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Growth Strategies
for Subscription-
S4Carlisle Publishing Services
Ready For Paging

Based Businesses
Robbie Kellman Baxter
Principal, Peninsula Strategies

Abstract: Subscription-based companies, which now


Robbie Kellman Baxter has been ­include those offering software as a service (SaaS) ­using
advising organizations on business the Cloud, have special needs. This is the first in a se-
strategy for 20 years. Her clients
have included solopreneurs and
ries of three articles that will discuss specific strategies,
venture-backed startups as well as metrics, and repositioning actions these companies
­
industry leaders such as ASICS, Netflix, must use to prosper. The author is a consultant who spe-
Electronic Arts, and The Wall Street cializes in growth strategies, market assessment, mar-
Journal. She has worked with nearly
ket segmentation, establishing metrics, and other issues
100 organizations in over 20 industries
on growth initiatives. that these companies face.
A sought-after writer and keynote
speaker, Robbie has presented at
Keywords: business model; churn; marketing software
leading universities, associations, as a service (SaaS); membership; pricing; strategy;
and corporations, as well as before subscription
corporate boards and leadership teams
around the world. Robbie has created
In 2015, when I first published my book, The Member-
and starred in 10 video courses in
collaboration with LinkedIn Learning ship Economy: Find Your Superusers, Master the Forever
on business topics ranging from Transaction & Build Recurring Revenue, I had to convince
innovation to customer success and executives and entrepreneurs that nearly any business
membership. could benefit from using subscription pricing to drive
As the author of The Membership recurring revenue, engagement, and growth.
Economy: Find Your Superusers, Master At the time, subscription-based businesses (SBBs)
the Forever Transaction & Build Recurring
Revenue, a book that has been named
were mostly limited to content companies (news, mag-
a top 5 Marketing Book of the Year by azines, video), clubs with annual dues (gyms and as-
Inc.com, Robbie coined the popular sociations), and so-called “continuity” businesses like
business term Membership Economy. book-of-the-month clubs. A few software vendors were
Robbie’s expertise with companies
offering customers a chance to subscribe to software
in the emerging Membership
Economy includes SaaS, media, hosted on the vendor’s servers instead of hosting the
consumer products, and community software at the customer’s office or home, a practice
organizations. known as “software as a service” (SaaS).
Before launching Peninsula Strategies, I tried to point out the many benefits of subscriptions
Robbie was a strategy consultant at and the applicability of subscriptions to virtually any
Booz-Allen, a New York City Urban kind of business.
Fellow and a Silicon Valley product
Today, just 3 years later, there are literally thousands
marketer. Robbie received her MBA
from the Stanford Graduate School of more SBBs. And many of the world’s largest companies
Business and graduated with honors are trying to figure out how subscription pricing might
from Harvard College. work for their businesses.

© Business Expert Press 978-1-94944-387-5 (2019) Expert Insights


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Growth Strategies for Subscription-Based Businesses

In this article, I will explain what de- computer. But when you own the software,
fines an SBB and the benefits it provides to you can use it forever, with no additional
both the customer and the company. Most fees, while the subscription requires regu-
importantly, I will demonstrate how your lar payments, forever.
company can apply principles of member- More recently, entrepreneurs have de-
ship to grow your own SBB and enjoy those veloped all kinds of new SBBs. I own my
benefits. Peloton exercise bike, but I pay a monthly
fee to access live-streamed spin classes.
Introduction to Subscription-Based Subscribers to Blue Apron get premeasured
Businesses (SBBs) ingredients and recipes delivered to their
An SBB is just that, a business that has, at home every week. Nike’s EasyKicks of-
its center, a subscription pricing model. fers a subscription to kids’ shoes for busy
If you walk into a store and buy a book, parents.
it’s an anonymous transaction, and the re- Companies are drawn to the promise
lationship between you and the bookstore of subscription prices, but need to recog-
ends when you pay money and receive the nize that this change in pricing actually
book. Now the book is yours. You don’t have requires a new business model. Most com-
to pay the bookstore any more money and panies are product centric. This means that
the person selling the book doesn’t have to the company defines itself by the products
give you any value. it creates—a car company, or a software
Compare this with Kindle Unlimited by company for example. In a subscription
Amazon—in this model, you pay Amazon model, subscribers have greater flexibility
on a regular recurring basis for access to to cancel, so the product needs to continu-
its catalog of books. You can read as many ally evolve to stay relevant to the custom-
books as you like on your Kindle for a fixed ers. Subscription companies need to focus
monthly price. You don’t own the books, on maintaining that long-term relationship
and when you cancel your subscription, with the customer—otherwise, the cus-
you can no longer access any of the books. tomer will cancel.
Each model has its benefits. You can Some companies are focused on short-
pass your books down to your children. term revenue, hitting their quarterly num-
You can lend them to friends. With the Kin- bers. In a transactional, product-centric
dle Unlimited subscription, you can’t do business, this can be effective—for ­example
these things—but you can read three, five, by adding fees to the product. However,
even ten books in a month, for the price of subscribers expect pricing to remain con-
a single book. sistent and will be angry (and might can-
In several markets, including the San cel) if fees are added. Many companies
Francisco Bay Area and New York City, in- sacrifice long-term subscriber relationships
demand, high-priced medical doctors have for short-term revenue and as a result their
begun offering a membership-based “con- SBB fails.
cierge” service, including home visits and ac- If you asked me why most SBBs fail, in
cess to the physician’s mobile number for a a nutshell, I’d say it’s because they don’t
subscription fee. understand that for this type of pricing
There are other types of SBBs as well— to work, they need to establish a trusted,
you can subscribe to Microsoft Office and long-term relationship with the subscriber.
access the latest version of its software for The customer needs to be treated like a
a fixed annual fee, and get all kinds of ad- member, like someone who will be inter-
ditional benefits, such as storage and sup- acting with the company for the long term.
port, for less than it would cost to buy the The company needs to join the Member-
software outright and load it onto your ship Economy.

