If we had to answer this question with one word – and one word only – that would be: convenience.
Nowadays, everyone wants to make their lives as convenient and easy as possible. Whether a streaming service like Netflix or your favorite news portal, subscription services provide convenience, value, and personalization that many of us get used to almost instantly. On the other hand, they provide businesses with recurring revenue that helps them foster stability and growth.
The popularity of subscription-based business models started with services such as Netflix and Spotify. Still, these days, startups and enterprises in almost all industries are beginning to accommodate their consumer base by allowing them to rent instead of own.
With Electrolux AB offering home appliance-as-a-service and Lenovo starting its device-as-a-service program, today´s consumers can rent almost everything without worrying about anything else.
This article delves deeper into why consumers prefer to rent technological products instead of buying them like before. We also explore the future of the subscription industry and whether it will end the era of ownership.
What are subscription services?
Subscription services are agreements between companies providing the service and consumers in which the consumer gets the service in exchange for a recurring payment. A subscription company is any business that sells its products on a predefined time basis. Before, the products offered on a subscription basis were usually licensed products or consumables that could only be used for a set period.
A typical example of a subscription service is Spotify, where consumers pay a monthly recurring fee for accessing their music streaming platform. Today, almost every product can be obtained on a subscription basis. Consumers can get laptops and smartphones through various device-as-a-service programs or even household appliances such as refrigerators or vacuum cleaners through a home appliance-as-a-service program.
It's not just that the subscription, or circular as it´s often called, business models increase the average spend and enable businesses to use their data to better serve their consumers and increase their loyalty. It provides consumers with much-needed convenience and personalization.
According to the Subscription Commerce Conversion Index research, the average U.S. consumer now has 3.9 retail subscriptions. In another study conducted by C+R Research, it has been determined that an average American spends $219 each month on subscriptions.
It´s a fact: subscription services can make consumers´ lives much easier. They can get food, beverages, beauty products, clothing, and other essentials delivered regularly to their home address. With the proliferation of subscription services such as device-as-a-service and home appliance as-a-service, consumers can subscribe to a full range of household and electronic devices. However, most companies have yet to start offering subscription services. And those who have started with a subscription business model often struggle to achieve meaningful success.
To simplify and ease their consumers´ purchasing barriers, businesses can empower their subscription-based business models with additional options such as trial periods, flexible contract durations, optional services, and the ability to cancel anytime.
The main reason why some companies struggle with launching and managing their subscription business model is that it is unchartered territory for them; therefore, it has unique challenges and opportunities that can be intimidating and alienating. Because of it, they often launch it as a niche offering or simply experiment with it because they saw their competition do the same. Due to poor management, low visibility, and lack of nourishment, these experiments fail and destroy value and cause reputational damage in the process. While experimenting can seem safer, a well-planned and committed approach is required to survive and thrive on the subscription market.
Device-as-a-Service Benefits for Consumers
Giving consumers the ability to use products and services on a subscription basis with automatic recurring payments offers businesses many benefits. From increased customer lifetime value to reduced acquisition costs, subscription business models help companies improve their bottom line and provide them with the ability to reduce subscription churn and improve their customer retention. But what exactly do customers get?
In the past decade, there was a trend in almost every industry where consumers started moving away from single purchases towards subscriptions. And that trend is continuing as we speak. Although the fact that says we, the people, are creatures that want to own things has created the world we know today is true, that fact is changed so rapidly in the last couple of years.
These days, people like their independence and flexibility more than anything. And although owning things will never go away, at least not completely, the benefits offered by circular economy and subscription-based models such as device-as-a-service and home appliance-as-a-service are increasingly replacing the classical ownership of things. Here are just some of the consumer benefits behind renting tech:
Convenience
The number one consumer benefit and the strongest driver behind the growing popularity of subscription-based business models is convenience. Although subscriptions were here before, the biggest spike in popularity of this business model came in 2020 with the arrival of the COVID-19 pandemic, which completely changed how we live, work, and shop.
What started with streaming services, such as Netflix for video and Spotify for music, has spread to other industries, such as software and retail. With EU legislation emphasizing the need to switch to a circular economy to preserve resources and slow down the negative impact, our overconsumption is making on the environment, more and more consumers realise the convenience of using products instead of owning them.
Flexibility
The subscription business model has three main areas where consumers can benefit from flexibility: product, ordering, and communication. When it comes to products, especially with the device-as-a-service and home appliance-as-a-service business models, consumers can rent the devices they need and select the accompanying products or services without worrying about device management. With ordering, there is a certain amount of flexibility with pricing, billing, and subscription duration, which most consumers find more appealing than the one-time payments associated with classic ownership. Lastly, businesses that offer subscription models are often innovative and take excellent care when communicating with their customers across various channels.
As that famous saying goes: “Flexibility is the key to stability” there are many ways businesses can offer flexibility to their consumers. That flexibility empowers both sides to create strong relationships that can last a lifetime.
Personalisation
According to the Next in Personalization 2021 Report, businesses that excel at demonstrating customer loyalty are generating faster revenue growth than their peers. The same report shows that the closer the business gets to the consumer, the bigger gains they get.
Although the ability to personalisation varies from product to product and from service to service, the subscription-based business models significantly increase business´ ability to curate their consumers´ experiences and personalise them based on several factors such as demographics and personal interests. And while personalisation can be time-consuming and challenging to get right, good algorithms and subscription management solution such as circuly can do most of the heavy lifting by automating the whole process.
“Flexibility is the key to stability”
Ease of mind
Significant, one-time purchases can make anyone anxious. Even if it´s something that they really need, a good portion of people postpones as long as possible before making the commitment simply because of the uncertainties and fears associated with the purchase. This is especially true with purchasing things such as a car or more expensive home appliances.
The subscription business models, such as device-as a service and home appliance-as-a-service reduce these initial entry barriers by offering convenient and flexible payment terms. For instance, video streaming services such as Netflix and Amazon Video offer their users the ability to pay monthly recurring charges instead of asking them to pay for the whole year. What´s more, the ability to cancel the service anytime gives their users peace of mind as small incremental payments cause less anxiety and don´t burden their monthly budgets.
To simplify and ease their consumers´ purchasing barriers, businesses can empower their subscription-based business models with additional options such as trial periods, flexible contract durations, optional services, and the ability to cancel anytime.
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