Sustainability is front of mind for enterprises—and it’s easy to understand why.
Companies face increasing pressure from consumers, regulators, and competitors to demonstrate their sustainability credentials. But how can businesses meet these demands while maintaining profitability?
By embracing the subscription economy in combination with smart pay-per-use business models.
These types of customer-centric digital business models revolutionize the way enterprises create and deliver products. Crucially, by fostering resource efficiency and waste reduction, it also significantly improves enterprise sustainability.
Let’s explore the surprising link between the subscription economy and enterprise sustainability, explaining how this increasingly popular business model helps enterprises boost their sustainability credentials while protecting our planet.
Why corporate ESG (Environmental, Social and Governance factors) are high on every enterprise’s agendas
Enterprises can no longer afford to ignore their environmental impact. They must prioritize sustainability if they want to survive an increasingly demanding consumer, regulatory, and competitive landscape.
Consumers want to do business with companies that share their values, and whose actions don’t harm the planet.
For example, a recent McKinsey and NielsenIQ study on consumer packaged goods (CPG) companies “did broadly reveal, in many categories, a clear and material link between ESG-related claims and consumer spending.”
Source: McKinsey, ‘Consumers care about sustainability—and back it up with their wallets’
Additionally, many governments are now mandating that companies adhere to strict sustainability frameworks.
The EU’s Corporate Sustainability Reporting Directive (CSRD) requires enterprises and listed SMEs to report on sustainability. The directive hopes to create a “culture of transparency about the impact of companies on people and the environment.”
Meanwhile, the U.S.’s Securities and Exchange Commission (SEC) has proposed an ESG disclosures rule that would require public companies to disclose major internal sustainability metrics.
Additionally, investors also look for companies with strong sustainability credentials. According to PwC’s Global Investor Survey 2022, investors view effective corporate governance (including sustainability) as the fourth most important metric for enterprises to deliver.
Source: PwC, ‘The ESG execution gap: What investors think of companies’ sustainability efforts’
One thing’s for certain: sustainability will only become more important moving forward. Companies must rethink their operations accordingly.
How does the subscription economy boost enterprise sustainability?
The subscription economy is inherently more sustainable than the typical ‘produce – consume – dispose’ model of using products.
Traditionally, enterprises would sell outright, meaning their customers would be fully responsible for the product lifecycle and the transaction is the only essential part of the relationship for the vendor. Customers were responsible for maintenance, repair, and learning how to use the product most efficiently. Vendors often provided setup resources to help customers get started, but it was not a long-term relationship.
Today, however, the subscription economy has flipped who is responsible for the product lifecycle. Vendors who produce products are now incentivized to manage the entire product lifecycle, as this enables them to increase the overall customer lifetime value (CLTV).
This shift results in a significant boost to enterprise vendors’ sustainability. Here’s how.
Encouraging the production of high-quality, durable products
Subscription models promote prolonged product lifecycles. In a traditional business model, the focus is on producing and selling as many units as possible.
This encourages a wasteful and short-term mindset. The results? Deliberate product obsolescence, increased waste, and overconsumption of resources. It also, as mentioned earlier, means consumers are in charge of upkeep.
However, the subscription economy (and digital business models overall) incentivizes manufacturers to create longer-lasting and higher-quality products because they are now responsible for the complete product lifecycle.
As a result, manufacturers will become more sustainable. Creating durable, long-lasting products leads to less waste, as fewer items end up in landfills. It also minimizes resource consumption due to reduced production rates.
And it’s not just subscription-based business models that enhance enterprise sustainability. In fact, all usage-based models (i.e., most digital business models) play a role in creating a more sustainable world.
Think about it. Enterprises still buy (and own) products and heavy machinery, but when they do, they receive an extended service and build a long-term relationship with the vendor. The vendor is incentivized to build products their customers will use, a lot. So, they build high-quality products to reduce their maintenance and repair costs. This example also highlights why predictive maintenance is such an importance aspect of IoT-enabled business models. If vendors can determine a potential product outage and address the issue quickly, they can reduce the overall downtime of their manufacturing client.
Also, one client no longer equals one machine. Consider the B2C car sharing market, for example. In urban areas, not everyone needs their own car, as it is usually used too infrequently, often exacerbated by the lack of parking spaces. Once you’ve found one, you don’t want to give it up. This leads to manufacturers producing cars that will be used by several customers. This in turn reduces the vendor’s carbon footprint as fewer vehicles to be produced.
