What is a Subscription model? Introducing the difference from the one-time purchase type and examples

In recent years, there is a “subscription” business model that has been attracting attention. It is being introduced in a variety of industries, including entertainment, apparel, automobiles, and furniture, and many companies continue to achieve great success. Also, more and more companies are adopting subscriptions on EC sites.

What kind of business model is the subscription model? Also, for what reason is it definitely standing out at this point? In this column, we will explain the mechanism of the subscription model in detail, and introduce the points of success and actual success stories.

What is a subscription?

Subscription refers to a business model that provides goods and services for a certain period of time by having users pay a fixed usage fee

Difference between Subscription service and flat-rate service

Subscription services and flat-rate services basically mean the same thing. The business model in which users pay a fixed amount and use it continuously is called “flat-rate service” and has existed for a long time. This is a business model that was often seen in specific industries, such as rent payments, newspaper subscriptions, and office equipment rentals.

Currently, the business model focuses on improving user satisfaction by accumulating and analyzing user data to streamline service improvement. Many subscription services (flat-rate services) have been created with this kind of user satisfaction in mind.

Difference between subscription service and one-time purchase service

In contrast to the subscription business model, in which consumers acquire the right to continue using a service by paying a fixed amount, a one -time purchase service allows consumers to purchase and own goods and services . With a one-time purchase service, the purchased product will remain with the consumer forever, but the amount you pay at one time will be higher, and the product will not be updated with new products after the purchase. You have to pay each time you make a new purchase.

On the other hand, with a subscription service, you pay for the service as long as you use it, and receive service updates during that time.

Advantages and disadvantages of subscription

Subscriptions have many benefits

Since the fee is fixed regardless of the usage status, the company that provides the service has the advantage of being able to generate stable income every month . In addition, the price is fixed regardless of how much you use it, so there is an advantage for users that they can use the service at a great price (some subscription services have a fixed upper limit on the number of times they can be used).

On the other hand, the disadvantage is that it takes a long time for the company that provides the service to recover the initial investment because the user’s one-time payment is small. In the meantime, the number of users will not increase, and there is a risk that the service will be terminated.

For users, the disadvantage is that they will continue to be charged regardless of whether they use the service or not . In some cases, even though you no longer use the service, you forgot to cancel the service and continued to pay the usage fee.

Tips for a successful subscription business

The subscription business has a lot of success stories, but it doesn’t come easy. There are many companies that tried subscription services and withdrew after failing. What separates success from failure?

It is important to get users to continue

The difference between the subscription model and the conventional business model is that it is a business model in which profits can only be made when users continue to use the service. Unlike the one-off business model, the amount paid by users is not large, so if they continue, they can expect stable earnings, but if they cancel immediately, even the initial investment cannot be recovered.

Communicate with users to reduce churn rate

So, what can we do to reduce the churn rate and get customers to continue using the service? The key is to have ongoing communication with your users. It is important to constantly improve the service by gathering real opinions through user surveys and analyzing user usage data to investigate needs .

It is also important to actively send out information to users through e-mail magazines and SNS. If you can build trust in that way, users will become fans of your service. Fans are the heart of the subscription business.

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