Will they subscribe?
Is big business in denial about subscriptions? Charles Trevail, CEO of C Space and Interbrand, shares his thoughts on why subscriptions are all about selling relationships, not products.
CEO at C Space
Charles Trevail is the Global CEO of C Space and Interbrand as well as the host of Outside In, a customer centricity podcast. A leader in the consulting world for more than 20 years, Charles has a successful track record of reinventing companies, brands, and experiences through co-creation and collaboration with customers. Fascinated by politics, he has advised on strategy for New Labour in the UK during the 2005 election, and Al Gore and his team on launching and positioning a leading sustainable asset management firm. Despite all this, Charles still finds time to serve as a board member for FINCA International, play soccer, enjoy the theatre, and add to his growing list of countries visited (70+ and counting!).
When I moved to New York City a few months ago, I looked into “subscribing” to a car. I wanted the freedom to travel in and out of the city easily, without the added inconvenience and cost of car ownership. I thought subscribing would be a smarter alternative.
I was wrong. The car subscriptions I looked at were really expensive — more than a monthly car payment! It didn’t feel like a smarter alternative. More like an extravagant one with fancy extras that weren’t of much interest. So, I’m still car-less. When I do need a car, I take an Uber or I rent one.
Such high prices might be indicative of an industry in denial about how fast consumers are really changing. Or, perhaps the industry is unwilling to change because it doesn’t want the subscription model to catch on. They fear losing upfront revenue, or risk disrupting a proven business model, so they make it so expensive that you’d rather just buy a car.
I posed this idea to Tien Tzuo, author of the book, Subscribed, when he was on the Outside In podcast. Tzuo is a firm believer in the potential of the Subscription Economy. In fact, he invented the term. His book is about why the subscription model is the future for all companies — even those that can’t imagine it yet. He’s also the CEO of Zuora, a cloud service that helps companies transition their financial systems to subscription models. Tzuo’s response is that many large, established companies — including OEMs — are in the early stages of transitioning to subscription models. They start by turning existing products into subscriptions. The next stage is designing the subscription — and the entire business — around the customer.
A subscription is not a product, it’s a relationship. It’s a membership to an experience or service that delivers an outcome that meets a need or fulfills an aspirational desire. People subscribe to Spotify not because they want to own every album ever made, but because they want to be able to listen to the music they want, whenever they want, and experiment with new music at no extra cost.
Some companies see risk in relationships; their longevity isn’t guaranteed. Subscribers always have the option to unsubscribe. In fact, nearly 40% of e-commerce subscribers have canceled their subscriptions, according to a recent study by McKinsey. And as the subscription market becomes more saturated, there will be more competitors they can turn to.
Companies can’t simply nurture relationships through advertising or aggressive pricing structures that don’t make financial business sense. A subscription’s success depends on the ongoing strength of its value proposition, not persuasion. The experience a customer has with a subscription service is itself the brand and its product. Growth happens when you understand subscribers and use what you know to improve and evolve the service for them, continuously — whether that’s more personalization, greater flexibility, or something else. The relationship grows stronger over time.
That’s the advantage. Subscriptions enable greater customer understanding. All subscribers have a unique ID, so companies can gather lots of data about them. That makes it easier to iterate and know what’s working and what’s not. But subscription IDs don’t provide all the information needed to constantly improve the subscription: the broader context of people’s lives and emotions. That information exists outside of the data. Finding it demands the hard work of listening, creativity, and thinking differently about what else would provide value to subscribers.
Tzuo talked about Fender as an example. Half of Fender’s sales are to new guitar players, but the company found that 90% of these customers quit playing within the first year. Fender was selling guitars, but it wasn’t creating guitarists. People aspire to be rockstars — not just guitar owners — and the Fender guitar alone wasn’t delivering on that. So, Fender created a subscription service called Fender Play. Instructor-guided videos teach people how to play or riff off of their favorite songs in just half an hour or less, making learning how to play the guitar fun and easy, and releasing players’ inner rockstars. That lifelong relationship with a guitar player is considerably more valuable to Fender than a guitar sale.
The point is, transitioning to a subscription model will demand brands think outside the boundaries of their current products. The focus should be on understanding and designing around people — the emotions they feel, the daily decisions they make, the challenges they face, and everything that happens in between.