The same is true in other areas such as publishing houses sharing printing presses, farmers sharing agricultural machinery and many more.
Enterprises that adopt subscription-based models (or other digital business models) shift their revenue generation strategy from solely one-time sales to include recurring payments over an extended period. Customers are also more likely to continue their subscriptions if they perceive the products to be reliable and of high quality. Additionally, enterprises must know consumers want choices, and increasingly prioritize sustainability. The goal isn’t to reduce ownership. It’s to give customers the greatest possible value, to select their desired product, price, and business model, and in doing so ensure a higher overall CLTV for the enterprise.
Efficient resource allocation and sharing
Subscriptions (and digital business models as a whole) normalize sharing or using products among multiple users.
This type of collaborative approach significantly decreases resource consumption and waste generation. Fewer products must be produced and disposed of, ultimately contributing to a more sustainable world.
Subscription models encourage users to access products and services only when needed, rather than accumulating and storing them indefinitely. Hence, they prevent overconsumption, excessive waste, and resource depletion.
Efficient resource utilization is crucial for the long-term sustainability of our planet. The subscription economy offers a promising avenue to help achieve this goal.
Customization and Personalization
When a company offers a subscription model, or other digital business model, they have a more direct and ongoing relationship with their customers compared to one-off purchases.
They can gather more information about their customers’ needs and preferences—and use this data to tailor their offerings accordingly. So, how does this relate to sustainability?
Consider this: enterprises minimize waste and improve resource efficiency by customizing their offerings to better meet customers’ needs. It is the win/win of digital business models: Better CLTV for vendors and better experiences and solutions for customers – at a fair price.
For example, imagine your company knows that your customers are only interested in certain product features. You can then focus your efforts and resources on developing and producing those features, rather than investing in features that their customers don’t need or want.
Over time this can significantly reduce the number of materials and resources that are wasted during the production process.
Moreover, a subscription model mandates better data management and organization, which results in enterprises better managing their inventory and reduce excess stock. They must, as they manage the whole product lifecycle. With a subscription (or usage-based) model, companies can better forecast demand, which allows them to produce the right amount of inventory and avoid overproduction. This, in turn, reduces waste and can lead to significant cost savings.
An example of a subscription model with pay-per-use components in practice
Machine manufacturer DMG Mori allows customers to use their 3-axis M1 milling machine as a service, billed flexibly based on their usage. DMG Mori follows a combination of a subscription and pay-per-use model.
Companies pay a monthly subscription, including packaging and transport, commissioning, training, all service, and maintenance costs. Then, they pay an additional usage-based fee per spindle hour used.
DMG Mori technically owns the machine itself. At the end of the contract, the customer returns the machine, rather than disposing of it. DMG Mori can then lease the machine out to another customer.
The same principle applies to many other areas as well. Cafés and businesses that don’t want to buy their own coffeemakers benefit from coffee machine subscriptions, paying a monthly fee for provision, beans and maintenance and an additional monthly fee based on the amount of cups that were drunk. Or wallbox subscriptions with a monthly fee for the wallbox and an associated energy contract as a usage-based element calculated according to the respective monthly electricity consumption.
Many customers can use the same machine/devise, repeatedly, and the manufacturers don’t need to endlessly produce more units. There’s less waste and they use fewer resources. In other words, the model is inherently sustainable.
Enterprise Sustainability is the Future
Enterprises that embrace subscriptions and digital business models can comply with governmental regulations, appeal to eco-conscious consumers, beat the competition, and create a more sustainable planet while simultaneously creating more resilient revenue streams through extended customer lifetime value.
But implementing a subscription-based model presents novel challenges. For example, regarding billing and monetization.
Your existing billing and monetization software might be unable to handle a rapid increase in subscribers, invoices, and transactions. Or, to cater for the multitude of payment options and currencies you offer customers.
That’s why it’s vital you turn to subscription-focused billing and monetization software like Nitrobox.
Nitrobox allows enterprises to easily and quickly configure, launch and manage unlimited subscription billing and pay-per-use strategies across global markets. It provides unparalleled management capabilities for all digital business models where companies need to manage the consumer’s lifecycle and leverage usage data to make critical business decisions.
Manage every stage of the consumers’ lifecycle, automate billing and invoicing, keep a close watch over payments, and manage your accounting duties with each thanks to the tool’s smart subledger function. Gain a detailed understanding of your customers—and build long-lasting relationships.
So if you’re looking to set up a subscription-based, pay-per-use or transactional digital business model, do it the right way with Nitrobox.