Some Kingos might spend more time watching Netflix or listening to music from Melon than studying for their exams. One similarity of these websites is that users need to subscribe and pay a fixed monthly fee for the services that the websites provide. Consequently, subscription services are becoming more common in our daily lives. Therefore, the Sungkyun Times (SKT) will now introduce the subscription economy, the strengths, and weaknesses of the subscription business model, and its future prospects.
About the Subscription Economy
The Definition of the Subscription Economy The subscription economy is a relatively new business model, which regularly provides products or services to consumers who have signed up and subscribed to the services a firm provides online. Recently, it is a new trend in the consumption economy. This change reflects the tendency of today’s consumers, who value experience and cost satisfaction than ownership and cost-effectiveness.
Types of Subscription Economy
The Strengths and Weaknesses of Subscription Economy
The Strengths of Subscription Economy
➊ Subscribers
A variety of experience and freedom of choice are given to subscribers. First of all, users can cancel the subscription anytime. In the case of the unlimited use model and longterm rental model, consumers can choose whatever product or service that the provider offers by just paying a fixed monthly fee. The subscription-based delivery model is convenient because the subscriber can be free from the hassle of choosing products one by one and purchasing them.
➋ Companies
The companies based on the subscription model not only have information about the consumers’ tastes but also make a stable profit by producing what consumers want based on the data they have. A typical example of personalized SUBSCRIBE 27 service with the analysis of subscribers’ information is Netflix’s recommendation list. The reason why Netflix creates original contents such as Kingdom with less failure is that Netflix already knows what contents subscribers prefer.
The Weaknesses of the Subscription Economy
➊ Subscribers
Subscribers might suffer from an increase in the fixed cost of living as the subscription fees pile up. The monthly fee for a single service might not be expensive, but reckless subscriptions will cause an increase in spending. Also, competition among companies limits subscribers’ choices. For example, in August 2017, Disney announced that they would start their own Over The Top (OTT) service, Disney+ and decided to stop providing its contents to Netflix. Consequently, consumers who originally subscribed to Netflix now have to subscribe to more OTT services, which have led to decreases in their cost-satisfaction.
➋ Companies
Subscription services are vulnerable to subscribers leaving because they have low brand loyalty. According to McKinsey & Company’s survey of more than 5,000 consumers in 2017, half of the subscribers canceled their subscriptions within six months. Also, when a particular type of subscription service succeeds, similar companies start to appear, and consumers can move from one to another without much trouble. Therefore, without its original contents, a company can have difficulty making a profit. Memebox, which was the leading firm in the cosmetics subscription service industry, used to deliver various cosmetic samples from other brands, but it eventually stopped the subscription service to promote its own brand.
The Future Direction of the Subscription Economy
The subscription economy is steadily growing. According to Credit Suisse, one of the biggest investment banks in the world, the subscription business industry is expected to grow from 215 billion dollars in 2000 to 530 billion dollars in 2020. The weaknesses of the market, however, need to be compensated. First, companies need to target the niche market with fresh ideas. For instance, the main targets of Veluga Brewery, Korea’s first craft beer delivery company, are married couples who cannot leave their children at home alone while other beer delivery companies target young people who live alone. Secondly, the exact needs of subscribers should be satisfied with the expansion of customized services. For example, Toun28 became the number one subscription-based customized cosmetics company in Korea by providing skin condition diagnosis for its subscribers and producing customized cosmetics taking into account the climate and lifestyle. Lastly, the companies should not have depended solely on big data and Artificial Intelligence (AI). Since the user receiving the service is human, emotional aspects must be considered mainly by people, not AI. According to Patty McCord, who worked for 14 years as Netflix’s Chief Talent Officer (CTO), the most important thing in the decision-making process is not data, but people’s intuition; the data is just supplementary.
Customers’ desire to experience products with a limited budget eventually led to the subscription economy. The subscription economy business model still has great potential for growth. The SKT hopes Kingos will find and experience the appropriate subscription services for them and improve the quality of their lives in the growing subscription economy.