What the Subscription from the DVD Rental Space to Ecommerce

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What the Subscription from the DVD Rental Space to Ecommerce

16/03/2022 Categories: Articles

Traditional Transactional Sales Model If you have ever been to a retail store or purchased a car, then you are very familiar with the transactional sales model. This model is focused on customer acquisition and making a one-time sale. The science in this model revolves around the volume of sales and how to get a customer to purchase with the lowest cost of acquisition. Customer loyalty is not a focus here as there is no monetary benefit for focusing on customer loyalty for the company selling the product or service, using this model. Movies Everyone remembers movie stores, like Blockbuster. It is probably the most widely used and more classic example of a transactional business model and a business/industry that is now all but a memory of middle-aged adults’ childhoods. The premise was simple; you go into the store, browse the selection of available VHSs or DVDs (depending on how far back you go), chat with the clerk, and check out the movie like a library book. In essence, you were buying time to use the movie or later games. Cars Going to the car lot and looking at a car, then purchasing a car is as cut-and-dry of an example of the traditional transactional business model for a product, as you may get. The approach is all about customer acquisition. A car company will put out advertisements for their business, they will jazz up their lot so that you notice them when you drive by, and then they will real you in with all kinds of “one-time-only discounts”. Their goal isn’t to retain you as a customer with the purchase of a car. Their goal is to sell you and as many other people as possible a car. Many car companies reward sales volume and market it when trying to convince a customer of a sale. Subscription Models If you grew up in any decade before the 2000s, as I did, subscriptions were limited to Magazines and the Disney DVD Club. Today subscriptions have made their way into every part of our lives, including our refrigerators, and even have become “smart”, with the introduction of AI into the subscription space. What is the Subscription Business Model? At its core, the subscription business model abandons the one-time upfront cost of a good or service and instead focuses on long-term agreements to pay for access to products and services. The goal of the subscription model is to create a more digestible payment option that is focused on long-term customer retention, loyalty, and recurring revenue. In contrast, traditional sales models typically require a larger upfront cost and are focused on the immediate sale, not the longevity of the customer relationship. Food A staple for living. The food industry was very transactional, for the most part, until recently. This is a great example of an industry, and type of product, that surprised and captivated a lot of people when it was introduced as a subscription. As a child, you probably heard your parents say, “Who wants to do the food shopping this week?” It was a dreaded task. Why? Long lines, irate customers, loud children. There was little to be desired. Now, you can go online, set up a recurring grocery list, or purchase a “mystery box”, and only must worry about putting the groceries away when they arrive at your door. The act of “going grocery shopping” can be something that you say, “remember when”, or that you do when you desire that type of social interaction or, an immediate ingredient that Amazon can’t deliver the same day. Software Microsoft, the software giant, made billions off transactional sales of their numerous software products, that ran many of our computers growing up and even today. They were a titan of their industry. They could charge what they wanted, and the consumer didn’t have much choice. It was great for them but was not a good experience for the consumer.  When a new version of a piece of software came out you had to buy the new version, sometimes yearly. So, not only was the cost of the software nearly prohibitive, but you also had to absorb that cost regularly if you wanted to keep up to date with the latest features. More recently, software entered the subscription-based business model. It has been nothing short of glorious if I do say so myself. Instead of going into a store and making a large purchase, you can now subscribe for access to a piece of software and pay for it over time, for as long as you want the software. And Microsoft, a historically transaction software sales company, followed suit with their subscription services. Almost there… I want to digress a bit and go back to Blockbuster. I won’t be satisfied if I don’t give a bit more information on my sadness with how they “went away”. Because they were almost there… And I truly enjoyed the movie store environment. While Blockbuster is used as a classic example of a business killed by a subscription-based model, it was not a one-for-one exchange. For me, Blockbuster, and other similar rental businesses, were very close to being on the verge of pioneering this space for their industries. Unfortunately, they just needed to break away from tradition and realize the evolution of their business and they couldn’t do it. They needed to move away from the thought of “…but I could make more sales on each customer” and instead move to think “…I can make a consistent sale off each customer, every month, whether they decide to pick up a movie or game or not”. In a not yet tested model, this decision may not have been as clear-cut as

a one-time sale. The science in this model revolves around the volume of sales and how to get a customer to purchase with the lowest cost of acquisition. Customer loyalty is not a focus here as there is no monetary benefit for focusing on customer loyalty for the company selling the product or service, using this model.

