A child born in the UK today can expect to live more than 80 years. In that time, it is estimated they will stay in education until they are at least 18, graduate with over £50k of debt, rent into their 30’s, move house 12 times, pay more more than £250k for their house, and change jobs approximately once every five years They can expect to visit visit an average of 10 countries, own nine cars, spend more time online, watch more video on demand (and less broadcast tv), and listen to more songs and albums than they own. While all this is happening, they’ll experience unprecedented change in the form of the fourth industrial revolution and the inevitable change in our climate. Put simply, the customers of tomorrow will be living longer, more mobile and more varied lives than their parents – while having to deal with greater demands on their disposable income, and an ever-increasing need to reduce their impact on the planet they call home.
Such variety will demand a customer experience (CX) that is more responsive to the changing needs it creates. In the future, why would such a customer buy something that will quickly become old or obsolete due to the pace of technological change? Why would they accumulate possessions that cost money to move every time they do? Why would they horde the earth’s resources, when they need them in their possession for such a small proportion of their life? All these considerations make ownership less attractive to the next generation than rental or subscription; and so businesses are transforming to a subscription-based revenue model.
Transforming a new revenue model requires both customers and employees to adopt new processes. The complete lead to cash value chain is affected – the linear, transactional interactions of marketing, sales, provisioning, customer support and billing, become an iterative, ongoing relationship. Subscription allows customers to continually discover, evaluate, purchase and use the product or service; and as they do, they bond with the brand and become its advocate. Consequently, the challenge is not just one of process. The entire operating model is affected; and the success of such a change will be as much a function of the people involved as it is dependent on changes to process or the technology that supports it.
Although it presents its risks, transformation on this scale can be worthwhile and self-sustaining. A subscription model allows an organisation to gather more information about their customers’ behaviours. Such insight enables predictive analytics and demand segmentation that make revenue streams more predictable and pricing more efficient, while giving customers more of what they want at a price they’re willing to pay.
However, such a change to business models creates a concomitant change in customer behaviour. As the world moves towards subscription-based consumption, are we witnessing the end of customer-loyalty?
In an ‘on-demand’ future, the prevalence of switching costs will decline, increasing customer choice and competition. The balance of competition will tip in favour of those businesses that align to customer value and build competitive advantage through their attractiveness to both new and existing customers. The growth of such businesses will partly come at the cost of those businesses that rely on customer apathy and fear of switching costs (e.g. if a customer is only subscribing to use their car then they won’t need that extended warranty or a full service history from an approved garage).
In light of these competitive pressures, subscription-based businesses must understand their customer better and respond to their changing requirements more rapidly. Successful transformation therefore depends on the design of an operating model that is led by customer experience. Delivery of that experience in an agile way will turn the potential of a subscription-based business into a reality both now and in the future.
Every organisation has an upper limit on the rate of change it can tolerate, and so transformation on this scale will take time. The customers who’ll want such a service have already been born, so now is the right time for business leaders to consider whether a subscription-based model is right for them. If it is, then now is also the time for leaders to consider how their businesses will satisfy the demands of CX on demand.