to pricing policy.

That is, special attention will be spent on the formation of the price and the frequency of its change depending on the regularity of the subscription. If the company considers the annual overpayment, it needs to make long-term decisions that will be based on forecasting the situation in the market. Also, setting a price for a monthly subscription will permit firms to spend less effort to calculate all the factors (Baxter, 2015). At the same time, the annual subscription is the most profitable for the company because it provides a stable flow of customers for a more extended period.

Moreover, the main ways to inform potential subscribers about the entry of a new business into the market or changes and improvements to already known services and tariffs will be provided. The use of professional marketing will let businesses find a large number of clients in a short time. In order to establish an effective dialogue with customers and be able to send new proposals, company needs to choose an information channel. Accordingly, the mass mailing of proposals can be sent through a general channel to all subscribers (Kannana & Hongshuang, 2017). However, it is crucial to create a personal relationship with the consumer for unique offers for him in accordance with the frequency of his use of the service.

References will also be used that describe competition in the market and allow compony to notify subscribers of available goods. The sources aim to demonstrate the importance of interdependence caused by the constant implementation of proposals and interaction with customers. Thus, the use of the subscription system will empower buyers to be the first to learn about possible novelties in the range of goods and buyers to estimate the approximate demand. An important point in the work will be the characteristics of subscription services and the need for the perfect styling of competitive offers (Rhouma & Zaccour, 2018). Thus, the main possible models and tariffs that the company can use to encourage customers will be considered. Statistics on customer inquiries and selections will also be used to help determine the most available and needed subscription service.

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Literature will also be used not only to support companies begin selling services in the market and assist firms to prevent losing customers. Factors that force consumers to use online subscription services can be different. They range from the customer’s perception of the value and importance of the offer to his general attitude towards paying for such services that were once freely available. Thus, if a company already has a particular sample of customers, it often conducts surveys on what factors motivated them to buy a subscription (Longxiu, 2020). Accordingly, the literature related explores such factors that can significantly impact consumer willingness to buy online services. It also examines existing customer surveys of various firms to investigate why customers choose them. The research and evaluation of such factors as convenience, relevance, cost, and frequency of use play a key role in choosing a service consumer and renewing a subscription (Wang, et al., 2019).

Also, the selected literature concerns the company’s profitability by introducing a system of bonuses for regular subscribers. Accordingly, with the development of loyalty programs, corporations will be able to gain more new customers and satisfy existing ones. Sources based on statistical data will estimate whether the action is justified in the long run and help implement the most reliable version of the loyalty system in the business strategy. At the same time, the relevance of the research proposal will explain the growing popularity of the use of subscription services during coronavirus (Lee, et al., 2020). That is, using statistics to compare company profits before and after the pandemic. Based on current statistics, it will be possible to identify the most popular sector of services and goods.

Companies such as Netflix, Spotify, Blinkist, Adobe, Dropbox, Financial Times, Elsevier, Vodafone, and others will be investigated in accordance with the set tasks (Lee, et al., 2020). On the example of existing subscription models and ways to introduce them to the market, you can create a comprehensive analysis of the environment, the most effective ways to communicate with customers and pay for tariffs.

Consequently, existing research covering subscription business models is limited. Only recently, academic publications are appearing to create a more detailed understanding of consumer and company behaviors (Bischof, et al., 2020). While on motives and barriers why consumers adopt subscription services, based on a large-scale United Kingdom of Great Britain survey, no academic research covers what factors predict the adoption of subscriptions.

The empirical research in this thesis studies the relationship between customer attention and the volume of signing up. What actually drives customers to sign up for a subscription and differences can see analyzing three factors. Differences in the relationship are based on the channel of interaction between the business and the consumers (offline or online) and the message type (general message or personalized message) Also, subscription type (replenishment or curation or access). Thus, a comprehensive study of the literature, which explains the reasons for the appearance of subscriptions for goods and services and ways to use them, will create a comprehensive business plan (Lacy, et al., 2020). It is on the basis of already known indicators and factors that it is possible to analyze and determine the segment that is potentially beneficial for the introduction of a new business.

At the same time, the prevalence of certain types of subscriptions and communication channels among customers will create the most suitable tariff that will be able to attract a large number of buyers. Considering that the popularity of online subscriptions has recently increased in a pandemic, it is also necessary to support the desire of customers to subscribe to services. Therefore, the future business plan needs to make new proposals and improve customer service based on all the data.

Cause-and-Effect Relationship.
Figure 1. Cause-and-Effect Relationship.

The volume of registration is determined by the client’s interest in receiving a subscription to certain services or goods. Thus, the company can offer to receive the service through personal or general channels. Some businesses have offline suggestions and can create online proposals to reach the majority of customers. Also, to attract more clients, the company may offer different rates that will allow each consumer to choose the desired service.

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Research design

Future research will be conducted using quantitative methods that will be applied to statistics. Such research methods are designed to study the objective, quantifiable characteristics of human behavior; they are used when accurate, statistically reliable data are needed. Their use makes it possible to spread the study results to the whole population and speak in general terms about a country’s population or a particular region due to the coverage of many respondents. The rules of quantitative research are always based on strict statistical models; large samples are used, which allows determining the numerical values ​​of the studied indicators. There are strict requirements for sampling in quantitative studies, which are based on probability theory and mathematical statistics. Information processing in such studies is carried out using streamlined procedures (Doz, 2011). The results of the research are statistically reliable. They can be extrapolated to the region’s entire population or to the group to which the research is directed.

With the help of quantitative investigation, it will be logical to determine the frequency and volume of paid subscription services, for example, in the United Kingdom. That is, in this way, it will be possible to assess the willingness of users to accept a new type of service in the market. Thus, it will first be necessary to collect data related to the accounting of the release of services, which provide for a monthly or annual subscription. In order to collect data, it will be necessary to analyze the statistics of the largest companies in the field of paid subscription services. In this way, it will be possible to research their users’ preferences on a percentage scale.

That is, determine which tariffs and types are most popular in a particular sector. Also, the company needs to analyze quantitative data from popular companies offering online subscription services to verify the data. In this way, it will be possible to compare the statistics with the actual situation and determine the potential error (Doz, 2011). Such actions will help to confirm already established data.

Surveys are also an effective method of researching the demand among customers for online subscriptions. For example, company can use opinion polls, which gather information by asking questions to a particular group of people. The sample of people should be selected according to a specific principle in order to include different age and gender categories of the population. In this way, it will be possible to verify whether the product will be interesting for children and adults. Also, what amount are they willing to pay for a conditional package of services for different periods (Cipriano, 2002). That is, with the help of a survey, firms can determine the opinion of the population about the monthly or annual subscription.

Also, an effective system of obtaining information is the electronic distribution of questionnaires, in which respondents can write expectations about the quality and type of services. This market research method is suitable for existing companies that have a customer base. Regarding the answers of interested potential buyers, it is possible to determine the profitability of the implementation of services and future demand for them. (Cipriano, 2002). Accordingly, to encourage people to answer the questionnaire, the corporation may also provide a discount coupon that can be used when purchasing the service. That is, in this way, businesses can obtain a large number of answers and future customers. Thus, quantitative methods and surveys will help gather opinions about the service from people of different ages and genders. Data will be collected from residents of the United Kingdom of Great Britain, but the amount will depend on people’s willingness to answer questions. Also, using the survey method, the company can examine previously collected quantitative data.

References

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Bischof, S., Boettgerb, T., & Rudolpha, T. (2020). Curated subscription commerce: A theoretical conceptualization. Journal of Retailing and Consumer Services, 54, 1-15.

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