This article possibly contains original research .(June 2020)
The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product. The model was pioneered by publishers of books and periodicals in the 17th century,and is now used by many businesses and websites.
Rather than selling products individually, a subscription offers periodic (daily, weekly, bi-weekly, monthly, semi-annual, yearly/annual, or seasonal) use or access to a product or service, or, in the case of performance-oriented organizations such as opera companies, tickets to the entire run of some set number of (e.g., five to fifteen) scheduled performances for an entire season. Thus, a one-time sale of a product can become a recurring sale and can build brand loyalty.
Industries that use this model include mail order book sales clubs and music sales clubs, private web mail providers, cable television, satellite television providers with pay television channels, providers with digital catalogs with downloadable music or eBooks, satellite radio, telephone companies, mobile network operators, internet providers, software publishers, websites (e.g., blogging websites), business solutions providers, financial services firms, health clubs, lawn mowing and snowplowing services, and pharmaceuticals, as well as the traditional newspapers, magazines, and academic journals.
Renewal of a subscription may be periodic and activated automatically so that the cost of a new period is automatically paid for by a pre-authorized charge to a credit card or a checking account. A common variation of the model in online games and on websites is the freemium model, in which the first tier of content is free, but access to premium features (for example, game power-ups or article archives) is limited to paying subscribers.
There are different categories of subscriptions: to
In publishing, the subscription model typically involves a paywall or other "toll-access" system (named in opposition to open access).
In the field of academic publishing, the subscription business model means that articles of a specific journal or conference proceedings are only available to subscribers. Subscriptions are typically sold to universities and other higher education institutions and research institutes, though some academic publishers also sell individual subscriptions or access to individual articles.
In contrast with other media such as newspapers, subscription fees to academic publishers generally do not go towards supporting the creation of the content: the scientific articles are written by scientists and reviewed by other scientists as part of their work duties. The paper authors and reviewers are not paid by the publisher. In this light, the subscription model has been called undesirable by proponents of the open access movement.
Academic publications which use the subscription model are called 'closed-access, by opposition to their open-access counterparts.
Businesses benefit because they are assured a predictable and constant revenue stream from subscribed individuals for the duration of the subscriber's agreement. Not only does this greatly reduce uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires.[ citation needed ]
An integrated software solutions, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably greater than the revenue from simple one-time purchases. In some subscription schemes (like magazines), it also increases sales, by not giving subscribers the option to accept or reject any specific issue. This reduces customer acquisition costs, and allows personalized marketing or database marketing. However, a requirement of the system is that the business must have in place an accurate, reliable, and timely way to manage and track subscriptions.
From a marketing-analyst perspective, it has the added benefit that the vendor knows the number of currently active members since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates customer relationship management to a large extent because the analyst knows who is an active customer and who recently churned.
Additional benefits include a higher average customer lifetime value (ACLV) than that of nonrecurring business models, greater customer inertia and a more committed customer base as it transitions from purchase to opt-out decisions, and more potential for upselling and cross-selling other products or services.
Some software companies such as Adobe and Autodesk have moved from a perpetual licensing model to a subscription model, known as "software as a service". This move has significant implications for sales and customer support organizations. Over time, the need to close large deals decreases resulting in lower sales costs. However, the size of the customer support organization increases so that the paying customers stay happy.
Consumers may find subscriptions convenient if they believe that they will buy a product on a regular basis and that they might save money. For repeated delivery of the product or service, the customer also saves time.
Subscriptions which exist to support clubs and organizations call their subscribers "members" and they are given access to a group with similar interests. An example might be the Computer Science Book Club.
Subscription pricing can make it easier to pay for expensive items since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customers from subscribing. Fixed price may be an advantage for consumers using those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been. In addition, subscription models increase the possibility of vendor lock-in, which can have fatally business-critical implications for a customer if its business depends on the availability of a software: For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or in particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business thereby leaving the customer without a chance to renew the subscription and access his own data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades). Also, consumers may find repeated payments to be onerous.
Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of privacy.
A subscription model may be beneficial for the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller.
This is in contrast to many one-time transactions when customers are forced to make significant commitments through high software prices. Some feel that historically, the "one-time-purchase" model does not give sellers incentive to maintain relationships with their customers (after all, why should they care once they've received their money?). Some who favor a subscription model for software do so because it may change this situation.
The subscription model should align customer and vendor toward common goals, as both stands to benefit if the customer receives value from the subscription. The customer that receives value is more likely to renew the subscription and possibly at an increased rate. The customer that does not receive value will, in theory, return to the marketplace.
A customer who is placed in a jail or prison can be billed continuously for subscription services which may render them without funds upon release.[ citation needed ]
Because customers may not need or want all the items received, this can lead to waste and an adverse effect on the environment, depending on the products. Greater volumes of production, greater energy and natural resource consumption, and subsequently greater disposal costs are incurred.
Subscription models might also create the opposite effect. This can be illustrated by subscribing to a service for mowing lawns. The effective use of a single mower increases when mowing for a collection of homes, instead of every family owning their own lawnmower which is not used as much as the service providing mower, the use of resources for producing lawnmowers, therefore, decreases while lawns stay cut.
Customer relationship management (CRM) is a process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information.
