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Encyclopedia > Subscription business model

The subscription business model is a business model that was pioneered by magazines and newspapers, but is now used by a myriad of businesses and websites. Rather than selling products individually, a subscription sells periodic (monthly or yearly or seasonal) use or access to a product or service, or, in the case of such non-profit organizations as opera companies or symphony orchestras, it sells tickets to the entire run of five to fifteen scheduled performances for an entire season. Image File history File links Broom_icon. ... The term business model describes a broad range of informal and formal models that are used by enterprises to represent various aspects of business, such as operational processes, organizational structures, and financial forecasts. ... This article or section does not adequately cite its references or sources. ... This article is about a term used in economics. ... The list of opera companies is comprised of established, full-time professional opera companies that present performances during an annual season. ... Orchestra at City Hall (Edmonton). ...

Thus, a one-time sale of a product can become a recurring sale and can build brand loyalty. It is used for anything where a user is tracked in both a subscribed, and an unsubscribed status. An electronic mailing list, a type of Internet forum, is a special usage of e-mail that allows for widespread distribution of information to many Internet users. ...

Industries which use this model include book clubs, record clubs, telephone companies, cable television providers, cell phone companies, internet providers, pay-TV channels, software providers, business solutions providers, financial services firms, fitness clubs, and pharmaceuticals, as well as the traditional newspapers and magazines. For other uses, see Book (disambiguation). ... For other uses, see Telephone (disambiguation). ... Coaxial cable is often used to transmit cable television into the house. ... Motorola T2288 mobile phone A mobile phone is a portable electronic device which behaves as a normal telephone whilst being able to move over a wide area (compare cordless phone which acts as a telephone only within a limited range). ... An Internet Service Provider (ISP) is a business or organization that offers users access to the Internet and related services. ... Pay television, or pay-TV, usually refers to subscription-based television services, usually provided by both analogue and digital cable and satellite, but also increasingly by digital terrestrial methods. ... This article or section does not adequately cite its references or sources. ...

Renewal of a subscription may be periodic and activated automatically, so that the cost of a new period is automatically paid for by a pre-authorized charge to a credit card or a checking account. Look up credit card in Wiktionary, the free dictionary. ...

The razor and blades business model (also called the bait and hook model) is an attempt to approximate the subscription model, but without a formal agreement by both parties. The razor and blades business model (also called the bait and hook model or the tied products model) works by selling a master product at a subsidised price, and making the profit on high margin consumables that are essential to the use of the master product. ...

Membership fees to some types of organizations, such as trade unions, are also known as subscriptions. A union (labor union in American English; trade union, sometimes trades union, in British English; either labour union or trade union in Canadian English) is a legal entity consisting of employees or workers having a common interest, such as all the assembly workers for one employer, or all the workers...


Types of subscriptions

There are different categories of subscriptions:

  • A subscription for a fixed set of goods or services, such as one copy of each issue of a newspaper or magazine for a definite period of time.
  • A subscription for unlimited use of a service or collection of services. Usage may be personal and non-transferable, for a family, or under certain circumstances, for a group utilizing a service at one time.
For example, a subscription to a railpass by a company may not be individualized, but might permit all employees of that firm to use the service. For goods with an unlimited supply and for many luxury services, subscriptions of this type are rare.
  • A subscription for basic access or minimal service plus some additional charge depending on usage. A basic telephone service pays a pre-determined fee for monthly use but may have extra charges for additional services such as long-distance calls, directory services, pay-per-call services, etc.

Effect on the vendor

Businesses benefit because they are assured a constant revenue stream from subscribed individuals for the duration of the subscriber's agreement. Not only does this greatly reduces uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires.

