December 8th, 2021 | 9 MIN READ

Why Modern Solutions Break Business Model Boundaries - An Analysis of Subscriptions

Written by Jamie Smith

Jamie Smith is the Senior Director Solution Consulting for Elastic Path.

Business_Technology_Solutions_Breaking_Boundaries

Information technology is a sea of techno babble, three letter acronyms (TLAs) and jargon, which is not helped by our human condition driving us to compartmentalise and classify everything neatly into clearly aligned boxes, which I have successfully extended with my own lexicon of buzz words over the years.

The most common TLAs are focussed on defining transactional business relationships B2C, B2B, D2C...  and the list goes on. This basically works even in our rapidly changing world, although it does leave interpretation open to the individual.

Let’s examine this Opening Statement:  Do we need to draw artificial lines between B2C / B2B / D2C / M2Q etc. to get to the right composed solution?

Modern Composable Commerce solutions cross both functional and business model boundaries aiming to deliver the most personalised, targeted, enriched and immersive experience for all purchasers. Subscriptions based solutions are a great example of this in action, offering predictable revenues for the selling organisation, whilst increasing options for buyers that drives affordability and positively impacts loyalty. COVID has accelerated in-device and online orders, which subscription offerings maximise, due to our growing consumption-based needs during lock down, which conversely calls for increased choice, on-demand delivery, and flexibility in financial options.

Robbie Baxter’s book, The Membership Economy, demonstrates how for agile companies focused on ongoing buyer relationships and providing access instead of just ownership, leveraging subscriptions is significantly impacting recurring revenues. This is further highlighted by Gartner stating the growing importance of subscriptions in our daily lives and predicts that by 2023 - 75% of online offers will be subscription based. The growth of subscriptions is impacting our lives as consumers and the industry generally:

  • CFO Research have outlined that “53% of senior finance executives say at least 40% of organisations’ revenue is recurring”
     
  • Deliotte say over 41% of households today subscribe to one or more music streaming service and 69% subscribe to video streaming
     
  • PYMNTS.com say “The luxury car subscription market is set to grow by 71% by 2022”
     
  • Invesp highlight Average conversion rate by service type is:

          • 65% Replenishment
          • 52% Curation
          • 51% Access

Let’s dive deeper into subscriptions, to examine why they operate across boundaries, and are critical to modern trading strategies. Firstly, we generally subscribe to three types of commodities: Physical Goods; Digital Goods and Services, in isolation or in concert.

Commodity_Types

Each commodity shares common characteristics that define them as a subscription:

  • Duration
     
  • Renewal processes
     
  • Cancelation policies
     
  • Payment terms
     
  • Price

These attributes are critical to both buyers or sellers and determine clear recurring order cycles which help sellers react accurately to supply and demand and buyers quickly assess a cost / benefit analysis.

All consumers see this from a value-based purchase perspective, but buyer personas consumption need vary, for example:

  • A procurer at a large hospital will assess the purchase against operational running costs and usages trends.
     
  • A manufacturer would define production volumes and profit margins based on the materials required from suppliers in subscription cycles.

Arguably the buyer examples open the question “Are these all subscriptions?” and what is the difference between a recurring order vs. manufacturing supply chain vs. subscription. This further dives into the alignment of business and technology needs questions like “Is recurring billing a subscription? Or Is order replenishment a subscription?” I want to recognise that there are fine lines to draw here which can have different interpretations. These differences in language and interpretation provide the 1st supporting point to the opening statement, that we are building artificial boundaries, which we’ll review at the end.

Some great customer examples:

Blink cat food is a great example of Physical Goods based subscriptions. Providing cat owners the ability to build their own cat food box subscription to meet their specific cats’ needs while giving them peace of mind that they’ll never be caught off guard by an empty cupboard. Starting with a simple trial and graduating to a fully configurable monthly box with personalised discounts all within a few simple clicks while supporting all the base characteristics of great a subscription. Blink was implemented by Pixie Labs, a UK based product development studio and partner of Elastic Path, leveraging Elastic Path Commerce Cloud as the headless commerce solution of choice.

Pixie Labs recently launched their new Pre-Composed SolutionTM for Subscriptions which will offer clients selling physical goods a rapidly configurable solution founded on the concepts of Blink, which reduces speed to market and total cost of ownership with a highly customizable subscription management solution which can flex with your needs to ensure complete control over customer experience.

Cat_Blink

reMarkable is a great example of Digital Goods based subscriptions. The recently launched reMarkable Connect subscription services, provide reMarkable customers with the ability to leverage Dropbox or Google Drive integrations to access PDFs which can be uploaded to the reMarkable for reading and dynamic annotation, then sharing via email, to the cloud storage or present live. The reMarkable internal IT team have been leveraging Elastic Path Commerce Cloud for over 5 years and have extended our headless platform with Stripe our premier partner, leveraged by clients for recurring billing-based subscription solutions.

reMarkable

Services based subscriptions around various traders is combined the other subscription based or purchasable items. Generally in complex and highly configurable solution offerings to clients & businesses, installation services, maintenance contracts, phone tariffs like T-Mobile and are combined with hardware & software.

