Businesses depend on loyal, repeat customers. But Toronto-based consultant John Warrillow believes companies can go one better: persuading customers to sign up for a subscription that ensures they receive the product or service regularly, ideally after paying up front for the pleasure.
Subscriptions, of course, are common in magazines and newspapers. The hallowed Book-of-the-Month Club took advantage of the model to send subscribers a featured selection every month, unless declined in advance. Your cable or Internet hookup is subscription-based, as is Netflix. But Mr. Warrillow believes all businesses can – and should – consider subscription models, to enhance their value.
Mr. Warrillow, founder of The Value Builder system, software that can help business owners heighten the valuation of their operations, notes that one of the difficulties in selling a business is that the owner is usually the chief rainmaker, bringing in the bulk of revenue, so if a subscription model is in place, potential purchasers will feel more comfortable about the acquisition’s long-term prospects. And even if you don’t intend to sell, he argues that subscribers are better than customers, smoothing out demand, increasing the lifetime expenditures of a customer, and helping your firm to get paid automatically – and perhaps even up front.
In his book The Automatic Customer, he identifies nine subscription models to consider:
1. Membership website
People pay for access to a website offering unique expertise, such as the Wood Whisperer Guild, where for $129 (U.S.) a year, you can tap into the woodworking knowledge of Marc Spagnuolo. Mr. Warrillow notes that, a decade ago, the argument was that information should be free, but now we realize it’s worthwhile to pay for high-quality, niche content. The website can also be used to sell bigger-ticket items.
2. All-you-can-eat library
Netflix has a huge library of entertainment content that people sign up to explore. Spotify has a similar approach, for music. Ancestry.com offers access to a library of content that can help you trace your family tree. You can’t consume all the available information but the breadth and unlimited access is the appeal. With the membership website model, subscribers eagerly await the latest bit of information but here most of it is already in the warehouse. With the membership website model, subscribers eagerly await the latest bit of information but here most of it is already in the warehouse.
3. The private club
Golf clubs are a prime example of this subscription arrangement in which access is provided to something rare. Another example is the Genius Network, where in exchange for $25,000, entrepreneurs, authors and investors meet three times a year to share ideas. The privacy can be appealing, and if the fee is high, that makes some people more eager to join the exclusive ranks.
4. The front-of-the-line model
This offers priority access to a segment of your customers who are willing to pay. A premium-priced credit card can allow you to jump to the front of the line at an airport, for example. So-called Lexus lanes allow access to traffic lanes with fewer vehicles. Salesforce.com’s Mission Critical Support package gives you quicker attention from its technical staff. “We’re often trading money for time these days,” Mr. Warrillow said in the interview.
The Dollar Shave Club sends you razor blades at regular intervals, saving the hassle of remembering to buy them at the pharmacy. Blacksocks has 30,000 subscribers who receive regular shipments of black socks for about $100 a year. Amazon is looking to provide similar, regular shipments of consumables to interested consumers.
6. The surprise box
Here subscribers get a curated package every month with samples from an area of interest, such as Standard Cocoa’s shipments of delights from craft chocolate makers around the world; BarkBox’s treats, toys and accessories for your dog; and SpicySubscriptions.com’s lovemaking paraphernalia.
7. The simplifier
As the world grows more complicated, we’re willing to pay for someone who can strike some of the items off our to-do lists. For years, people have been paying to have someone mow the lawn every week. Now the Mosquito Squad will spray your backyard regularly. Hassle Free Home Services manages the routine tasks facing a homeowner.
8. The network
This offers a product or service that grows if more people use it, so the actual consumers help to popularize the activity. The telephone was an early example – the more users, the greater its value to an individual. World of Warcraft and other online games similarly benefit from more subscribers.
9. Peace of mind
Tagg is a pet-tracking service that puts a special collar on your dog and sends you an alert when the dog leaves the area you have predefined. You hope you’ll never get the alert, but are willing to pay for the insurance of knowing it’s there. ADT similarly offers peace-of-mind with its security service.
The appeal of such services to consumers is clear. For businesses, the value is having something your customers have signed up to regularly receive – and pay for. The approaches may seem unusual in your industry but that can be a big advantage.
“Instead of saying that’s not the standard in my industry, ask what you can borrow from what these businesses are doing and apply to your own operation,” Mr. Warrillow concludes.
Special to The Globe and Mail
Published Sunday, Apr. 19 2015, 5:00 PM EDT
Last updated Friday, Apr. 17 2015, 1:51 PM EDT