In integrated software solutions, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably greater than the revenue from simple one-time purchases. In some subscription schemes (like magazines), it also increases sales, by not giving subscribers the option to accept or reject any specific issue. This reduces customer acquisition costs, and allows personalized marketing or database marketing. However, a requirement of the system is that the business must have in place an accurate, reliable and timely way to manage and track subscriptions. Personalized marketing (also called personalization, and sometimes called one-to-one marketing) is an extreme form of product differentiation. ... Database marketing is a form of direct marketing using databases of customers or potential customers to generate personalized communications in order to promote a product or service for marketing purposes. ...

From a marketing-analyst perspective, it has the added benefit that the vendor knows the number of currently active members, since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates customer relationship management to a large extent because the analyst knows who is an active customer and who recently churned.[1] Customer relationship management (CRM) is a broad term that covers concepts used by companies to manage their relationships with customers, including the capture, storage and analysis of customer, vendor, partner, and internal process information. ...

Effect on the customer

Consumers may find subscriptions convenient if they believe that they will buy a product on a regular basis and that they might save money.

For repeated delivery of the product or service, the customer also saves time. Subscriptions which exist to support a club or organization them to become "members" which gives people of similar interests access to a group. An example might be the Computer Science Book Club.

Subscription pricing can make it easier to pay for expensive items, since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customers from signing up.

An unlimited use subscription to a service for a fixed price is an advantage for consumers using those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently, but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been.

Advantages and disadvantages for software customers

There are also drawbacks to subscription models. Often, as in the case of software, the customer may prefer to pay a one-time fee for the security of knowing that no further payment is necessary. In addition, subscription models increase the possibility of vendor lock-in, and consumers may find repeated payments to be onerous. Finally, subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of privacy. In economics, vendor lock-in, also known as proprietary lock-in, customer lock-in, lock-in is where a customer is dependent on a vendor for products and services and cannot move to another vendor without substantial switching costs, real and/or perceived. ... Privacy has no definite boundaries and it has different meanings for different people. ...

Christopher Lochhead, Chief Marketing Officer of Mercury Interactive dissents[2]. The Chief Marketing Officer, or CMO, is a job title for an executive responsible for various marketing-related activities within an organization. ... It has been suggested that Systinet be merged into this article or section. ...

A subscription model may be beneficial for the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller.

This is in contrast to many one-time transactions, when customers are forced to make significant commitments through high software prices. Some feel that historically, the "one-time-purchase" model does not give sellers incentive to maintain relationships with their customers (after all, why should they care once they've received their money?). Some who favor a subscription model for software do so because it may change this situation.

The subscription model should align customer and vendor toward common goals, as both stand to benefit if the customer receives value from the subscription. The customer that receives value is more likely to renew the subscription and possibly at an increased rate. The customer that does not receive value will, in theory, return to the marketplace.

Effect on the environment

Because customers may not need all the items received, this can lead to wastage and an adverse effect on the environment, depending on the products. Greater volumes of production, greater energy and natural resource consumption, and subsequently greater disposal costs are incurred.

See also

This article or section does not cite its references or sources. ...

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  1. ^ J. Burez & Dirk Van den Poel, "CRM at a Pay-TV Company: Using Analytical Models to Reduce Customer Attrition by Targeted Marketing for Subscription Services", Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium on econpapers.repec.org, 2006
  2. ^ Alorie Gilbert, "Software Execs Bash Their Industry's Approach", CNET News.com article, March 3rd, 2004

  Results from FactBites:
Subscription business model - Wikipedia, the free encyclopedia (695 words)
The subscription business model is a business model that has long been used by magazines and record clubs, but the application of this model is spreading.
The razor and blades business model (also called the bait and hook model) is an attempt to approximate the subscription model.
Also subscription models increase the possibility of vendor lock-in, and consumers may find repeated payments to be onerous.
Business model - Wikipedia, the free encyclopedia (406 words)
A business model (also called a business design) is the mechanism by which a business intends to generate revenue and profits.
Generally, the business models of service firms are more complex than those of manufacturers and resellers.
The bait and hook business model (also referred to as the "razor and blades business model" or the "tied products business model") was introduced in the early 20th century.
  More results at FactBites »



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