Opinions expressed by Digital Journal contributors are their own.
Let’s take a quick walkthrough of your daily routine. After rolling out of bed, you brushed your teeth with toothpaste that Amazon ships to you every 6 months via their ‘Subscribe and Pay’ option and shaved with a razor from the Dollar Shave Club. You put on a brand new outfit courtesy of this month’s Stitch Fix box and quickly warm up your breakfast and pack your lunch, both prepped over the weekend thanks to Hello Fresh.
Your favorite Apple Music station psychs you during your daily commute while the brand new true crime podcast on Stitcher Premium helps you relax on the drive home. Once you’re home, your friend invites you to Disneyland, but as a passholder, you’ve already been twice this month. So, you instead decide to stay home, order your favorite meal on UberEats and binge the new Netflix series that everyone’s been talking about. Or was it on Hulu?
From media, to dining, to your personal grooming, the subscription-based business model has quickly taken over every aspect of our daily experiences. But why doesn’t it bother us as much as it feels like it should?
As consumers, we generally do not like the feeling of being owned by a corporation. We complain about price hikes, add-ons at cost, and increasing restrictions and yet, we continue to pay monthly fees for services we use every other month despite being given a clear path out.
So, is this a case of Stockholm syndrome or is there an explanation?
Why it Works
Businesses and consumers seemingly have mutually embraced the subscription-based business model. It’s a two-way street that benefits both sides of the equation. Here’s how it works.
Businesses sell a product or service for a recurring subscription, thus, shifting their focus from customer acquisition to customer retention. The single customer is now paying multiple payments for continued access to the good or service rather than one payment for a singular access, ultimately reducing the amount of one-time customers. As a result, the customer’s lifetime value (LTV) increases.
According to a 2021 survey by Recharge Payments, existing subscription brands grew their overall customer base by an average of 31% between 2020 and 2021, demonstrating the consumers’ growing preference for continual access to their goods and services over a one-time purchase.
Additionally, this shift in mindset increases the customer’s worth to a business, increasing their attention to improving customer relationships and experiences in hopes of retention. 80% of consumers are more likely to purchase from a brand that offers personalized experiences and 42% of customers are likely to stay with a merchant after 12 months.
In short, if businesses can offer recurrent, convenient access to their goods and services and improve the customer experience, they will receive a stable, predictable stream of revenue and a stronger relationship with their customers in return. So how can we utilize this to improve other volatile industries?
Subscription-Based Travel
The 2020 coronavirus pandemic created economic turbulence in a number of industries. Most notably, air travel, which was already due for quality of life improvements, seemingly got worse. Price hikes, heightened security, long lines, staff shortages, unruly passengers, and health concerns are just a few of the issues keeping many from flying.
But, what if the entire flight process wasn’t such a headache and everyone had equal access to a quality flight experience? This is where the implementation of a subscription-based travel model comes into play.
Imagine a scenario where anyone can pay a flat monthly rate to unlock continual access to airfare. The recurring revenue that the airline receives helps keep the subscription fee low, getting rid of the expensive “purchase price” that many can’t afford to pay and, in return, customers receive affordable and convenient access to a luxury they may have never had a chance to obtain.
Of course, like many streaming services we see today, the recurring fee will cover the “base-rate” where users agree to sit through varying lengths of ads in exchange for their now attainable luxury. They will also have the option to upgrade their plan to remove the marketing all together. Regardless of the customer’s choice, businesses now have two additional revenue streams which can ultimately be used toward paying personnel, maintenance, and other quality of life improvements in the flight process.
The model will create a basic minimum standard of living that produces happier consumers with more freedom with their time and money to pursue the many new opportunities that are now within their reach. After all, happier people are far more likely to make larger purchases.
We are already witnessing the travel industry implement this model with the introduction of Alaska Airlines’ Flight Pass earlier this year. While some hiccups are to be expected in the early stages of these plans as they roll out, this model ultimately ensures both individuals and the economy thrive alongside one another. And it doesn’t stop with the travel industry.
Read more about Danchev’s thoughts on the subscription-based business model in his book, My Gift to the World.