Today many service based subscriptions are custom built as every service offering is unique to support the the complete services like incident & maintenance services. The baseline attributes required to support service offerings changes the baseline across different business models, requiring a variety of consumption, utilization or distribution approaches, and require allocation of expert services.

They help to start building from the baseline attributes, as different business models as the examples above demonstrate, require varying consumption or distribution approaches, and require allocation of expert services. These radically change how the seller markets and release commodities to maximise revenue from the target subscribers, example of addition attributes:

Goods

These attributes only scratch the surface of possibilities and shouts “With great power comes great responsibility.” I say this as the increasing commercial benefits of subscriptions and our access driven generation of buyers (like my three sons {18, 19, 25}) are: demanding social immersion, experiential engagement, hyper personalisation, low entry costs and simplicity of acquisition. These factors are moving us to what I would call “multi-dimensional subscription configurations” which will combine all purchases & subscriptions into a super subscription set or consumption-based ordering. This also carries the risk of over complicating initial purchasing experiences, and allowing technicians to confuse and scare buyers if not designed with the buyer in mind, and begs the question: Does the most complex model cover all requirements?

Well, experience teaches me that the most complete and flexible model “NOT complex” will cover North of 85% of use cases, but never all, and opens a world of potential. This also highlights why there is a growing ecosystem of specialised Subscription software vendor working with this in mind. This serves as the 3rd supporting point to the opening statement.

Beyond these basic subscription elements, most running solutions in the wild leverage other touch points which increasingly impact why subscriptions are becoming more influential, including:

  • Trials, Teasers, Testers, Tasters:

    Being able to have an initial small order sent home or access to a game you want to test out for a limited usage. As part of the composable subscription solution, inventory and fulfilment could be restricted or the download series will have a timeout set in the entitlement system. The ability to try before you buy is nothing new and is something generally which increases confidence and longevity.
     
  • Social & Community:

    As COVID has proven, we will adapt and overcome and the human desire to interact, communicate, collaborate, and share only burns even brighter online than ever. Coupling this to the fact that many traditional subscriptions offered as part of membership to clubs (crafting, reading, sports .. ).

    Social and immersive experiences within the eCommerce landscape are at the heart of all great compositions, while leveraging natural and authentic interactions which supports subscribers and allows them to socialise with each other organically growing the future stickiness of the commodity and providing value feedback to the seller.
     
  • Loyalty:

    When we subscribe, especially to a service, the seller wants to build our loyalty to protect their revenue stream. Microsoft and Amazon are great examples as they release additional value-added services and either provide them for free or bundle them for a limited time, and additionally provide services points that can be redeemed as rewards for play and usage.
     
  • Promotions:

    There isn’t a a trading journey or solution operating today that isn’t impacted by some form of promotion and marketing activity.
    Subscriptions models expand the needs further:

    i.     First 3 months free and remaining 9 months at 20% off;
    ii.    Subscribe to this get access to this for 4 weeks free;

    Additionally handling the promotions at time of renewal and during reverse logistics can be a little unique.

Each of these composable components are defined, selected and controlled by the needs and requirements of the business, so transcend baseline concepts of a business model and remove boundaries to trading with all buyer personas.

The growing ecosystem of critical touch points is the 4th supporting point to the opening statements that subscription trading models highlight.

So let’s wrap up: “Do we need to draw artificial lines between B2C / B2B / D2C / M2Q etc. to get to the right composed solution?” I suggest we should not, let’s look at the supporting point:

  1. The overlap in functional and terms, exemplified by subscriptions, shows a wider challenge we face in communicating clearly how to address business needs and impact revenue growth, and trying to bundle everything into a B2B or B2C bucket kills our opportunity to innovate.
     
  2. Businesses who provide subscriptions want to generate a predictable revenue stream for all commodities they offer. This is designed with a target persona in mind, however the seller wants to open the ability for others to purchase and grow their customer base, whether consumer, reseller, distributor, etc.
     
  3. The need for open and flexible subscription solutions supports all types of commodities and purchasing terms has not direct correlation to the business model, but the type of commodity and how it will be consumed by the end buyer. Especially with access-based consumption if I’m a business buyer or consumer has little importance.
     
  4. The expanding Composable Commerce ecosystem demands agility, flexibility, and choice. Subscription models are a collision point requiring interaction across the broader solution landscape while increasing cohesion with the end subscriber to bring value. This is like the 3rd point but is more architectural in nature.

When considering the convenience and reduced cost for the buyer, coupled with predictable revenue and increased control over the supply chain, highlights the growing importance of subscriptions in our modern trading world and in my view an important step in the dissolution of boundaries across business models.

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