Subscription business models: Start small, plan big, reap rewards
70% of organizations are deploying subscription business models to sell directly to consumers – thereby creating recurring revenue and customer loyalty.
As a consumer, you likely have at least a few subscriptions for products and services – entertainment services, software programs, gym memberships, yard services, even pet food. Maybe you lease a car, or pay each month to use your phone. Do you ever wonder about B2B subscription models? B2B subscription models can offer the same bottom line and loyalty benefits as their B2C counterparts, and enterprises are taking notice.
Small, regular payments make sense and are more convenient. Consistent, reliable deliveries give you peace of mind and a sense of control over your relationship with the provider and the experience as a whole.
Typically, the subscription model has been primarily used in B2C business use cases – think Amazon Prime, Stitch Fix, and Dollar Shave Club.
But that’s changing.
B2B subscription models: Building on consumer habits
Increasingly, B2B companies are finding that subscription commerce is the key to long-lasting customer relationships.
Anything your customer uses and replaces over a predictable period is perfect for a subscription replenishment model.
Field service agreements streamline regular maintenance cycles and provide cover for unforeseen issues. The customer gains reassurance and insurance in one.
- By offering subscription services, B2B businesses can evolve from simply selling components, products, or parts to integrating themselves into the entire product lifecycle.
- For example, Michelin, the global tire and rubber company, has started integrating sophisticated sensor technology into select products, enabling the company to gather data on tire use, which they then use for a unique offering: monetizing the data as a service. The idea is that by better understanding tire utilization under various road, load, and weather conditions, they can build subscription maintenance contracts that help transport companies maximize the uptime and efficiency of their fleets.
- Or consider United Technologies, a multinational conglomerate that includes such well-known brands as Otis Elevator Company, Pratt & Whitney, and Carrier. United Technologies has announced plans to monetize its data and analytics capabilities by leveraging IoT capabilities into value-added, subscription-based services to its client base.
Otis customers, for example, can enroll in proactive subscription maintenance plans that are made possible thanks to data generated by IoT sensors in the elevator parts.
Similarly, other United Technologies companies are capturing data from planes in flight. A subscription service proactively alerts the airline when maintenance is needed and can even automatically submit an order for the required parts to be delivered to the maintenance crew before the plane touches down.
Shifting ground: 6 ways B2B subscription models can impact operations
Subscription commerce has a number of potential business benefits for B2B companies – maybe you’re already thinking of a few ways it could boost your business.
But changing business models never happens in a vacuum.
When considering B2B subscription models, it’s important to consider the impact it may have on other aspects of your operations:
- Subscription commerce can disrupt existing channels, particularly your partners and resellers. You may need new ways to involve and reward them.
- Subscription commerce also requires capacity and readiness within your organization. You’ll need to provide customer service support and analyze customer behavior to ensure you’re providing valuable, relevant, personalized experiences. And your content and offerings will need constant attention to stay current.
- Fulfillment may need to be orchestrated in new ways. Your revenues are likely to change from one-time up-front payments to smaller increments over long periods. Studies show that the long-term revenues are potentially higher, but there may be near-term cashflow considerations.
- As your sales models shift, you may need to structure new pricing and incentives for your customers. Internal sales incentives and commissions may also need to be redesigned.
- Back-office functions will need attention too, to ensure you can schedule billing, fulfillment and revenue recognition, and manage entitlements, contracts and licensing.
- A new subscription model may interact or interfere with existing customer service models, requiring careful management and close communication with other departments in your organization.
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The best way to handle these changes within your business and minimize disruption is to implement your B2B subscription service methodically and strategically:
- Start by planning out how your model will work. This will require considerable collaboration and buy-in from other business unit leaders. Be sure to validate your assumptions and talk to customers to make sure your subscription model is something they are excited about.
- From there, build the model – and be sure to run it past some trusted customers to ensure it meets their needs.
- Next, build the systems to manage and monitor the new business.
- Then, it’s time to launch the model and make sure all your customers know exactly how the service works, what it entails, and how it benefits them.
How to manage the changes of the subscription economy
Developing a new B2B subscription service touches every aspect of the business and raises important questions:
- How do you keep things moving forward?
- What does success look like?
Managing this change means being ready to grow and scale. As the customer’s trust in you deepens, they’ll come to you first to see if you can help with other needs.
That may stretch you beyond your core business activities. It’s important that you’re ready to try. Maybe there’s a product (your own or third party), that can strengthen what you already sell. Can you offer support for this product?
Throughout the change management process, the key is to focus on customer experience. The standard of customer care has been revolutionized, and consumer expectations have shifted as a result.
Customers now expect that every touchpoint along their journey with your organization will provide a consistent, reliable, highly convenient experience. That means exceptional commerce systems, paired with robust billing and CRM platforms, backed by high-touch personalized support.
Support can be in the form of email, social media, and AI-powered online engagement – methods that have been used by B2C businesses with great success. To offset extra costs, support can become part of the subscription model.
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Subscription models benefit everybody
Not only do B2B subscription models offer convenience and excellent service for your customers, they can help your business stand apart.
If you collect and analyze the data gathered from the subscription service, you can learn more about your customer’s business, which in turn will allow you to anticipate their needs and present them with timely, personalized offers, and an overall richer, seamless customer experience.
As consumers, we prefer businesses that meet our needs, personalize our experience, and save us time and money. Just because an order is coming from ABC Company instead of Bob Smith, it doesn’t make those preferences any less relevant.
By strategically implementing a B2B subscription service that gives your clients the customized convenience they’re looking for, you can strengthen your brand, your market position, and your customers’ long-term loyalty.