Your Next Business Should Be a Subscription Business. Here’s Why
Bundles work, the market is there and it seems to be working in any industry.
PHOTO CREDIT: Getty Images
The subscription model, without question, has encountered success among several different industries. In April 2017, subscription companies hosted 37 million visitors on their sites -- an 800 percent increase over three years. Some, like "glam bag" brand Ipsy and meal kit brand Blue Apron, each welcomed more than 4 million visitors during that month.
Bolstered by its success, the subscription economy has set out on a new frontier: bundles. With automobile companies bundling maintenance and insurance in car leases and Spotify and Hulu banding together, how will these bundles influence their industries -- and those surrounding them?
What Subscription Bundling Looks Like in the Real World
Like the subscription model itself, subscription bundles are designed to retain customers, but there's one key difference: Bundled services provide complementary value. These bundles provide add-on services or products that enhance what a regular subscription might include. For example, a car manufacturer could offer a car-swapping subscription alongside an upgraded bundle option that includes regular oil changes and maintenance checks.
Subscription bundles currently exist in a couple different formats, according to Peter Figueredo, founding partner of House of Kaizen, a company helping others acquire and retain subscriber revenue through optimal digital experiences:
Adjacent bundles: These offer unrelated, but complementary, services. For example, Spotify subscribers were offered an add-on subscription of Hulu.
Essential bundles: These combine services and products to ease the customer experience. For instance, Care by Volvo subscribers get a car and Liberty Mutual insurance at the same time.
Figueredo says, "The economics of bundling makes a lot of sense to both the subscriber and the business--it provides more value to the subscriber while giving the business an efficient new subscriber acquisition source. Additionally, it provides another point of value to retain an existing subscriber to the original offering."
Spotify and Hulu first paired up to offer a student subscription bundle, priced at the same amount as Spotify's solo student subscription. That effort was well received, leading the companies to release a mainstream version. Its two bundles have myriad payoffs for the companies: Each is introduced to a new audience through the other's calling card, and by capturing consumers early, they gain an opportunity to build a lifelong customer base.
Some companies, like Apple, are even investigating bundling their own various services. By enabling customers to sign up for Apple's music, TV, and online magazine subscriptions together, the brand's banking on garnering subscribers who might not have pulled the trigger on all three with individual sign-ups. In this way, bundles can address the very real problem of subscription fatigue.
Where Bundles Could Run Into Obstacles
While these bundles provide high value, they introduce new complexity into the customer experience -- which can undermine that very value proposition. As Sujay Jaswa, Dropbox's vice president of sales and business development, said, "Any time you add subscriptions, you create friction."
In adjacent bundling situations, customers can become confused about which company to contact regarding their accounts, billing, or need for customer support, resulting in a negative experience. Spotify users who opt to sign up for the Hulu add-on, for example, are given basic Hulu accounts without the ability to upgrade to a premium account. Their billing flows through Spotify, further obscuring any outlet to expand their Hulu engagement.
Essential bundles have a lower threshold for confusion because they do ease the point of purchase, but what happens if a customer has an existing preference for a different brand? A customer who's interested in a Volvo subscription, but who wants to keep his current car insurance that isn't through Liberty Mutual, will be a hard sell -- as will those who get bundled insurance discounts for multiple vehicles.
Figueredo takes the view that bundles are best approached as an introductory method. "I believe that bundles should be looked at as lead-generation or sub-trial opportunities, not as long-term partnership opportunities, in most cases," he says. "Over the long term, the problems of customer ownership, subscription control, engagement, and retention all become way more challenging and likely not worth the effort."
This approach makes sense because the promoted company -- joining the core company's efforts -- can allocate its marketing budget for subscriber acquisition toward consumer promotions of bundle subscribers. What may seem like steep discounts merely shift dollars that would have been spent on marketing direct consumer discounts for a trial period. Separating after the initial relationship, allowing each business to interact with the subscriber separately, may be key to both brands' long-term success with customers.
Subscription bundles carry a lot of promise, but it's crucial that providers examine the customer experience closely. Without a fully optimized customer experience, the value proposition of a subscription bundle becomes less motivating and more anxiety-producing -- both for the brands and their subscribers.
With more opportunities looming on the horizon, the question swirling around subscription bundles isn't "If?" but "When?" With subscription models delivering revenue and retention to their brands, the addition of bundles could make getting subscribers in the door even easier, allowing subscription-based brands to further focus on the customer experience.