Shareware is a type of proprietary software which is initially shared by the owner for trial use at little or no cost with usually limited functionality or incomplete documentation but which can be upgraded upon payment. Shareware is often offered as a download from a website or on a compact disc included with a magazine. Shareware differs from freeware, which is fully-featured software distributed at no cost to the user but without source code being made available; and free and open-source software, in which the source code is freely available for anyone to inspect and alter.
In marketing, product bundling is offering several products or services for sale as one combined product or service package. It is a common feature in many imperfectly competitive product and service markets. Industries engaged in the practice include telecommunications services, financial services, health care, information, and consumer electronics. A software bundle might include a word processor, spreadsheet, and presentation program into a single office suite. The cable television industry often bundles many TV and movie channels into a single tier or package. The fast food industry combines separate food items into a "meal deal" or "value meal".
Pay television, also known as subscription television, premium television or, when referring to an individual service, a premium channel, refers to subscription-based television services, usually provided by multichannel television providers, but also increasingly via digital terrestrial, and streaming television. In the United States, subscription television began in the late 1970s and early 1980s in the form of encrypted analog over-the-air broadcast television which could be decrypted with special equipment. The concept rapidly expanded through the multi-channel transition and into the post-network era. Other parts of the world beyond the United States, such as France and Latin America have also offered encrypted analog terrestrial signals available for subscription.
Free-to-play video games are games that give players access to a significant portion of their content without paying. Free-to-play is distinct from traditional commercial software, which requires a payment before using the game or service. It is also separate from free games, usually referred to as freeware, which are entirely costless. Free-to-play's model is sometimes derisively referred to as free-to-start due to not being entirely free.
In marketing, lead generation is the initiation of consumer interest or enquiry into products or services of a business. Leads can be created for purposes such as list building, e-newsletter list acquisition or for sales leads. The methods for generating leads typically fall under the umbrella of advertising, but may also include non-paid sources such as organic search engine results or referrals from existing customers.
Software as a service is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as "on-demand software", and was formerly referred to as "software plus services" by Microsoft. SaaS applications are also known as on-demand software and Web-based/Web-hosted software.
Churn rate, in its broadest sense, is a measure of the number of individuals or items moving out of a collective group over a specific period. It is one of two primary factors that determine the steady-state level of customers a business will support.
A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.
The term mobile commerce was originally coined in 1997 by Kevin Duffey at the launch of the Global Mobile Commerce Forum, to mean "the delivery of electronic commerce capabilities directly into the consumer’s hand, anywhere, via wireless technology." Many choose to think of Mobile Commerce as meaning "a retail outlet in your customer’s pocket."
Shopping cart software is a piece of e-commerce software on a web server that allows visitors to have an Internet site to select items for eventual purchase.
Freemium, a portmanteau of the words "free" and "premium", is a pricing strategy by which a basic product or service is provided free of charge, but money is charged for additional features, services, or virtual (online) or physical (offline) goods that expand the functionality of the free version of the software. This business model has been used in the software industry since the 1980s. A subset of this model used by the video game industry is called free-to-play.
A free preview is a stunt programming concept in which a pay television service or channel tier is exhibited without signal encryption to customers of a multichannel television provider at no cost for an extended time period.
The razor and blades business model is a business model in which one item is sold at a low price in order to increase sales of a complementary good, such as consumable supplies. For example, inkjet printers require ink cartridges, and game consoles require accessories and software. It is different from loss leader marketing and free sample marketing, which do not depend on complementary products or services.
A paywall is a method of restricting access to content, especially news, via a purchase or a paid subscription. Beginning in the mid-2010s, newspapers started implementing paywalls on their websites as a way to increase revenue after years of decline in paid print readership and advertising revenue, partly due to the use of ad blockers. In academics, research papers are often subject to a paywall and are available via academic libraries that subscribe.
A revenue model is a framework for generating financial income. It identifies which revenue source to pursue, what value to offer, how to price the value, and who pays for the value. It is a key component of a company's business model. It primarily identifies what product or service will be created in order to generate revenues and the ways in which the product or service will be sold.
TV Everywhere refers to a type of subscription business model wherein access to streaming video content from a television channel requires users to "authenticate" themselves as current subscribers to the channel, via an account provided by their participating pay television provider, in order to access the content.
In computing, data as a service, or DaaS, is a term used to describe cloud-based software tools used for working with data, such as managing data in a data warehouse or analyzing data with business intelligence. It is enabled by software as a service (SaaS). Like all "as a service" (aaS) technology, DaaS builds on the concept that its data product can be provided to the user on demand, regardless of geographic or organizational separation between provider and consumer. Service-oriented architecture (SOA) and the widespread use of APIs have rendered the platform on which the data resides as irrelevant.
There are several types of e-commerce models, based on market segmentation, that can be used to conducted business online. The 6 types of business models that can be used in e-commerce include: Business-to-Consumer (B2C), Consumer-to-Business (C2B), Business-to-Business (B2B), Consumer-to-Consumer (C2C), Business-to-Administration (B2A), and Consumer-to-Administration (C2A).
Customer Success or Customer Success Management is the business method ensuring customers achieve success, their desired outcomes while using your product or service. Customer Success is relationship-focused client management, that aligns client and vendor goals for mutually beneficial outcomes. Effective Customer Success strategy typically results in decreased customer churn and increased up-sell opportunities. The goal of Customer Success is to make the customer as successful as possible, which in turn, improves customer lifetime value (CLTV) for the company.