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Subscription models leading the way, finds study

By Retail Technology | Friday October 18 2013

Business community expects subscription, rental and sharing models to disruption and transformation of global commerce, new research suggests

A societal shift in global consumption preferences is changing the way businesses are pricing and delivering their goods and services, recently released research from the Economist Intelligence Unit has found. 

The research firm was commissioned by subscription commerce, billing and finance systems provider Zuora to survey 293 business executives in the US, UK and Australia and found four out of every five (80%) businesses were seeing changes in how their customers prefer to access their services.

As a result, over half (51%) said they were integrating new pricing and delivery models such as subscriptions, sharing and rental goods and services, rather than selling products outright. Of those, subscription-based models have emerged as the primary means to do so, with 40% of these companies implementing subscription services as part of their core business.

Monetising new delivery models 

As consumers and businesses look for more flexible and convenient ways to access the services they want, the study highlighted how new models of ownership have risen through the emergence of subscription, rental and sharing businesses, causing a transformation in a wide range of sectors including financial services, healthcare, media, technology and telecommunications, as well as retail.
The survey also revealed that, while the move to new consumption and delivery models is being driven by consumers’ desire for more flexible pricing and greater convenience, the trend is being recognised by businesses as a powerful new revenue opportunity. It found 12% of respondents were already seeing new business models based around subscriptions, sharing and rental represent more than half of their revenue. And this number is expected to grow rapidly, as 84% anticipate that this share of revenue will increase somewhat or significantly over the next two years.

The respondents also recognised the new revenue opportunities (37%), competitive differentiation (27%) and increased customer loyalty (25%) made possible by these new methods of pricing and delivery. And the key consumer benefits heralded by these new subscription models were found to be reduced transaction costs (36%), more convenient use of goods and services (35%) and the ease with which customers can upgrade or downgrade services (33%).

A global disruption in commerce

The study also revealed concern among businesses about their ability to navigate this disruption. Over one third (37%) said recent advances in technology, including cloud computing, have been the primary drivers in this societal shift to new consumption and delivery models. And technical complexities were identified by a third of businesses (30%) as one of the most significant challenges of moving towards these new models. The other two key challenges identified with achieving the business transformation required to implement these new consumption and delivery models were organisational (33%) and compliance issues (27%).

Zoé Tabary, deputy editor at the Economist Intelligence Unit, said: “The shift to new consumption and delivery models is taking place against the backdrop of more empowered consumers, who increasingly seek convenience and better value for money in goods and services. This is creating technical and organisational challenges in implementing new models, but businesses are starting to take advantage of the opportunities that they represent.” 

Aleyn Smith-Gillespie, associate director at Carbon Trust Advisory Services, a consultancy offering expertise on sustainable business strategy and models, commented: “Not having capital tied up in assets, having the ability to purchase on a per-user basis or over a period of time, and the ability to outsource the expertise required to maintain these goods and services are the benefits that are driving this trend.” 

Tien Tzuo, Zuora co-founder and chief executive, added: “How you price, sell, bill, collect payment and account becomes much more complex, and every line of the business must be prepared and aligned to meet the demands of this disruptive transformation in global commerce.”

A world subscribed

The survey results were released earlier this month at Zuora’s Subscribed Europe 2013 event in London. Zuora also unveiled its Subscription Manifesto for the first time in Europe at the event. The Manifesto, signed by leaders of 75 companies committed to establish a modern operating model, includes a set of core values and nine guiding principles for subscription businesses to adopt. Through the collective learning and experiences of the signatories, the Manifesto has been designed to provide the first framework for global success in, what Zuora is referring to as, the $500 billion 'Subscription Economy'.

The survey results, along with insights from leading business executives and independent experts, form the basis of an Economist Intelligence Unit briefing paper that can be downloaded after registration here

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