While subscription plans have been rising in popularity with unlikely suspects such as Nike and automotive marketplace Carro also joining the scene in recent months. Just last Thursday, KFC US too, made a surprising entry with the launch of “Seasoned Tickets” subscription on ticketing website StubHub for the football season. For 10 weeks, 500 ticket holders are able to get fried chicken wings delivered to their doorsteps weekly and a “bonus” 48 wings on the last week. The plan, costing US$75, provides 528 wings of more than US$400 in value in total.
The rise of the subscription economy across more unconventional categories begs the question whether it is a stroke of marketing brilliance or just a fad. According to a report by Gartner earlier this month, 75% of organisations selling direct to consumers will offer subscription services by 2023, but only 20% will succeed in increasing customer retention. Those who manage to find the right formula however, appear to be poised for tremendous growth,a report by Zuoro in March further revealed. The report added that subscription businesses have seen sales grow by more than 300% over the past seven years.
In a conversation with Marketing, Louken Group CEO Luke Lim said he does not think subscription models will be the future as they only work for specific service offerings, such as tech-centric companies or brands that have large recurring purchases. In the case of KFC, Lim said the brand will have to look into their data to see if there is enough purchases by their regular customers to justify the move.
He explained: “With so much competition in the fried chicken business, I am not sure if it makes sense for KFC. If the purchasing frequency and volume is low, sign up will likely be low.”
Subscriptions may be a way to offer value to loyal customer or “sticky” customers and secure recurring revenue, but there is also cost involved in running another business model. This includes building a new team to look after subscription customers. Additionally, such a move may blur the lines of walk-in paying customers and subscription paying customers. Lim said:
If the subscription model is not well thought out, companies risk alienating and losing more walk-in customers.
He advised companies to observe consumer behaviour in the market, given that sufficient traction among customers and brands will eventually build enough momentum to sustain the trend.
Appealing to the young
Carro group CMO Manisha Seewal said she is seeing a “secular shift” towards subscription-based services, and this trajectory is on the way to becoming the new norm. The trend is not surprising to Seewal, who said consumers from today’s younger generations are now looking at products and services that can provide them with a wide array of choices, but with lower commitments.
With this belief, Carro launched its subscription service in March to give car buyers in Singapore a low commitment option, for something which is typically associated to being burdensome and expensive. Under the subscription, Carro takes care of all commitments related to car ownership, from maintenance to insurance and road tax, with a flat monthly fee. Speaking to Marketing, Seewal said subscription models have a huge opportunity to take off in APAC, which has a high percentage of youths.
A factsheet by UN estimated that over 60% of the world’s youth reside in APAC and youths make up about 19% of the region’s total population.
“Youths, having grown up during a time of rapid growth in the economy and internet penetration, are more familiar to shifting global trends and the kind of products that are being sold. Youths want the same kind of products and services that their international peers are enjoying,” explained Seewal.
Growing up with services such as Spotify and Netflix, she said that tech-savvy consumers are now leaning towards services, preferably on digital channels, that can give them the sort of flexibility they have become accustomed to.
The greatest proponents of subscription services tend to come from the Millennial generation who prizes convenience and low commitment.
Direct-to-consumer businesses that deal with high transaction frequencies and customer interaction touch points will find it easier to integrate a subscription element to their business as they would know their customers better. However, brands looking to start a subscription service need to have products that are flexible enough to cater to changing ownership mindsets and a digital infrastructure that is sophisticated enough to facilitate the subscription model. Customers should also have the option to cancel anytime whenever they change their mind, as the appeal of subscription services is that it reduces inflexible contractual obligations, explained Seewal.
The brand pull
Anindya Dasgupta, who recently left his role as global head of consumer business and chief marketing and sales officer at Fonterra to set up Growth Officers consultancy, agrees with Seewal on the advantages on of subscriptions. It is a “great option” to beat the competition and retain customers, he said with one caveat – there has to be enough brand pull, and value in the subscription plan.
He said: “The value that the consumer gets through the lower pricing versus a unit price purchase, has to be equal or more than the tangible closeness, or equity that the consumer has for this brand.”
And this goes beyond pricing alone. Other pitfalls include cases where companies’ supply chain is not able to fulfill brand’s promises and ensure efficient delivery. Should that happen, the brand runs the risk of losing the consumer forever.
Meanwhile, Mayank Singh, head of digital business and marketing, Domino’s Pizza Indonesia said it is important for brands to tailor their subscription strategy to the local market too. While consumption patterns indicate that subscription models can “definitely work” in Asia, Singh said that the subscription plan has to correlate to the business.
For instance, a subscription model in Indonesia, where most people have all three meals outside, would be a disruption to consumers’ lifestyles or current habits. But similarly, given that Indonesians are fond of rice, food players with such offerings could consider increasing the frequency and duration.
“You have to study the data and come up with a propensity model. It requires market testing, and constant adjustments,” he added.
Subscription models are ideal for retail categories with repetitive purchasing behaviour such as food and travel as they can help to build loyalty. Subscriptions provides customers with upfront discounts and companies with upfront revenue. Singh said that such models are opportunities to build additional revenue streams and there is “no harm in trying”.