Citi survey finds APAC leaning towards subscription-based business model
LOOK AROUND. Successful businesses today are either entirely run on a subscription-based business model or at least offer that as an option to customers.
From apple-baskets to art, everything sells on a subscription model these days. Recently, Renault and Nissan announced plans to adopt a subscription-based business model alongside its regular sales and distribution models.
What industry observers are seeing is reflected in a new Citi report Signing up to the subscription economy which surveyed 580 senior business executives in Asia Pacific (APAC) and found that three quarters say the shift to a subscription-based business model is a board-level priority.
Interestingly, the report found that most expect subscriptions to have a significant impact on long-term revenue growth, and believe it will lead to better customer retention and stronger customer relationships.
The study also points out that the vast majority of respondents Citi surveyed see the move to a subscription-based business model as an opportunity to become a lead disruptor in their industry.
“This is definitely a business model that should be analyzed and evaluated as a potential growth engine going forward,” Citi Managing Director – APAC TTS Corporate and Public Sector Sales & Marketing Head Ernesto Pittaluga told Tech Wire Asia.
However, companies in the region that have embarked on a journey to adopt the new business model — wholly or partly — find that success takes time.
More than four in ten respondents (44 percent) to Citi’s survey said that implementation of the model has been slower than anticipated, and 41 percent reported little or no progress at all to date.
The top barriers to implementing the subscription-based model, however, include a potential short-term decline in revenues (61 percent), low awareness of long-term potential for recurring revenue models (58 percent), and outdated accounting systems and/or valuation models (31 percent), among others.
“Subscription isn’t something new. Companies in some industries have had a subscription model for many years. What is new here is the adoption of new use cases and new companies in different industries leveraging subscription — and there’s a learning curve that they need to go through, that’s all.”
Subscription-based business models often put some stress on businesses to innovate faster and provide customers with the tools, services, and features they expect.
For products that are easy to substitute, a subscription-based business model brings the added stress of having customers switch without offering enough time to take in feedback and provide improvements.
However, in the fast-paced world we live in, subscription models help drive the adoption of an agile mindset within businesses, helping them embrace changes faster and drive transformation more rapidly.
Of course, when companies explore the idea of moving to a subscription-based business model, their finance teams need to up their game and communicate the impact on revenues to the rest of the business and manage the relationships with banks and other stakeholders as they evolve.
Further, in the digital world, finance and digital teams need to work closely together if the subscription model is to be implemented successfully — because ultimately, payment methods, need to be convenient for customers and suitable for the business.
According to the report, new financial capabilities are integral to building an infrastructure that can support a subscription revenue model. These include technologies that enable instant payment and collection methods from banks, as well as open banking services provided by financial services providers.
While Citi’s study simply puts in words what business leaders in the APAC are already thinking about, the reality is that as the region dives into a digital-first world, products and services need to embrace subscription-based models — and do everything in their power to deliver a seamless experience in order to be successful.