Subscription models have emerged over the past few years as a fast-growing, transformative model, growing revenue and redefining customer relationships. Subscriptions make business sense – they provide a predictable, recurring source of revenue while also building stronger customer relationships.
However, before a business starts to pursue subscriptions, it needs to have a few key building blocks in place.
Data from Telecoming’s Subscronomics report shows that in 2021, over 7 million South Africans were signed up to a subscription service, with this number set to grow to 10.8 million by 2025. While video and music services lead the pack in South Africa, demand for physical products is also anticipated to grow by 2025.
Global growth in subscriptions for everything ranging from meal kits and drinks to clothing and software underlines the chief reason people subscribe to something: ease of access. PWC data indicates that 51% of people sign up to a subscription service because it’s convenient.
For businesses looking to subscription models or recurring payments, ease of use is paramount. And in an economy where customers are rationalising all their spending, businesses need to look beyond convenience and ensure they have the offer, the product, and the process ironed out before launching.
Value proposition
One of the leading reasons for subscription customer churn is that customers just don’t see value in the proposition anymore. If you’ve enticed a customer with an initial discount or free gift, you’ll need to ensure that something is keeping them from hitting the cancel button as soon as the discounted period is up.
You need to explore where your service adds value. Do subscribers get early access to new products, or additional features? Are there regular discounts they can access further down the line, or could you create a joint offer with another business? Ensuring you’ve built in the value, and communicated it to your customers is the first step.
Technology
If you’re offering subscriptions or recurring payments, you will require an e-commerce platform that natively supports subscription billing or third party payment gateways that bring that billing service to the platform. In the retail environment for instance, this might take the form of platforms like WooCommerce or Magento, which support subscription billing through a third party plug-in marketplace.
If you’re operating a custom e-commerce platform and have developer resources, even better as these allow you to build your own subscription engine with customisable features that work in tandem with your payments platform. You can even embed the payment experience on your website, rather than redirecting away from your website.
Working with a payments partner as a merchant means you do not have to take on the responsibility of storing card data. In addition to being high-risk, PCI compliance, required to process card payments, can be extremely arduous and expensive to secure.
Taking on a payments partner reduces this burden because PCI compliance sits with them. When a recurring payment request is made, the payment gateway will securely tokenise the card data. As the merchant, you store the token, and when month-end or the payment date rolls around, that token is presented and the payments operator charges it.
Operational resources
Done well, the payment process should be entirely frictionless. However, a business still needs to have the resources in place to market the product, offer customer support, develop product updates or in the case of physical products, handle logistics and delivery.
Data from ACI Worldwide shows that when it comes to voluntary churn, almost a quarter of users (23%) cancelled a subscription due to a payment issue. Ideally, a recurring payment should be something a client barely has to think about. And if they are thinking about it, it’s likely that something has gone wrong.
Having operational resources in place ensures that in the event of a failed or missed payment, the problem is quickly resolved. But it also means having processes to communicate upcoming credit card expiry dates, or to support a customer when they’ve lost their credit card or their meal-kit wasn’t delivered. Enterprise level payment gateways will also have existing relationships with banks to help resolve systemic problems when hundreds – or thousands! – of cards from a particular issuing bank start failing during your billing period.
Subscriptions should not be viewed as an easy revenue strategy. They are a nuanced offering that must not only appeal to your customer and their needs, but must also be completely seamless in execution. When these two balance perfectly, a subscription model can create exceptional value for businesses and customers alike.
- Joshua Shimkin, Head of SME Growth and Marketing, Peach Payments