Movies

Everyone remembers movie stores, like Blockbuster. It is probably the most widely used and more classic example of a transactional business model and a business/industry that is now all but a memory of middle-aged adults’ childhoods. The premise was simple; you go into the store, browse the selection of available VHSs or DVDs (depending on how far back you go), chat with the clerk, and check out the movie like a library book. In essence, you were buying time to use the movie or later games.

Cars

Going to the car lot and looking at a car, then purchasing a car is as cut-and-dry of an example of the traditional transactional business model for a product, as you may get. The approach is all about customer acquisition. A car company will put out advertisements for their business, they will jazz up their lot so that you notice them when you drive by, and then they will real you in with all kinds of “one-time-only discounts”. Their goal isn’t to retain you as a customer with the purchase of a car. Their goal is to sell you and as many other people as possible a car. Many car companies reward sales volume and market it when trying to convince a customer of a sale.

Subscription Models

If you grew up in any decade before the 2000s, as I did, subscriptions were limited to Magazines and the Disney DVD Club. Today subscriptions have made their way into every part of our lives, including our refrigerators, and even have become “smart”, with the introduction of AI into the subscription space.

What is the Subscription Business Model?

At its core, the subscription business model abandons the one-time upfront cost of a good or service and instead focuses on long-term agreements to pay for access to products and services. The goal of the subscription model is to create a more digestible payment option that is focused on long-term customer retention, loyalty, and recurring revenue. In contrast, traditional sales models typically require a larger upfront cost and are focused on the immediate sale, not the longevity of the customer relationship.

Food

A staple for living. The food industry was very transactional, for the most part, until recently. This is a great example of an industry, and type of product, that surprised and captivated a lot of people when it was introduced as a subscription.

As a child, you probably heard your parents say, “Who wants to do the food shopping this week?” It was a dreaded task. Why? Long lines, irate customers, loud children. There was little to be desired.

Now, you can go online, set up a recurring grocery list, or purchase a “mystery box”, and only must worry about putting the groceries away when they arrive at your door. The act of “going grocery shopping” can be something that you say, “remember when”, or that you do when you desire that type of social interaction or, an immediate ingredient that Amazon can’t deliver the same day.

Software

Microsoft, the software giant, made billions off transactional sales of their numerous software products, that ran many of our computers growing up and even today. They were a titan of their industry. They could charge what they wanted, and the consumer didn’t have much choice. It was great for them but was not a good experience for the consumer.  When a new version of a piece of software came out you had to buy the new version, sometimes yearly. So, not only was the cost of the software nearly prohibitive, but you also had to absorb that cost regularly if you wanted to keep up to date with the latest features.

More recently, software entered the subscription-based business model. It has been nothing short of glorious if I do say so myself. Instead of going into a store and making a large purchase, you can now subscribe for access to a piece of software and pay for it over time, for as long as you want the software. And Microsoft, a historically transaction software sales company, followed suit with their subscription services.

Almost there…

I want to digress a bit and go back to Blockbuster. I won’t be satisfied if I don’t give a bit more information on my sadness with how they “went away”. Because they were almost there… And I truly enjoyed the movie store environment.

While Blockbuster is used as a classic example of a business killed by a subscription-based model, it was not a one-for-one exchange. For me, Blockbuster, and other similar rental businesses, were very close to being on the verge of pioneering this space for their industries. Unfortunately, they just needed to break away from tradition and realize the evolution of their business and they couldn’t do it. They needed to move away from the thought of “…but I could make more sales on each customer” and instead move to think “…I can make a consistent sale off each customer, every month, whether they decide to pick up a movie or game or not”. In a not yet tested model, this decision may not have been as clear-cut as it might be today.

E-commerce and Subscriptions

Over the last, almost 30 years, there was a shift from traditional brick-and-mortar stores to online-based retail businesses [e-commerce]. The idea of the shift was to make “local” products available to anyone, anywhere. With this shift came some issues, such as shipping, state-specific tax laws, state restrictions on goods sold, etc. However, out of this shift also came innovation in how the products are sold, and what the customer means to the products and brand. Nowadays, just about everything can be bought online. It was convenient, but convenience is evolutionary, and just purchasing online still wasn’t enough. The latest trend in e-commerce convenience is subscriptions. We are seeing this trend translate to consumer goods, services, and the software that we use to run our businesses and computers.

