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How to design great Subscription Products

The market is on the move. The time for launching new digital business models (subscription products) has never been better. Whether usage-based or subscription models, exciting products and services are meeting smart technologies across a wide range of industries, from automotive, insurance, and software to healthcare, media, entertainment, and many more. This spurs innovation in companies, drives digital transformation, provides new revenue streams, and enables outstanding customer experiences.

If you’re thinking about adopting a new digital business model, you’ve come to the right place. In this blog post, we want to take a closer look at one of the big players among digital business models: Subscriptions. In this article, you will learn what subscription models are and why they are important. It also explains the 8 steps to develop a successful subscription product and provides a key tip to set you on the right path.

Did you know that the global subscription economy shows no sign of slowing down. Valued at $650BN in 2020, it’ll be worth a massive $1.5TN by 2025. Jump on board, learn how to design great subscription products, and be part of this successful journey of growth. 

What is a subscription business model, and why does it matter?

In a nutshell: A subscription business model (or subscription product) means customers pay a static recurring monthly fee to access a specific product or service.

It was first popularized by a few noteworthy early adopters, including Netflix, Spotify, and amazon prime. Now, subscription products are everywhere—and it’s easy to understand why. Unlike traditional business models, subscriptions benefit both consumers and companies.

Customers can access desirable products and services without having to set aside a large budget (CAPEX vs OPEX). Instead, they can simply pay a series of small monthly fees. For this to work, the monthly fees need to be low enough and the value provided needs to be high enough to justify the lack of ownership benefits, in very simple terms.

Meanwhile, from a business’s perspective, subscription products lock in predictable revenue streams and allow for more accurate forecasting. They encourage recurring customer engagement, create a higher customer lifetime value (CLTV), and provide invaluable data on consumer behavior (which fuels new product development).

As great as this sounds, you can’t simply jump in with both feet and roll out a subscription product without any prior thought. The process should be meticulous and strategic.

How to design a competitive subscription product

Subscription business models aren’t magic wands. You can’t simply apply this model to your existing products and services in the hope it unlocks a magical wave of new revenue. Let’s investigate why that is and what 8 steps are needed to create a competitive subscription product.

1.   Identify your ideal customer profile (ICP)

An ideal customer profile is the perfect customer for the solution your company provides. What does your ideal customer look like, and what do they need/want?

Imagine you’re in the automotive industry and want to offer a car subscription service. To create a great subscription product that really hits the spot, you need to consider several factors to identify your ideal customer profile (ICP).

Understanding the demographics of your ICP such as age, income, occupation, and location as well as the lifestyle and values helps you tailor a car subscription that aligns with their needs and priorities.

What are their transportation needs, such as the type of vehicle they require, the frequency of use, and the distance they travel? Is your ICP environmentally conscious and prefers an electric or hybrid vehicle? Consider if there is brand loyalty, special price sensitivity, and what your ICP is willing to pay for a car-as-a-service subscription. Your product must be affordable and accessible to them to be successful.

Take also into account how flexible your target group is: from the length of a potential subscription, the ability to change vehicles to the inclusion of maintenance and insurance. And what about technology? Is your ICP tech-savvy and interested in advanced features such as connectivity, autonomous driving, and remote access? Consider all these factors when creating your ideal customer profile and tailoring a subscription product that appeals to them.

2.   Conduct market research

You’re probably not the only company in your industry adopting a subscription model. However, that’s not necessarily a bad thing. Dig into your competitors to understand what they do well, what consumers wished they did better, and their pricing model. Additionally, look for opportunities. What are the competitors not doing? Where is there an advantageous niche?

Then, use these insights to create a service that fills the niche and provides a competitive solution for your competition’s customers.

3.   Define your value proposition

A company’s value proposition is the functional, emotional, or self-expressive benefit delivered by the brand to the customer. What is the unique value that your product offers to potential customers?

Let’s take a subscription to a healthcare app as an example. Your value proposition might be that the brand enables people to change their health-based lifestyle habits for the better. They can do this through features like:

  • Personalized weekly dietary advice plans
  • A meal/calorie tracker
  • The ability for users to change their goals
  • A dashboard where they can track their progress
  • An education hub with resources explaining how to lead a healthy life

This is a strong value proposition that specifically targets your audience’s pain points.

4.   Determine pricing

Work out how much (and at what frequency) to charge. The pricing model should work for both consumers and your business. It should be competitive enough to attract customers, but healthy enough to generate a worthwhile return on investment.

