John Warrillow: Why It’s Time To Adopt The Subscription Business Model In Your Company.
John Warrillow is the founder of five companies, a regular contributor toInc.com and The Globe and Mail, and the author of Built To Sell: Creating A Business That Can Thrive Without You, which was recognized by bothFortune and Inc magazines as one of the best books of 2011. Called one of the “Top Ten Business-To-Business Marketers” by B2B Marketing, John has been assessing businesses for over 15 years, sharing his expertise in areas ranging from entrepreneurship, sellability, and the benefits of subscription based marketing to build–and sustain–success.
In this article, John examines why the subscription business model makes your business more predictable and typically increases your revenue per customer, but it can often be what you find out about your customers when they subscribe that is the most valuable asset of all:
First, Netflix changed the way we think about watching TV. Then, Spotify reimagined the way many of us listen to music. Now, AMC Theatres wants to change the way we go to the movies. Earlier this week, AMC announced that, coming in January, you’ll be able to subscribe to an all-you-can-watch movie pass for around $35-$45 per month. AMC is hoping the subscription business model will help increase the amount of revenue it gets from the all-important market segment of young, popcorn-scarfing 12-24 year-olds.
The hidden benefit of the subscription business model
If successful, AMC will increase its revenue per customer and make their business more predictable. It was also make AMC a more valuable business. According to our data from companies using The Sellability Score, generating at least half of your revenue from recurring sources (e.g. subscriptions) ads at least 18% to the value of your company. There may also be another powerful rationale at play in the case of AMC.
Today, you can anonymously wander into a theatre, buy a ticket, watch your movie, and AMC never knows you were there. That makes it hard for AMC to convince you to come back again or tell you about a new promotion.
The subscription business model will allow AMC to build a direct relationship with its customers, especially young adults–the slippery but profitable segment of the movie-going public who lead a nomadic life roaming from their parent’s basement to college to apartments, without ever settling down long enough for companies to find them. AMC’s subscribers will likely have to provide their contact information in order to buy their subscription, which suddenly opens up a raft of opportunities for the number two movie chain in America.
With a subscription business model, AMC will start to build a profile of who their customers are. You can imagine they might invite subscribers to rate movies so they can then offer notification of upcoming movies their customers might like, in much the same way that Amazon Instant Video or Rhapsody starts to “remember” your preferences.
What’s more, if a customer doesn’t come into a theatre for a few months, they’ll know the customer is likely to give up his subscription, so they can start to turn up the volume on communications.
Creepier, but no less profitable, AMC might start using the data they gather from their customers about their movie-going preferences to sell to advertisers keen to get their message through to a specific market segment.
In the research for my upcoming book on the subscription business model, I found that the data collected by forming a direct relationship with their customer is a key reason companies like Wal-Mart, Amazon and Apple have all recently launched subscriptions.
Amazon Is Becoming The Ultimate Subscription Business
Take a deeper look at Amazon’s subscription businesses which include Amazon Prime, Amazon Mom, Subscribe & Save and Amazon Fresh among others. Each of these subscription services feed data to the mothership which allows Amazon to build a powerful understanding of who you are and what you buy.
Your consumption habits allow Amazon to start predicting what you might buy next, which is one reason that they recently filed for–and won–a patent on something Amazon calls “anticipatory shipping” which will move products Amazon thinks you’re going to buy closer to you in the supply chain.
Let’s say for example, you’re an Amazon Prime subscriber and Amazon knows you watch a lot of Gordon Ramsay’s cooking shows on TV and buy a lot of recipe books. Through anticipatory shipping, Amazon might move a copy of Martha Stewart’s next cookbook from a warehouse thousands of miles away to a distribution centre near you. They may even put a copy of the book in the delivery truck when it’s doing its next pass through your neighbourhood so that when you click “buy”, the book could be at your doorstep in minutes.
And you don’t have to be a billion-dollar giant or a software start-up to benefit from the customer insight you collect by leveraging the subscription business model. I discovered there are nine different subscription types being used by everyone from exterminators to home contractors to dog walkers to restaurateurs.
By getting your customer to subscribe to you instead of just buying from you, you’re not only creating a recurring revenue stream; you’re also getting permission to communicate and track your customer preferences, which–in the long run–may be the most profitable aspect of adopting a subscription model in your company.