What to know before bringing a subscription product to the market.
I recently attended an online meetup on the topic of Building and Scaling B2C Subscription Products which was conducted by HelloMeets on 23rd April 2020 along with 40+ attendees from across India and Singapore. HelloMeets is a community-building and knowledge sharing startup. They conduct online and offline events to bring likeminded people together to share their knowledge and insights about a certain topic.
The meetup was hosted by a former Product Manager at Zomato, Gaurav Tandon. Gaurav is an expert in his field. He has experience in building subscription products from scratch. He shared a case study of Zomato Gold where he talked about what went behind developing a successful subscription product in the restaurant industry. He compared Amazon Prime, Netflix and Spotify to explain how they are different from each other.
Further, he elaborated on how these brands have built a huge market with the help of their subscription strategy. He also explained what makes subscription products successful and what product managers should focus on while designing their business model. He ended the session by giving tips on what one should look at while designing a subscription product during the time of crises.
Here is everything you should know about subscription products.
Before you think of starting a subscription scheme you have to consider how the customer consumes your product.
- What benefits will they see in subscribing to your product?
- Will following a subscription strategy help you grow in the market?
Not all products are suitable for a subscription strategy. If you think this strategy will remove the existing barriers between your product and customer, then applying this strategy might be the one for you.
A popular misconception about subscription products is that they are loyalty products. People also confuse customer rewards to subscription benefits. While rewards build customer loyalty and support the product, subscription helps in understanding the customer better.
The two key features of a subscription product are:
- Gain predictable revenue- You know exactly where your money is coming from.
- Understand consumers better- By subscribing to your product you will be able to learn more about customer behaviour.
The reason why Zomato introduced their subscription product ‘Zomato Gold’ was market expansion. Portugal and the UAE were the first countries to try out this model. Research has shown people in developed countries tend to eat out more often compared to developing countries.
Zomato being a restaurant booking company needed to think of how they can increase their customer reach. They came up with the idea of inviting people to be their exclusive members. These members got extra benefits like 1+1 on meals and 2+2 on drinks.
Amazon Prime’s subscription model inspired Zomato Gold. Amazon’s goal was to ‘change the psychology of people not looking at the pennies difference between buying on Amazon vs. Somewhere else’, Zomato asked ‘how they can get people to eat out more often’. These subscription products are seen as frequency multipliers for the overall business.
When some customers get extra benefits like next day delivery in the case of Amazon Prime or discounts on bills in the case of Zomato Gold, a ‘FOMO’ behaviour is sparked in other non-subscribers. This behaviour drives them to buy the subscription to be a part of an ‘exclusive club’.
When consumers see the benefit in the subscription product, they consume more and more often.
How can subscription products multiply the frequency of the business?
The first step in this process is to identify consumption barriers and eliminate them. Zomato used WHO’s strategy called QAAA. The major barrier in the restaurant industry was that people were not eating out enough. The reasons that Zomato found were, some customers didn’t like the quality of the food. Some couldn’t afford eating outside a lot. For some, restaurants were not accessible or they didn’t have enough options around their neighbourhood. All these barriers were taken care of when QAAA was introduced. QAAA stands for — Quality, Affordability, Accessibility, and Assortment.
“Zomato offers wide enough assortment of good quality restaurants at an affordable rate that are accessible to customers.”
When you have found out what is stopping the customer to buy more of what you have to offer, the next step comes is to simplify it. When Amazon started ‘Free Shipping’ on orders of above $25 lot of customers found it complex as they would have to wait till their cart reached that amount. With Amazon Prime subscription, they not only got free shipping but also additional benefits like 24 hours delivery, Prime videos, exclusive member offers to name a few. The easier it is for the customer to understand the product, the more attractive it gets.
The third step that helps in multiplying the frequency of your business is using your current customers to attract new ones. This is known as driving network effects. Offering exclusive discounts to your current customer when they invite their friends to be a member increases customer loyalty and brand name.
The last step is to set a price keeping in mind the ROI of the customer. Customers always think of their returns before they invest their money. The thumb rule that is followed by all companies to price their subscription product is to charge no more than 3–4 sales. If the ROI is more than four sales then the customer might not find the offer attractive.
Key points to consider when launching a subscription product
- You won’t get it right the first time. Even Amazon didn’t. They tried various other models before they came up with a hit idea of Amazon Prime.
- Your subscription product strategy will have to change according to the market condition and location. Customers in different countries behave differently to offers. You will have to learn about their psychology and design a strategy accordingly.
- The most important rule is ‘don’t complicate your product pricing’. If customers don’t understand your subscription product easily they won’t buy it. Keep it as simple as possible and a little more.
How can you change consumer’s mindset in the times of crisis?
In the time of crises, companies are still figuring out how to make things work for themselves and their customers. Radical change is not a choice but a necessity now. Gaurav concluded his talk with tips on what to do when shifting to a subscription model in the time of crises.
- Offering small packages to customers by keeping a sachet approach. Customers during these times don’t seem to be interested in annual subscription packs. Therefore, offering monthly packages to customers that are reasonably priced will seem to show better results.
- Extending an existing product will make customers more interested. The curiosity of people towards new products has decreased and during the time of crises, the majority of people would not want to experiment.
- Building brand awareness by offering trial packs has always been a great marketing tactic. Giving people freebies to attract their attention during these times would likely give you a positive response.
One fact that everyone should be aware of is, subscription products are here to stay. If the market research is done right and consumption barriers identified, you are halfway there. The other half is to implement the research and apply the strategy. When Gaurav talked about implementing WHO’s strategy in the restaurant industry he said:
Inspiration can come from unexpected of places
