How to Move to a Subscription Model - Conversion Rate Optimisation Expert

How to Move to a Subscription Model

Written by Reed

With the pandemic speeding up the experience economy, the default to having subscription services is becoming the norm.

By 2023 it is estimated that around 75% of retail businesses will have a form of ecommerce subscription offering via Forbes.

People want to get in on that sweet, sweet recurring revenue. But most are worried that they will feel the forces of commodification creep in and will immediately turn back.

Though Tien Tzuo warns of the opposite and you’ll push customers away with old world views on product-ownership mindsets versus outcome-focused mindsets.

We prefer outcomes over ownership, we prefer customisation not standardisation, we want constant improvement not planned obsolescence, we want a new way to engage with businesses, we want services not products.

Tien Tzuo

So How Do I Move to Subscription?

With your business in it’s current state you need to focus on the outcomes of what your customers are truly after.

As Joseph Pine explains in The Experience Economy, “customers don’t want to buy a drill, they want a 1/4 inch hole”.

  • Customers don’t want a better store design, they want more revenue or more converting customers (mine).
  • Customers don’t want dog food, they want healthier dogs (Petzyo)
  • Customers don’t want tv on demand, they want to be entertained most nights (Netflix)

You should look to taking a small amount of current customers into a trial service. And make the leap when it feels right to go all in.

The service needs to be repeatable and with a view on fire-insurance instead of fire-fighting, but be open to fire-fighting on day one.

If you are tightly positioned this would be much easier, because then you can use this as word of mouth and drive a price premium.

When you go all in, you’ll have a cashflow issue that Tien Tzuo calls “Swallowing the fish” which he mentions in his book, Subscribed. Where you’ll see a dip in profits and come out the other side with growth.

Offering Options

I don’t want you to NOT offer options. Also when you offer them please do 3 or 4 no more.

When you give 2 options, it’s a pricing decision, when you give 3, it’s comparison.

Ron Baker

When you give your options, solve the initial outcome as above, but your minimum option be exactly the minimum. Do whatever it takes to make it the cheapest option for you to deliver.

Your middle should be your customers sweet spot to buy, where they feel it insures the outcome and keep showing up to use it when they need. This should be your best offer to the average in your biggest segment.

Your high offer should be very profitable and used less than 15% of the time. If it’s being used more you up the price, or change the offers.

Pricing the Portfolio and Relationship, Not the Customer

You should price the overall portfolio and not be concerned about who is coming in. Like other pricing models I describe, there might be 11,000,000 prices per day. This one really shouldn’t go over 3 options (I do however describe pricing segments if it’s b2b).