The Subscription Economy
Advances in technology, economic pressures and shifting cultural norms mean new models of ownership are gaining attention in many industries. People are increasingly interested in consuming and paying for temporary or limited access to goods and services, rather than purchasing them outright.
Subscription-based models in which companies offer ongoing access to a product or service for a periodic fee; rental models that give consumers temporary use of a product or service; and sharing models that allow groups of people to jointly share ownership of a product or service are among the preferred options.
It helps that there are major success stories where companies have proven the economic model. Netflix where consumers don’t feel the need to own movies and Spotify where they don’t need to own the songs, to name just a few.
It has been more prevalent with consumer software. Enterprise software has lagged somewhat as it always does, but it has caught up fast.
Behemoths like Microsoft, Adobe and Oracle are transforming their businesses and turning them around to pivot on these new business models. Some would say Salesforce, who was born in the cloud, popularised the movement.
These enterprise software companies have given rise to a category of business called SaaS, or Software as a Service. For a good explainer of a SaaS business see this article from Salesforce. A fundamental premise of a SaaS business is that the software is not owned by customers and paid for on a subscription basis.
Businesses not traditionally in technology are eying the models too and trying them on (highly recommended while software eats the world). The best example is probably Amazon Prime. Amazon Prime is an undisputed success and not just because its latest Prime day has broken all records. From this article, “what sets Amazon apart is its undivided focus on improving the customer experience, something Bezos has talked about at length”. Amazon Prime plays a leading role in driving that customer experience.
Subscription business are far from new but how technology is utilised to improve customer experience is (especially in utilising data about customers needs and preferences) and it is making all the difference.
At least one of the reasons for Unilever’s acquisition of razor subscription service Dollar Shave Club for $1B was that it was a subscription business with recurring revenues. Another was that it used technology to build incredible relationships with customers based on its understanding of how they used the product
Another interesting business expanding into subscriptions is Nespresso.
NOTE: I am using the term subscription economy as a pretty broad, catch-all term to cover many types of business. As mentioned subscription businesses are not new and so I don’t want to cover only the new types of SaaS business I’ve already mentioned. And it does not just have to be about a subscription. Wherever there is recurring revenue, some kind of consumption based payment model, even pay as you go, I’m bundling them all under the term.
Trusty Wikipedia has one of the better and most succinct definitions of customer experience I thought I’d share:
In commerce, customer experience (CX) is the product of an interaction between an organization and a customer over the duration of their relationship. This interaction is made up of three parts: the customer journey, the brand touchpoints the customer interacts with, and the environments the customer experiences (including digital environment) during their experience.
On the three part distinction made in the definition above, this Harvard Business Review article has a good explainer: Understanding Customer Experience.
It should probably be a given but I will emphasise it that when you run a subscription business, you have unparalleled access to customer interactions and the data it creates because of the ongoing and recurring nature of the relationship.
Insofar as the subscription economy is concerned there is one major reason why customer experience is so very important. In a subscription business where the economic value a customer provides is not based on a one off payment but recurring payments over time, the imperative is for the provider to keep those payments coming in for as long as possible.
As long as the customers experience is positive, the fundamental presumption is customers will continue with the subscription. If not, the subscription can be stopped (notwithstanding the longer term contracts that enterprise customers frequently sign up to but at some point they are still able to).
The three fundamental elements of customer experience management are:
- Being able to map the journey your customer takes
- Track their progress on the journey through data collected while on it
- Take remediating action where necessary or constantly improve the journey and experience
The data should help decide how well the journey is going at any one point. The first is done through a mapping exercise and there are many approaches to this – one of my favourite is Adaptive Path’s approach which has its own site: http://mappingexperiences.com/
All is not well in customer experience land:
A positive customer experience is deemed important but only 3 out of 10 organisations match customer expectations and yet 8 in 10 are willing to pay more for a better experience. 75% of organisations believe themselves to be customer-centric but only 30% of consumers agree to this.
The source of those statistics is a report from Cap Gemini – The Disconnected Customer: What digital customer experience leaders teach us about reconnecting with customers. But you don’t have to look much further to find similar statistics and as alarming as they may sound (similar to to the “80% of change efforts fail” that some discredit), you have to admit where there is smoke there is often fire. So much work is still needed.
The role of customer success
I’m not suggesting a customer success team should be the single custodians of the customer experience and drivers of the subscription economy. The whole journey has many touchpoint that go beyond the success teams remit and the business drivers too broad for that. In the past I’ve mapped where I think a success team can and should play a prominent role and where it supports efforts.
Here at left is how I tried to position the role of the CSM in an organisation based on my experience at Microsoft helping to run first Yammer then O365 Customer Success practices.
SaaS companies in particular, where subscription models drive recurring revenue, know that a good experience is critical. You’ll most often find a team of dedicated customer success managers, supported by automated and data-driven processes and scalable methodologies in a SaaS startup. It is a relatively new practice after all. As the world moves to subscriptions where experience is key, learning from the best in customer success is what a lot of this report will cover. I will also make the case that it should be expanded to other relevant organisations that have an interest in driving recurring revenue and great customer experiences as a means of doing that.
When I attended the Pulse 2017 customer success event I found out a lot about the latest best practices. I wrote about them here: State of Customer Success – Learnings from Pulse 2017. That includes links to customer success explainers but this one I wrote is probably the most succinct if you want to know what a CSM does: Role of the customer success manager.
