As new research indicates that the sales of digital music are set to overtake physical sales by 2015, it is increasingly clear that the way in which we buy and consume products is rapidly changing. The world we once knew, where we owned physical products like CDs, DVDs, newspapers and even cars, is rapidly coming to a close.
Ed Barton, Strategy Analytics’ director of digital media, told Internet Retailing how this is affecting the music industry: “Although downloads still account for nearly 80% of online music revenues, this market is maturing and spending is flattening in all key territories. Streaming music services such as Spotify and Deezer will be the key growth drivers over the next five years as usage and spending grow rapidly. Why? Because people are increasingly valuing accessibility and availability over actual ownership of digital music.”
But it is not just the music industry that has been transformed. This trend is increasingly common across all industries. More people are subscribing to services rather than buying products up-front. Customers lease or subscribe to something they want to consume. At Zuora, we have dubbed this phenomenon the Subscription Economy.
The diversity of services and products now available on subscription is impressive. WhipCar offers people an alternative to car rental and ownership, Girl Meets Dress lets you rent a dress for any occasion. The Larder Box is a monthly subscription service that delivers food and recipes straight to your door, and of course there are ‘Boris Bikes’ where you subscribe to a bicycle service, ride it where you like, then return it, ready for the next person. And you can even hire dogs: FlexPetz offers access to fully-trained dogs for a few hours or days, depending on what you want.
What’s going on? As these examples show, there is an unmistakable shift in demand away from owning a product to the Subscription Economy. Right now we estimate that there are potentially more than 15 million companies in North America and Europe that are using the subscription model or could adopt it.
And it’s no surprise. For consumers, subscription allows more freedom and variety in the way products can be consumed. So instead of buying a CD, you subscribe to Pandora or Spotify. You can make small regular payments in return for use of services instead of buying them outright. Rather than one-off interactions with a company, the consumer engages in a continuous relationship with its service provider. If companies are switched on to the opportunity, this repeated contact can enables them to reward customers with a tailored service that suits their specific needs or preferences. Businesses can better position themselves to provide customers with what they want, where they want it and how they want it.
This shift also creates opportunities for businesses. This changing consumer behaviour are causing many industries to redefine their go-to-market strategy. The stereotype of the sales rep seeking revenue from one-time transactions is being replaced by interactive customer relationships that generate repeat revenue through usage, service upgrades and renewals. It’s not about how many products you ship anymore. It’s about how strong your customer relationships are. Customer centricity – having a stronger relationship with the customer that will be longer lasting and deeper, will determine the winners and losers in the Subscription Economy.
Specialist subscription models allow companies to launch, scale, and monetise their subscription services in numerous ways, adapt to rapidly-changing market dynamics, and spread the cost of purchases while providing their customers with the flexibility they demand. Rather than selling products as a one-time transaction, businesses must act now to secure their futures and generate recurring revenue by signing customers to subscription services. The music industry may be ahead of the times in adoption, but as other industries take up the challenge, soon we’ll all be investing in recurring services.
Tien Tzuo is chief executive of Zuora