Subscription-based business models have become an increasingly common method of selling products and services. And although service subscriptions, such as Netflix for video streaming and Spotify for music, are well known to consumers, subscription services for consumer electronics are also becoming popular. Starting a subscription business for consumer electronics can be lucrative.
Subscription services such as home appliance-as-a-service and equipment-as-a-service give consumers a convenient, personalized, and, often, lower-cost method to purchase what they want and how they want.
According to a research study from McKinsey, which was conducted on more than 5,000 US consumers, 15% of them have one or more active subscriptions for products. Moreover, McKinsey expects the subscription market to grow from $15 billion in 2019 to $473 billion by 2025, making subscription management and subscription-based business models an exciting opportunity for business owners across different industries.
This article explains the benefits of a subscription model for consumer electronics and how to start a successful subscription business.
How does a subscription model work?
A subscription model is a business model where businesses offer their services or products to consumers who pay a recurring (typically monthly) fee to access or use them instead of a one-time payment.
When it comes to services, one of the best examples is Netflix, where users can watch TV shows and movies whenever they want as long as they pay a recurring monthly fee.
And regarding consumer electronics, last year, Samsung launched a subscription service offering models from their S21 series. Since then, they have expanded their offering, so it now covers other devices such as Tab S7 and Galaxy A models. They plan to continue growing the offering to include wearables and other consumer electronics such as smart home devices, TVs, and notebooks.
Benefits of Subscription Model for Consumer Electronics Businesses
The subscription economy, often called the membership economy, acts like a significant shift in the mentality of both businesses and consumers, who prefer access more than ownership. Additionally, most businesses offer subscription management services that give consumers more engaging and stress-free experiences. In contrast, businesses benefit from building long-term consumer relationships and having a more predictable cash flow.
More predictable cash flow
Indeed, subscription business models give businesses more predictable revenue streams and make them more financially secure. This increases stability which in turn allows businesses to invest in their long-term projects more easily.
The metric used to measure this is called Monthly Recurring Revenue (MRR) and is calculated by multiplying the number of subscribers by the subscription fee. So, for example, a business that has 100 subscribers that pay $100 each month has a 10,000 MRR.
Stronger relationships with consumers
With a subscription-based business model, businesses can quickly create more robust and loyal relationships with their consumers by creating an ecosystem where they can feel heard.
Considering how convenience and frictionless experiences are among top consumer expectations, it´s easy to conclude how subscription business models for consumer electronics, such as home appliance-as-a-service and equipment-as-a-service, help increase loyalty. In the end, loyalty is all about the customer experience.
Increased value for both sides
The cost in transactional business models is higher since businesses have to ensure they get a profit from each and every sale. This, on the other hand, can act as an inhibitor to consumers worried about the projects. And, in reality, most are.
By periodically charging, either monthly or annually, for their products and services, businesses give their consumers the ability to spread out the cost. Although service-based businesses have done this for some time now and with great success, product-focused businesses also notice the benefits of subscription-based business models. Consumer electronics are just one of the industries moving into the field with their new equipment-as-a-service and home appliance-as-a-service offering. And by doing this, they can significantly improve their customer lifetime value (CLV) because of lower recurring fees and stress-free subscription management services.
Increased customer knowledge
To put it simply, customer knowledge is the science of knowing the consumers. Who are they? What do they want? What do they need? What do they don’t need? Having answers to these questions helps businesses understand their consumers´ buying patterns and needs, which makes it easier for them to create desirable offerings that are easy to sell.
When done correctly, subscription-based business models are inexhaustible sources of customer data. And when this data is used correctly, it turns into actionable insights that help businesses better understand their consumers and create a backlog of features they want and need.
How to Start a Subscription Business?
Although there are numerous benefits of a subscription model, there are some challenges, as well. The biggest one? Churn.
Also known as attrition rate, churn is when consumers stop doing business with a business over a given period. In the case of subscription business models such as home appliance-as-a-service, churn is the number of subscribers that cancel and return the appliance in a given time. Luckily, churn is also easy to solve by creating product offerings closely aligned with the consumers´ wants and needs.
To do this, businesses must evaluate their product-market fit and conduct the necessary research to validate their product idea. The good news here is that, although some subscription industries are oversaturated and can be challenging for newcomers to enter, the space of home appliance-as-a-service and equipment-as-a-service is much larger in terms of consumer base and smaller in terms of competition.
The first step to starting a subscription business for consumer electronics is to decide what type of subscription model will be used, and what product(s) will be offered.
From our experience working with businesses in various industries, starting a subscription-based business model can be overwhelming to some simply because it´s new to them. Therefore, we always suggest starting with a single product or a single range of products, like Bugaboo started with strollers and the newly launched furniture subscription by Aloe by Article, which can be replicated in subscription business in the tech space.
By doing this, businesses can experiment and learn while keeping any potential risks at bay and without putting much strain on their resources.
Once the product or product range has been decided, it´s time to craft a pricing scheme. Subscription business models often have different pricing levels depending on the subscription duration. The goal is to create an offer that is both appealing to the consumers and profitable for the business. To make it even more appealing, businesses can create product bundles, give discounts to other products, or include additional services.Once the pricing levels have been set, it´s time for businesses to start with their marketing efforts to put the offering in front of their consumers. This includes advertising on social media and other relevant channels, sending newsletters, using influencers, and any other marketing method appropriate for that specific product or product range.
While it seems things are going slowly at first, businesses have to prioritize acquisition to get as many subscribers as possible. Once the ball is rolling and the number of subscribers starts to grow, businesses can focus on customer retention strategies to prevent and combat the subscription churn we discussed above.
Starting with a subscription-based business model can seem challenging, especially for businesses that decide to experiment with it by themselves. In fact, this is the number one reason why some subscription initiatives fail.
Businesses decide to implement it because they hear the benefits of a subscription model or notice how some of their competitors are already doing it. And after they start, they experience challenges caused either by their lack of experience or resources. Implementing such a model, especially creating a subscription management platform, requires significant resources, either by setting up an in-house development team or outsourcing it to a custom development agency. Either way, lack of experience increases the risk exponentially.
For businesses in the consumer electronics field that want to implement a subscription-based business model, their best chance of success is to find a specialized subscription management partner. This way, they minimize their risks and maximize their chance of success by benefiting from their partner´s experience. Additionally, businesses can save significant resources by using their partner´s subscription management platform.
circuly allows businesses to launch and scale their DaaS subscription business within months. It provides customers a seamless customer-centric renting experience by empowering businesses with an all-in-one platform to manage their new business model, from subscription management, recurring billing, and asset tracking to return handling.