Evolution to this point in our discussion

Subscription Evolution

Exploring the benefits of subscriptions

To fully understand what we are moving towards subscriptions, in just about every facet of our lives, let’s talk about the benefits of the subscription sales model. We have alluded to multiple benefits previously, let’s round those up and then talk about a few more that are specific to E-commerce stores and online sales.

General Subscription Benefits

Though not exhaustive lists, here are my thoughts on some of the benefits of the subscription-based sales model

For the Retailer

  • Lower cost of customer acquisition
  • Focus can be shifted more on customer satisfaction and rewards rather than acquisition and “one-time-only deals”
  • Predictable revenue – Weekly, Monthly, Yearly, etc.
  • Evolve product or services into tiers
  • Data-driven offerings can easily be introduced
  • Supplemental offerings to increase subscriptions during slower months can be determined
  • Can reduce return rates as subscriptions just need to be canceled if a customer is not satisfied.

For the Consumer

  • Lower cost of entry to use a product or service
  • Retailers are focused on customer loyalty
  • Often see discounts and comprehensive loyalty rewards programs
  • Predictable spend
  • Freedom of choice on tiered plans
  • Quicker access to services and products
  • Set it and forget it for services like food delivery and Ink
  • Easier cancellation processes

Preparing for Subscription Sales

Preparing your business for a subscription-based model is mostly dependent on the service or product you offer. But there are some common success factors in subscription-based selling that should be considered no matter what you are selling.

Suggested Success Factors for Consideration

Customer loyalty programs

  • Your customers are committing to your product or service for a period. Reward them for how long they are with you. This will encourage the longevity of the customer relationship.
  • Reward your customers for how many people they bring you as new customers. This encourages word of mouth promotion of your business, typically unsolicited and so free of cost

Support

  • Customer support becomes very critical in maintaining a long-term relationship with customers on a subscription basis. You are offering a product or service that can stop working at any time.
  • Offer support levels for your customers, which can be tiered just as your services or product tiers are or along with your product or service tiers. Allow them to choose how much or how little support they need.

Make the product or service easily accessible and installable (if it is software) on all devices

Customers are used to moving from one device to the next. Try to support as many devices as you can if your product or service is software related

Ask for feedback

  • Customers are the only true measure of how successful you are in your product or service offering
  • Be willing to improve. Customers are your feedback for the improvement loop
  • They will also be your biggest critics online if customer service or product and service quality are poor

Additional suggestions for being successful

  • Know your target audience and what they are willing to; pay and pay for
    • Don’t assume you know how much your customers will pay, or what they are willing to pay for. Do your research.
  • Be passionate about what you sell or offer
    • If you don’t love it, the customer will see that and react accordingly
  • Think of ways to keep your customers engaged in your product, service, and brand
    • Provide content
    • Provide an opportunity for feedback
  • Provide strong documentation on your product or service
    • Subscription-based models mean your customer is with you and your product or service for a longer period. If they are subscribed, they are with you.
    • Give them away to self-help
  • Find ways to engage with the customer to offer updates, new services or products, and new discounts
    • Newsletters, blog posts, personal calls, etc.
  • Believe data over the assumption
    • Don’t just do your research, also find new ways to capture more and more data
    • Data is your friend, and it can guide you around pitfalls
    • Data can tell you a story of what your customers do or do not want, without you even having to ask them

What is the next evolution in sales?

Well, this is an opinion based on what I have seen and heard. Here is what I think is very near to being our next experience.

Virtual Malls

This is becoming more of a reality as the Metaverse is being explored and expanded. The idea is not novel though, as virtual worlds, and even virtual currencies have been around since Second Life and the Linden currency.

Humanoid Virtual Assistants

Think of your own personal AI assistant that is bound to any one site, but rather is bound to you!

Conclusion

We have gone over, from a high level, what it means to be a business based on using the subscription-based sales model. I hope to have given you enough information to be dangerous and to be able to consider what may be next for your business as it explores utilizing subscriptions. If you are a consumer, I hope to have given you a sample of what to expect from established subscription-based services to help make your decisions a bit easier.

