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Recently CNN International called and invited me to be on-air to discuss subscription services and the increasingly tough economic environment that's starting to hit consumers, causing purchasing decisions to shift. They said they were keen to get my views on “consumer expectations and choice in a time like this.”
Subscription Services?
CNNi's brief said, “We're seeing news come out today of Netflix offering a cheaper plan option with adverts, BMW providing a heated seat subscription service for those who'll want to pay to use the capability in the winter months only (instead of the expensive upfront cost of the capability to always use it) – some interesting reactive offerings being thrown out there.”
As always, they requested I send a one sheet segment concept to let the anchor know what my thoughts were. Here's what I sent:
As Bill Clinton's strategist, James Carville taught us all the way back in 1992, when it comes to consumer responses, “it's the economy, stupid.” People vote – and purchase – based on their pocketbooks.
So, it stands to reason that companies would look to ways of holding onto existing customers as well as capturing new ones by demonstrating that they're a fiscally responsible choice.
Putting the Sub in Subscription Services
That being said, don't confuse subscription services with lower costs – they are actually much more expensive to consumers and much more profitable to companies because they never end. Instead of paying once, you pay forever.
It's similar to buying vs. leasing. Sure, you might get more for your money if you lease, but once you start, what you've really signed up for are never-ending car payments. In reality, you're simply using a car on a subscription service model instead of ever actually owning it.
The key words to keep in mind here are Acquisition and Retention.
Netflix's Subscription Services
Netflix will use the cheaper subscription service option to both retain old customers and acquire new ones, many of whom will step up to a higher-priced plan over time. Maybe they'll call their new service “Notflix.”
I hope for Netflix's sake that their consumers have short memories. After all, we all enjoyed free TV with ads model for more than 50 years. Then we paid monthly to watch TV with no ads. Now Netflix wants us to pay monthly AND have ads? Pardon me for being cynical, but where are the savings?
BMW's Subscription Services
BMW's intention is different. BMW does not stand for “Bum (of the) Month Warmer.” If their customers wanted a cheaper car, they'd simply buy a Kia. After all, if you're considering paying 60-150 thousand US dollars for a BMW, your decision point isn't going to be whether or not you can turn off your seat warmers in the summer.
BMW has been trying to sell subscription services – for entertainment, wayfinding, oil service, etc. – for a while now and customers are pushing back against it. Using a heated seat subscription service is a brilliant strategy as it will incite consumer trial and get people used to paying monthly because they'll erroneously believe that they'll remember to cancel the subscription in the warm months – even though history shows they won't. Once consumers are comfortable with the monthly heat option, they'll willingly sign up for other things.
Of course, I live in Miami, Florida, so I have only one question: What's a winter month?
Hi Bruce, big fan of your writing and blog posts however in this case I think you paint with a brush too broad with regard to the disadvantages of leasing. Our business provides equipment and technology sales organizations with an important tool that enables their business clients to invest in their products and services (subscription as well) when budget issues, conservation of existing credit lines and preservation of working capital (Covid Related Interruption) are impediments to moving forward. I understand the point you are making, and agree in large part, however the argument is convincing enough without having to dismiss the idea of leasing and financing as an important strategy for businesses to consider. Best regards. Dean.
You jus’ dang brilliunt, dude!
LOVE your stuff!