The number of people using subscription services like Amazon Prime, Netflix, Spotify, Birchbox, Dollar Shave Club continues to soar. Can financial institutions take advantage of this new business model?
The retail marketplace is witnessing a monumental change in consumer buyer behaviors, as hundreds of millions of people are now paying to take advantage of subscription services. Firms like Amazon, Apple, Dollar Shave Club among others, are building or transforming their business models to generate sales, improve loyalty and generate additional revenue. The difference with subscription-based models is that they allow their customers the option to either pay as they go, or pay per subscription monthly, or via a long-term contract. The difference is flexibility.
According to the Economist, “80% of companies are seeing a change in how their customers want to access and pay for goods and services and 50% of these same companies are changing their pricing models as a result.” Yet in the banking industry, charging $5 a month for a debit card or overdraft protection is not so inspiring. How can the banking industry associate their fees with value, rather than penalties?
The key may be to learn from the best – those firms that have reimagined seemingly un-penetrable business models to become new, born-digital companies that leverage technology, social media and people’s mobile lifestyles to generate a steady stream of revenue in return for ongoing value.
Turning a Daily Bathroom Habit into a Subscription Business
Before Dollar Shave Club, online razor sales were nonexistent, and the razor business was dominated by huge companies like PNG’s Gillette. But when Dollar Shave Club launched in 2012, they sold 12,000 subscriptions in the first two days after launching their first video commercial — Today that video has over 22 million views.
With the Dollar Shave Club, subscribers pay a monthly fee of $1, $6 or $9, depending on their preference of razors that are delivered each month. It’s a simple concept, brought to life by brilliantly clear and memorable marketing, and a valuable service that makes customer’s lives just a little bit easier. While their clear target customer is 20-something males, they’re doing a great job of reaching women also, who now make up 20% of their subscriber base.
From Facebook targeting, email marketing and video sharing, to The Bathroom Minutes newsletter that accompanies the monthly razor shipment, Dollar Shave Club is transforming the once unexciting razor business. The California-based company reached 2.2 million subscribers in 2015, doubling in less than a year.
Companies like Gillette have since launched online shaving clubs to win back these customers — According to Fortune, Gillette now has 21% of the online shaving market, compared to Dollar Shaves Club’s 54%.
Viewing Subscriptions Bust Blockbuster
Consumers of all ages have become addicted to Netflix, the TV and movie streaming service that put major video rental businesses like Blockbuster out of business completely.
“A transactional customer might own dozens or even hundreds of movies,” says Robbie Baxter, author of The Membership Economy. “But Netflix has thousands — from different countries, genres and more — providing tremendous choice and the latest options. Access is so much bigger than ownership, and the subscription model ties customers to organizations in an ongoing relationship with an opportunity for benefits on both sides.”
Netflix now has 81 million total subscribers. There are 47 million users in the U.S., and 36% of U.S. homes subscribe to Netflix. While 79% of users are Millennials, Netflix’s popularity is growing with Gen Xers, at 38%, at Baby Boomers, at 26%. Why? Binge watching is fun, and commercials aren’t. And a new type of community is created amongst the viewers who can’t wait to talk about it with each other. It’s why all users watched a total of 42.5 billion hours in 2015.
“A membership organization builds a ‘neighborhood’ for its ideal customer,” says Baxter. “There’s a cost associated…so the promise of connection, community and ongoing value must be guaranteed.”