What You Always Wanted to Know About Subscription Services But Were Afraid To Ask (COALAnet vol 5, 2019 Autumn Edition)

This is Part 2 of our “What You Always Wanted to Know About, But Were Afraid To Ask” series. In this part, we discuss the Subscription Service model, where one purchases the right to use something for a fixed period of time in exchange for a fee.

――Are we seeing an increase in the number of cases where subscription services are being implemented?

When we speak about subscription services, most people think of music and video streaming services such as Spotify and Netflix. However, recently, fashion brands and car makers are beginning to introduce a subscription service to their business. For example, the large casual fashion brand Stripe International has expanded their business to include a flat-rate service called “Mechakari”, and Toyota Motors has introduced a flat-rate service that allows you to access to cars such as a Prius or a Lexus. Japan’s subscription market was valued at ¥562.7 Billion in 2018 and, according to the Yano Economic Research, is expected to expand to ¥862.4 Billion by 2023. One can expect that subscription services will not be limited to only IT and venture capital companies, but stretch across all types of companies.

――How is a subscription different from a lease?

A subscription is different from a lease. While it is true that the ownership does not transfer from the company to the consumer, and that profits are collected over a long period of time, what does differ is the definition of the item in question and the restrictions around continuation of use of the service. For example, with a lease, there is no change in the item in question during the term of the contract. In the case of a car lease, generally you will have the same car for the duration of the lease contract. However, in the case of a subscription service, the item in question may change during the duration of your subscription. For example, Spotify may add new music to their service, however the price you pay will remain the same.

Also, with leases, you are legally bound to the duration of the lease. The consumer can pay the entire required amount within the contract term in order to release themselves from the contract. However, with subscription services, while there may be certain binding clauses built into the agreement, a consumer can generally cancel a subscription service at any time. While leases are a safer bet for companies, subscription services are easy to take advantage of from a consumer point of view.

――Why are subscription services so popular?

For a company, subscription services offer an ideal billing model. Since you are earning a pre-determined amount of profit every month, it is easy to set sales forecasts and investment plans. Compared to the “flow” type business where immediate sales are required, the “stock” type business, which provides stability in the long term, end up being a safer bet for the business owner.

――What are point to keep in mind when using a subscription service

The first point is to build a zero-base subscription service business model from scratch. It is important to look at required functions, personnel, and management required to maintain customer connections from scratch, taking into consideration a requirement for a restructuring of a company’s value-chain and current internal personnel organization. A company may want to consider recruiting young people who have yet to experience the success of an existing business, or recruiting externally for this.

The second point is to have business owners who are committed to the subscription service business. Business owners need to show the importance of the new business model and truly support it. Further, they need to ensure that teams and members involved in the new subscription service model are not attacked by those in the existing business. A company may want to consider creating a subsidiary company for the subscription service or separating the business unit entirely.

――What are your secrets to success in using subscriptions?

The third point is being focused on priorities. Staff involved in creating the new subscription service business need to be very focused on the task at hand. For those that do not have experience in this space, consider employing help from an external consulting firm or specialist. You may want to consider implementing a subscription service platform such as Bplats that has the necessary functionality for running a subscription service business. All of these are important items to consider when creating a new subscription business.

If you can break away from being completely self-sufficient, building a fast yet flexible open style subscription service team, your success rate will increase greatly.

Commentator: Yusuke Ito (Manager)