 

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Author
Philippe Collin III
Body

Traditional Transactional Sales Model

If you have ever been to a retail store or purchased a car, then you are very familiar with the transactional sales model. This model is focused on customer acquisition and making a one-time sale. The science in this model revolves around the volume of sales and how to get a customer to purchase with the lowest cost of acquisition. Customer loyalty is not a focus here as there is no monetary benefit for focusing on customer loyalty for the company selling the product or service, using this model.

Movies

Everyone remembers movie stores, like Blockbuster. It is probably the most widely used and more classic example of a transactional business model and a business/industry that is now all but a memory of middle-aged adults’ childhoods. The premise was simple; you go into the store, browse the selection of available VHSs or DVDs (depending on how far back you go), chat with the clerk, and check out the movie like a library book. In essence, you were buying time to use the movie or later games.

Cars

Going to the car lot and looking at a car, then purchasing a car is as cut-and-dry of an example of the traditional transactional business model for a product, as you may get. The approach is all about customer acquisition. A car company will put out advertisements for their business, they will jazz up their lot so that you notice them when you drive by, and then they will real you in with all kinds of “one-time-only discounts”. Their goal isn’t to retain you as a customer with the purchase of a car. Their goal is to sell you and as many other people as possible a car. Many car companies reward sales volume and market it when trying to convince a customer of a sale.

Subscription Models

If you grew up in any decade before the 2000s, as I did, subscriptions were limited to Magazines and the Disney DVD Club. Today subscriptions have made their way into every part of our lives, including our refrigerators, and even have become “smart”, with the introduction of AI into the subscription space.

What is the Subscription Business Model?

At its core, the subscription business model abandons the one-time upfront cost of a good or service and instead focuses on long-term agreements to pay for access to products and services. The goal of the subscription model is to create a more digestible payment option that is focused on long-term customer retention, loyalty, and recurring revenue. In contrast, traditional sales models typically require a larger upfront cost and are focused on the immediate sale, not the longevity of the customer relationship.

Food

A staple for living. The food industry was very transactional, for the most part, until recently. This is a great example of an industry, and type of product, that surprised and captivated a lot of people when it was introduced as a subscription.

As a child, you probably heard your parents say, “Who wants to do the food shopping this week?” It was a dreaded task. Why? Long lines, irate customers, loud children. There was little to be desired.

Now, you can go online, set up a recurring grocery list, or purchase a “mystery box”, and only must worry about putting the groceries away when they arrive at your door. The act of “going grocery shopping” can be something that you say, “remember when”, or that you do when you desire that type of social interaction or, an immediate ingredient that Amazon can’t deliver the same day.

Software

Microsoft, the software giant, made billions off transactional sales of their numerous software products, that ran many of our computers growing up and even today. They were a titan of their industry. They could charge what they wanted, and the consumer didn’t have much choice. It was great for them but was not a good experience for the consumer.  When a new version of a piece of software came out you had to buy the new version, sometimes yearly. So, not only was the cost of the software nearly prohibitive, but you also had to absorb that cost regularly if you wanted to keep up to date with the latest features.

More recently, software entered the subscription-based business model. It has been nothing short of glorious if I do say so myself. Instead of going into a store and making a large purchase, you can now subscribe for access to a piece of software and pay for it over time, for as long as you want the software. And Microsoft, a historically transaction software sales company, followed suit with their subscription services.

Almost there…

I want to digress a bit and go back to Blockbuster. I won’t be satisfied if I don’t give a bit more information on my sadness with how they “went away”. Because they were almost there… And I truly enjoyed the movie store environment.

While Blockbuster is used as a classic example of a business killed by a subscription-based model, it was not a one-for-one exchange. For me, Blockbuster, and other similar rental businesses, were very close to being on the verge of pioneering this space for their industries. Unfortunately, they just needed to break away from tradition and realize the evolution of their business and they couldn’t do it. They needed to move away from the thought of “…but I could make more sales on each customer” and instead move to think “…I can make a consistent sale off each customer, every month, whether they decide to pick up a movie or game or not”. In a not yet tested model, this decision may not have been as clear-cut as it might be today.

E-commerce and Subscriptions

Over the last, almost 30 years, there was a shift from traditional brick-and-mortar stores to online-based retail businesses [e-commerce]. The idea of the shift was to make “local” products available to anyone, anywhere. With this shift came some issues, such as shipping, state-specific tax laws, state restrictions on goods sold, etc. However, out of this shift also came innovation in how the products are sold, and what the customer means to the products and brand. Nowadays, just about everything can be bought online. It was convenient, but convenience is evolutionary, and just purchasing online still wasn’t enough. The latest trend in e-commerce convenience is subscriptions. We are seeing this trend translate to consumer goods, services, and the software that we use to run our businesses and computers.

