Why subscription and consumption services need a different kind of marketing
SAP and McKinsey point to the different approaches needed by marketing and advertising for these growing channels.
The modern marketer’s job is not just about selling a product, like moving a new car off a dealer’s lot. Increasingly, it’s about selling a service, like leasing a car or getting customers to pay only for the hours of Zipcar time that they use.
In fact, SAP Sales Cloud GM Giles House told me, even a car sale can have a continuing service, like the ability for a Tesla owner to remotely unlock more mileage range from the battery. House’s company’s platform provides subscription services to its clients.
100 percent growth per year for five years. The first thing to realize is that recurring revenue sales are booming. Fifteen percent of online consumers have subscribed to a stream of products on a regular basis, per consulting firm McKinsey & Company.
In fact, subscription sales to products — that is, not digital files — has grown by more than 100 percent every year since 2014. And, of course, virtually all software is available these days in the cloud, as a subscription.
SAP’s House notes the difference between consumption models, where the customer pays only for what they use, and subscriptions, which have a recurring fee every month regardless of use.
Replenishment, curation and access. Among subscriptions, McKinsey identifies three kinds: replenishment, where goods are automatically re-ordered, like diapers; the most popular, curation, which includes selected shaving products in the monthly packages received through Dollar Shave Club; and access, which offers discount prices on a regular basis.
Curation boxes have grown beyond specialty startups like the FreshFood meal box, leading to services from several big players, such as Proctor & Gamble’s Gillette on Demand and Walmart’s Beauty Box.
Whatever the variation, House points out that recurring revenue models require marketers to move away from their traditional emphasis on customer acquisition, toward a greater emphasis on keeping existing customers by driving usage. He noted how even his recent purchase of a Molecule air purifier was wrapped with a subscription service for filters.
It’s a shift, he said, from “buy a product” to marketing to your existing customers. “You’re selling how this works for someone like you.”
Why bother? McKinsey’s data shows why: nearly 40 percent of consumer subscribers cancel, across all three variations (replenishment, curation and access).
“Consumers do not have an inherent love of subscriptions,” McKinsey said in its report. It points out that getting and paying for a series of payments, deliveries and sometimes selections is inherently more complex than a simple product purchase.
So why do customers go through the bother? For a “great, end-to-experience” with benefits from automatic purchasing, the consulting firm said, benefits like “lower costs or increased personalization.”
Marketing the experience is different than marketing the product, of course, like the many Super Bowl commercials that barely showed you the product. Instead, they marketed the experience.
Adoption of recurring revenue services will be driven by the innovation and personalization of the experience. House suggests marketers might boost their budget promoting trial subscriptions, in order to present the experience to more prospective customers.
Why you should care. The retention part is the key, of course. Once aboard, the ongoing revenue for a recurring customer tends to be more profitable, as costs are amortized.
House suggests more focus on customer advocacy programs and successful outcomes, so as to surface the success customers have had. The message is about “why you want to stay part of this, or use the service more,” he added.
And the message is delivered through the recurring revenue channel, which House noted becomes a key marketing channel. You directly reach the customer — who already knows about the service to some degree — through the service, like Tesla marketing to its customers who want to remotely expand their battery’s range.
Even ERI scanners — often rented by hospitals these days — are selling availability, House noted. More and more, he said, everything is becoming a service or getting wrapped inside one.