Get yourself connected by offering subscriptions to your customers - Sunday Times

Firms can offer better value, increase choice and create loyalty by charging an annual fee for their products or services, instead of big one-off payments

Chances are you’re reading this article because you have a subscription to The Times and The Sunday Times. Perhaps this evening you’ll watch something on Netflix, or read a book you bought through Amazon Prime. What about those fresh flowers, the monthly box of pet food, or the prepared meal boxes you’re planning to cook for dinner? They all could have been delivered by companies with which you have subscriptions.

You could say we buy our house, or our car, on subscriptions. Even loyalty cards work on the same principle. In short, we are a nation of subscribers. A market valued at £395 million in 2021 is expected to be worth £1.8 billion by the end of next year.

That’s why Microsoft is making the latest game in the incredibly successful Call of Duty franchise available on release through Game Pass, a service that gives its 40 million subscribers access to titles without a large one-off payment for a new one. There are different tiers, so the more you pay, the greater the choice of games you have. Microsoft hopes to triple the Game Pass user base by 2030, focusing on new generations of consumers who care more about being able to play games than owning them.

A focus on subscriptions is how HomeServe took off. In our second year, I switched the business from being a pay-on-use emergency plumbing service to one offering home emergency cover for an annual fee. Today, that has extended into spreading the cost of installing replacement heating appliances — such as heat pumps and solar panels — over ten years. And that includes service and maintenance.

I still remember the light-bulb moment when everything changed. In 1994, when we were perilously close to going under, we sent 1,000 letters out to see if anyone would be interested in our new membership cover for their plumbing and drains. Thirty-eight people replied, each enclosing a £50 cheque — a fantastic 3.8 per cent response rate. The following month, we sent out 100,000 letters and another 3,800 cheques arrived. Even a 2 per cent take-up would have worked, but, at almost double that, I knew we were onto a winner.

Over the past decade, there has been a profound transformation in the relationship between consumer and business. Customers place a premium not just on convenience, but also on the feeling that they are part of a community of like-minded people, with the sense of belonging that a subscription fosters. And while people are more comfortable with home deliveries, they prefer to spread their payments throughout the year, rather than stumping up for one-off expensive items. It’s flexible, more convenient, better value and there’s less worry — and the more they feel their needs are being met, the more they consider buying.

Business-to-business subscriptions are increasingly popular, too — for instance, SAAS (software as a service) packages from companies such as Salesforce, IFS and Sage, or the pioneering deals offered by Rolls-Royce, in which airlines pay for their aircraft engines on a per-flying-hour basis.

Subscriptions provide businesses with more predictable revenue streams, a highly engaged and connected audience, and a growing market. With that stable income and constant flow of mini-transactions, you can start to invest and grow with confidence.

So, if this is the economic engine of today, and you already have a valued product and a proven model, consider pivoting into recurring income subscriptions. Companies that do are more highly valued by the stock market and private equity.

My brother Stephen runs Vivactive, an online business selling incontinence products. With a little help from me, Stephen has turned 30 per cent of his one-off orders into monthly subscriptions.

The first step in adopting this approach is to remember that consumers don’t just want products — they want experiences. To increase loyalty, you must create recurring value beyond the product itself. Figure out the unique need you are serving, then set out a compelling value proposition that takes account of why people should care, and why you are better than others. That includes getting the pricing right.

Work out the kind of model you want to offer — a flat monthly fee, for example, or a tiered structure where there is a choice of product or service level at different subscription rates. Perhaps you could offer a very basic service for free but then encourage paid-for upgrades, or payment according to how much your product is used.

Next, make sure you build a proper structure and platform that customers will enjoy, and a journey that feels seamless. This should include robust software for collecting monthly payments and an efficient supply chain. And, as business grows, be ready to adapt, constantly making your offering more valuable and responsive.

The better the experience, the more likely it is that subscribers will stay, which is why focusing purely on numbers of subscribers is short-sighted. Retaining them is even more crucial to growth, so invest in making that experience worthwhile.

If you have a high churn rate, it indicates you have got something wrong, and you need to fix it to have a sustainable business. Aside from the retention rate, other key performance indicators you should be measuring include the cost of acquiring a customer and the lifetime value of one.

Develop direct marketing expertise to get customers to sign up to a subscription model. Ensure that offers are clear and capable of being customised, and that they allow customers to cancel easily. I support the government’s recent pledge to help consumers avoid so-called subscription traps, where companies make it deliberately difficult to cancel. It claims that nearly 10 million of 155 million subscriptions are unwanted, costing households an average of £14 per month.

It’s not just services that can be turned into subscriptions. In 2007, Graze started out selling boxes of healthy snacks via subscriptions. Twelve years later, after the firm had also started selling its products in supermarkets, Unilever bought it for £150 million.

Shifting to a subscription model requires changes in the way you approach business, your management set-up and the way you market. You need to anticipate as much as react.

Which is where I am now: anticipating how the subscriptions market will evolve. Undoubtedly, we need greater transparency about what subscriptions entail, and there will be more tiered offers that allow consumers to upgrade, downgrade, switch or cancel more easily. Things are changing rapidly in this area. But what’s certain is that if you can offer a subscription, your business will benefit from that magic combination of customer loyalty and recurring income.

The more I think about it, the more I wonder if there’s a product or service that couldn’t easily be sold through a subscription. I can’t think of one — so, if you can, let me know.

Richard Harpin is founder and chairman of HomeServe and Growth Partner, and owner of Business Leader