Evolution to this point in our discussion

Subscription Evolution

Exploring the benefits of subscriptions

To fully understand what we are moving towards subscriptions, in just about every facet of our lives, let’s talk about the benefits of the subscription sales model. We have alluded to multiple benefits previously, let’s round those up and then talk about a few more that are specific to E-commerce stores and online sales.

General Subscription Benefits

Though not exhaustive lists, here are my thoughts on some of the benefits of the subscription-based sales model

For the Retailer

  • Lower cost of customer acquisition
  • Focus can be shifted more on customer satisfaction and rewards rather than acquisition and “one-time-only deals”
  • Predictable revenue – Weekly, Monthly, Yearly, etc.
  • Evolve product or services into tiers
  • Data-driven offerings can easily be introduced
  • Supplemental offerings to increase subscriptions during slower months can be determined
  • Can reduce return rates as subscriptions just need to be canceled if a customer is not satisfied.

For the Consumer

  • Lower cost of entry to use a product or service
  • Retailers are focused on customer loyalty
  • Often see discounts and comprehensive loyalty rewards programs
  • Predictable spend
  • Freedom of choice on tiered plans
  • Quicker access to services and products
  • Set it and forget it for services like food delivery and Ink
  • Easier cancellation processes

Preparing for Subscription Sales

Preparing your business for a subscription-based model is mostly dependent on the service or product you offer. But there are some common success factors in subscription-based selling that should be considered no matter what you are selling.

Suggested Success Factors for Consideration

Customer loyalty programs

  • Your customers are committing to your product or service for a period. Reward them for how long they are with you. This will encourage the longevity of the customer relationship.
  • Reward your customers for how many people they bring you as new customers. This encourages word of mouth promotion of your business, typically unsolicited and so free of cost

Support

  • Customer support becomes very critical in maintaining a long-term relationship with customers on a subscription basis. You are offering a product or service that can stop working at any time.
  • Offer support levels for your customers, which can be tiered just as your services or product tiers are or along with your product or service tiers. Allow them to choose how much or how little support they need.

Make the product or service easily accessible and installable (if it is software) on all devices

Customers are used to moving from one device to the next. Try to support as many devices as you can if your product or service is software related

Ask for feedback

  • Customers are the only true measure of how successful you are in your product or service offering
  • Be willing to improve. Customers are your feedback for the improvement loop
  • They will also be your biggest critics online if customer service or product and service quality are poor

Additional suggestions for being successful

  • Know your target audience and what they are willing to; pay and pay for
    • Don’t assume you know how much your customers will pay, or what they are willing to pay for. Do your research.
  • Be passionate about what you sell or offer
    • If you don’t love it, the customer will see that and react accordingly
  • Think of ways to keep your customers engaged in your product, service, and brand
    • Provide content
    • Provide an opportunity for feedback
  • Provide strong documentation on your product or service
    • Subscription-based models mean your customer is with you and your product or service for a longer period. If they are subscribed, they are with you.
    • Give them away to self-help
  • Find ways to engage with the customer to offer updates, new services or products, and new discounts
    • Newsletters, blog posts, personal calls, etc.
  • Believe data over the assumption
    • Don’t just do your research, also find new ways to capture more and more data
    • Data is your friend, and it can guide you around pitfalls
    • Data can tell you a story of what your customers do or do not want, without you even having to ask them

What is the next evolution in sales?

Well, this is an opinion based on what I have seen and heard. Here is what I think is very near to being our next experience.

Virtual Malls

This is becoming more of a reality as the Metaverse is being explored and expanded. The idea is not novel though, as virtual worlds, and even virtual currencies have been around since Second Life and the Linden currency.

Humanoid Virtual Assistants

Think of your own personal AI assistant that is bound to any one site, but rather is bound to you!

Conclusion

We have gone over, from a high level, what it means to be a business based on using the subscription-based sales model. I hope to have given you enough information to be dangerous and to be able to consider what may be next for your business as it explores utilizing subscriptions. If you are a consumer, I hope to have given you a sample of what to expect from established subscription-based services to help make your decisions a bit easier.

 

 
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