2 © Business Expert Press 978-1-94944-387-5 (2019) Expert Insights


www.businessexpertpress.com
Growth Strategies for Subscription-Based Businesses

In fact, there is actually an interesting the company and the customer (the sub-
opportunity for trusted advisers such as at- scriber). The benefits of subscription can
torneys, financial planners, and certified be even greater.
public accountants to build membership Subscription models drive customer hab-
models, or a new kind of retainer that fea- its that engender loyalty and generates be-
tures a fixed monthly fee in exchange for havioral data that can be used to enhance
unlimited advice within a defined scope. product offerings. For example, in October
Since the trust is already there, subscrip- 2018, ridesharing service Lyft announced
tions could work well and give clients the a subscription model through which riders
benefit of not having the meter running. could get 30 rides per month for $300, an
Increased pressure on these professional ­offer many believe would cause urban work-
services providers through Artificial Intelli- ers to stop driving to work and start depend-
gence applications makes business models ing on rides. The company will be able to
that emphasize the personal relationship rapidly test this hypothesis because it tracks
even more attractive. every ride by member and will be able to see
The Membership Economy is a massive whether riders are making the same journey
transformation that is changing the way back and forth on a regular basis.
companies treat the people they service. It Even if the initial transaction is smaller, in
has been propelled by two things: the long term, subscription businesses are
much more valuable than their transaction-
1. Technology is extending the infrastruc- ally oriented counterparts. Just look at the
ture that enables trusted relationships. valuations of SaaS companies in comparison
The latest developments include secure with software companies using licensing
auto-payments, online community, de- models. And in a different vein, consider
clining costs of storage, user-generated amusement parks that are charging only
content, and always-on devices. Each about twice the cost of a single day pass for
of these advances makes it easier and an annual membership, or carwashes charg-
cheaper for organizations to build con- ing subscribers two to three times the cost of
nections with the people they serve. a car wash for unlimited washes.
2. An influx of venture capital makes it Eventually, Silicon Valley and Wall
possible for new companies to invest Street began to take notice, and businesses
in establishing trusted relationships be- with subscription pricing started earning
fore they have to demonstrate a return much higher valuations than companies
on that investment. Many companies with anonymous transactions. For every
have up to 7 years or more to monetize Blockbuster, there seemed to be a N ­ etflix,
the relationships they are building with and traditional industries of all types be-
customers who are getting real, ongo- gan ­ experimenting with subscriptions.
ing value without spending a penny. [Sidebar listing industries implementing
Historically, companies needed to pay subscriptions: ­ Grocery (Plated), Air travel
for their expenses with their own cash (SurfAir), Music (Spotify), Software (Sales-
flow or loans requiring repayment on a force), C­ inema (AMC), Fitness equipment
regular schedule and with interest. This (Peloton), Vet Medicine (Fuzzy), A ­ pparel
new access to capital provides tremen- (LeTote), Travel (Inspirato)].
dous freedom to entrepreneurs to focus But subscription is just a pricing deci-
on the long term. sion, and true success in any membership-
oriented business requires a new corporate
Obviously, SBBs generate recurring rev- mindset. Changes need to happen across
enue, and subscription businesses funda- the entire organization in order to grow the
mentally change the relationship between subscription business. Sales organizations

© Business Expert Press 978-1-94944-387-5 (2019) Expert Insights


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