By Daniel Hunter
A societal shift in global consumption preferences is changing the way businesses are pricing and delivering their goods and services, new research from the Economist Intelligence Unit and sponsored by Zuora - the subscription commerce, billing and finance leader - has found.
Three out of every four (72%) UK businesses are currently seeing changes in how their customers prefer to access their services. As a result, almost half (48%) are 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.
As consumers and businesses look for more flexible and convenient ways to access the services they want, new models of ownership have risen through the emergence of subscription, rental and sharing businesses, causing a major transformation in a wide range of sectors including financial services, healthcare, media, retail, technology and telecommunications.
The survey reveals 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:
· Businesses in the UK are expecting to see significant long-term economic benefits from this shift to new business models based around subscriptions, sharing and rental - 16% say these new pricing and delivery methods already represent more than half of their revenue. Critically, this number is expected to grow rapidly, as 72% of respondents anticipate that this share of revenue will increase somewhat or significantly over the next two years
· UK businesses also recognise the increased customer loyalty (28%), new revenue opportunities (28%) and competitive differentiation (30%) made possible by these new methods of customer delivery
· Reduced transaction costs (40%), more convenient use of goods and services (30%) and the ease with which you can upgrade or downgrade services (25%) are identified as the key consumer benefits heralded by these new subscription models
While confirming that a major global shift in how businesses engage with their customers is underway, and that the majority of businesses understand the implications of this shift, the study also reveals concern amongst businesses about their ability to navigate the disruption:
· Respondents believe that recent advances in technology, including cloud computing, have been the primary drivers in this societal shift to new consumption and delivery models (selected by 37% of UK businesses)
· However, technical complexities are identified by a third of businesses (34%) as one of the most significant challenges of moving towards these new models
· Organisational challenges (32%) and financial issues (31%) are the other two key challenges identified with achieving the business transformation required to implement these new consumption and delivery models
Zuora co-founder and CEO Tien Tzuo comments: “Driven first and foremost by changing consumer behaviour, the development of the Subscription Economy is fundamentally changing the way successful businesses operate and opening up a worldwide market opportunity conservatively estimated at $500 billion. It is clear that businesses in many industries have recognised this transformation in customer expectations, as well as the benefits it is bringing which include longer, stronger customer relationships and increased opportunities for recurring revenues.
However, the shift to the Subscription Economy is not easy. 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.”
Zoé Tabary, Deputy Editor at the Economist Intelligence Unit says: “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.”
Saar Gillai, senior vice-president and general manager at Converged Cloud at Hewlett Packard, a multinational IT company, comments: “Consumers are becoming increasingly accustomed to the flexibility of pay-as-you-go models. They are instantly able to access capabilities without paying upfront for the cap-ex, and they have better control over their spend.”
Aleyn Smith-Gillespie, associate director at Carbon Trust Advisory Services, a consultancy offering expertise on sustainable business strategy and models, comments: “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.”
Giles Andrews, CEO and co-founder of Zopa, a UK-based peer-to-peer lending service says: “Before you start, do the math to be sure you can achieve economic efficiencies and are able to offer value to consumers that is better than the alternative. Technology allowed us to scale, and to provide checks and balances at all stages of the transaction. The winners are the ones who can figure out how to build a platform that protects customers while adding value in the market.”
Join us on