Published on the 15/12/2016 | Written by Anthony Caruana
Report says Aussies and Kiwis spend around AUD$660 per month on subscription services…
The data comes from a survey conducted by Ovum of 300 consumers and 100 enterprises. While many of us, particularly in the tech sector, think of subscription services as being mainly technical in nature – things like SaaS and other subscription software – the reality is the product portfolio offered by subscription is expanding.
Asked about a figure which at face value seems exceedingly high, John Kearney, Zuora APAC MD, said part of the problem is defining what a subscription service is.
“Historically, people have been selling services on a rental or renewable one-time purchase model for a long time. Insurance companies do it with health insurance where you can pay monthly. There’s a renewal process to go through. There’s a bit of a mix here in the report.”
Kearney suspects the $660 figure might be inflated by monthly payment services that aren’t true subscriptions, but are more like payment plans. He said there is a significant difference between a service that is paid for by a recurring payment, and one that can change flexibly depending on the customer needs. Some in the tech industry use that difference to determine, for example, whether or not software is truly provided ‘as a service’.
“If your subscriber isn’t using up-sells, down-sells or increasing or decreasing their usage, then they’re not really operating in a true subscription environment and you’re not understanding your subscriber’s behaviours either,” Kearney said.
The message, he said, is clear. Customers are looking for better services from businesses, and subscriptions are an opportunity for businesses. Despite the positive business sentiment towards subscription-based models, the survey reported 27 percent of consumers were dissatisfied with their current subscription. So there are opportunities for smart players to churn customers from their competitors if they can intimately match products to customers said Kearney.
Shifting your business to one ready to offer subscription products and services requires preparation and a new approach to product development.
Notably, subscriptions aren’t limited to tech-focused products, said Kearney. The expansion has moved into areas such as personal grooming, sports equipment, healthcare, food, clothing and other markets that have been traditionally focused on one-time payments. You can even get fancy watches as a service, from the likes of snazzily-named Borrowed Time, while opportunities for cross-selling can present themselves. For example, subscribers to the popular cycling and running app Strava, are provided with access to exclusive products.
The report picked up an interesting demographic trend. The two largest customer groups using subscription services were the 26-35 and 51-70 year olds. These groups, often referred to as Generation Y and Baby Boomers respectively, spent about 7 percent of their monthly disposable income on subscription services.
One of the drivers, said Kearney, is these groups know what they want and are prepared to churn from providers to get it.
Kearney said companies which offer subscription services are showing far stronger revenue growth than those with traditional payment and service offerings.
“There is a massive market move, but companies in Australia and New Zealand have been slower on the uptake. However, over the last 12 months, the interest they have expressed in the subscription economy has probably increased by five-fold over the previous year,” he concluded.