In particular at Pulse 2017, McKinsey spoke and made the connection between customer success and customer experience in research they are currently undertaking. Take a look at the deck of slides they presented (thats a pdf and the audio is here) that covers the latest status and findings of the research. They make a clear link between customer success and customer experience and this is the essence of my hypothesis. Which is, that customer success activities can and should be studied to understand the potential they have to be key drivers of customer experience in the new subscription economy.
More will be touched on in the eBook but for now an outline of the 10 areas I will explore further are below.
10 ways customer success will make you win
These are just high level titles and descriptions – for the detail you will have to wait for and read the eBook :) They cover elements of a good customer success practice that you can apply in order to drive a good customer experience in a subscription economy business and achieve the success you envision.
1. Mindset and Culture
As mentioned in the Cap Gemini report, many companies think they are customer centric. The main problem is that customers don’t agree. The difference between saying you are and being it is often based on mindset that translates into action and ultimately experience. When you think a certain way, you act accordingly and this permeates the experience people have of you. Its no different with organisations and the employees that create experiences with customers. So you need to live and breathe customer centricity at the very core of your company culture – that is easier said than done.
Success is also a mindset game. Successful people often start out by defining some parameters of success and then set out to achieve them. They are goal and outcomes oriented. This is generally true of all businesses but has to be even more so for a success oriented part of the organisation.
Customer success teams have it not just in title but also in their marrow to focus on the customer and the success they achieve using the organisations products and/or services.
You have to start somewhere and these are the foundational building blocks of a good customer success practice – outside of building the right culture and mindset referred to in the intro. These building blocks provide the foundation to expand and scale your practice and need to be in place for overall success.
This means a robust approach to planning for and executing on the right strategy for success. It most often focuses on usage being made of and value being derived from the product or service, by the customer. It should also include a robust view of the customers experience journey and how to influence it at every point.
3. Data, Metrics and Tech
This will tie in with the methodology because you cannot manage what you don’t measure. One of the most important metrics is Net Retention. What Net Retention means is, if you never sold to another customer, is your customer-base a growing entity (quote from Dan Steinman, Chief Customer Evangelist, EMEA at Gainsight)? How you measure (meaning the data source and the reporting tools you use) are equally important. Then there is the platform or tech stack you use to manage activities, workflows and processes for you success team.
4. Practice and Leadership
Leadership is not so much about looking to a single leader but leading customer success practitioners doing excellent work with customers. After all nothing succeeds like success and seeing colleagues succeed and how they share that is often a core part of a customer success practice. But building a practice does mean having the right intent for customer success and experience activities and senior executives driving that and appointing someone on the board ideally to drive it is critical. The Chief Customer Officer is a new kind of CxO that seems to be and indeed should become more prevalent.
The subscription and experience business is such an iterative one by its very nature. Experiences vary so much by customer and continue to evolve and subscription models can be constantly tweaked as the data provides feedback and evidence of what works and doesn’t. Responding to this is key.
5. Segmenting Customers
Not all customers are equal, at least insofar as they contribute to net revenue retention. Some are deserving of different treatment. Those that account for greater returns are naturally the ones you will tend to focus on more but that shouldn’t be the only approach. There are many ways to segment customers and target different activities for each of them and I’ll cover that all in the eBook.
6. Scaling the Team
When you are a startup and have fewer customers you can afford to do things with them at a deeper level and piecemeal. At some point though, as your organisation and customer base grows, you have to start getting organised. Putting in place processes to make repeatable work easier to manage and execute is one area of effort. Understanding scale models like revenue per employee mapped to customer book size is another.
7. Scaling the Customer
As mentioned, nothing succeeds like success, especially when your customers play a hand. If customers are successful in the use of your product and/or service (i.e. they gain value from it) there is nothing better than enabling them to share that onwards with other customers. I’m talking about creating and nurturing influencers or champions of your customers. Not only will this bring other customers on board (think testimonials or references) but it provides evidence of great customer experience that spurs on further great experiences.
By definition there will be less evidence of organisations doing things in this space, especially where success teams are set up (at least when they are called that). The fact is you cannot be standing still and although we are at an early stage in many of the practices covered, you can and should constantly be looking at ways to innovate how you deliver value to customers through use of data, technology and new business models.
8. Automation and AI
To some degree this is about scale too. Automation refers to the automation of interactions the organisation or product has with customers. It can cover marketing, service/support interactions and/or educational interactions. It takes interactions away from humans which is where scale comes into it. Things are at an early stage but many companies are experimenting already and doing some very interesting things which I will document. AI is playing an increasing role in this too.
9. As a Service
As subscription models expand in use and favour as a viable business model for more than just technology companies, traditional companies are experimenting and innovating how they incorporate this into their offering. I’ve already mentioned a few that are doing things in this space but I will do a thorough review and share examples of what companies are doing in this space to adopt the practices and innovate themselves.
10. SaaS 2.0
These are the companies and success teams you would expect to be taking the practices to the next level. Teams here are combining and innovating various factors to drive truly exceptional customer experiences. These kinds of teams operate in organisations that understand the role of customer success in driving great experiences and leading to increased revenue and profitability for their subscription business. It’s a two way street as teams innovate and achieve great results and organisations give them a greater role to do so.
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