Your value proposition and pricing model work in unison. If you get both of these right, you’ll deliver genuine value—meaning you’ll easily generate new subscribers. McKinsey1 research shows that “perceived good value” is the strongest magnet for new subscribers, as shown in the image below.

Mckinsey chart of subscription signup motivations

Source: McKinsey1, ‘Sign up now: Creating consumer—and business—value with subscriptions’

5.   Develop your product

Create your product according to your customer profile, value proposition and pricing constraints. Then, consider how to serve this product to consumers via an innovative digital business model.

Be sure to consider the requirements of your existing IT system as well. What software tools do you need to monetize, bill, and scale your digital subscription product? Can your existing system handle it, or do you need other systems to meet the requirements?

Overall, launching a digital subscription model requires careful planning and execution to ensure that your IT infrastructure is robust and can meet the needs of your business and your subscribers.

6.   Test and validate

To test and validate your digital subscription product, an MVP (Minimum Viable Product) can be very helpful. Create a basic version of your product with enough features to satisfy early customers, who will give you valuable feedback for your future development. This way you can minimize the risk of investing time, money and resources in a subscription product that may not be successful in the market.

Take your time testing. Gather a small group of potential users and ask them for a blend of qualitative/quantitative feedback. You can then use their insights to iterate further or confirm that you’re on the right track.

7.   Promote and market

Now is the time to develop a marketing plan that targets both existing customers and new prospects.

For starters, consider targeting existing customers. After all, it’s cheaper and easier to sell to existing customers than to new ones. They already know and trust your brand, and you already have their attention.

Incentivize them to leave reviews, which will then help you market the product to new customers.

8.   Continuously improve

Creating a great subscription product isn’t a set-it-and-forget-it activity. Continually search for customer feedback and improve your offering. If you start to get complacent, a new competitor might suddenly emerge and start stealing your market share.

And remember one thing: seek to provide as much variety and excitement as possible. According to McKinsey1, 30% of consumers say that a lack of fun or new experiences is a factor in why they decide to cancel their subscriptions.

Add exciting new car models or innovative software add-ons, create trendy ingredient boxes or add new shows that strike a chord. Whatever you do, keep it fun and novel—that’s the trick to long-term customer retention.

#1 tip for introducing a digital subscription business model: adopt smart billing and monetization software

There’s a lot to consider when launching a subscription business model. Especially when it comes to monetization and billing, it is important to keep a cool head, and to use the right tools.

For example, you might find that your general ledger can’t handle a sudden influx of thousands of subscribers, millions of invoices, and transactions. In addition, there are a wide variety of payment channels and payment options, ranging from direct debit and credit cards to a multitude of mobile payment options. And how can payment allocation and posting function correctly without multiplying the staff accordingly?

The good news is that smart technology can take a lot of issues off your plate. Thanks to intelligent automation, there’s nothing for you to worry about.

With Nitrobox’s monetization platform, you can easily and quickly configure, launch and manage unlimited subscription billing strategies across global markets. Boost your revenues by creating the offers your customers will love and monetize them effortlessly:

Close and manage subscription contracts with flexible and individual pricing models and across the entire subscription lifecycle, from sign-ups to up- and downgrades and renewals, and all the phases in between. Automate billing and invoicing, manage payments, and respond to changes in real-time.

The smart subledger function enables you to be on top of your accounting as well – from debtor accounts to chart of accounts, booking rules, and logic to payment management. You can also dig into the platform’s analytics to see how well your new business model is performing and report on it in detail.

By the way, subscription management is just one of many digital business models you can manage with Nitrobox. It’s your central platform for automating and scaling innovative international digital business models from recurring, subscription, usage-based, or transactional models.

Explore our order-to-cash platform overview and explore the monetization features.

Make your dream subscription plan management a reality with Nitrobox

Subscription business models have arrived in many industries. So, if you haven’t yet adopted a subscription model, 2023 could be the year to get started.

Remember the eight steps listed above. Note that we’ve kept these steps simple—they can become more complex once you get into the weeds. However, don’t rush the process as mistakes will only lead to delays, frustration, and wasted spend. Most importantly, make sure you use the right tools.

Let us help you be on top of your subscription game to improve your revenue streams and boost your customer satisfaction. Find out more about how Nitrobox can become a central part of your subscription management process. Schedule a personal demo with one of our monetization experts.


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