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Do Subscriptions Make Sense?

7/30/2022

9 Comments

 
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by David Hagenbuch - professor of Marketing at Messiah University -
​author of 
Honorable Influence - founder of Mindful Marketing 

“That’s the gift that keeps on giving the whole year”—such was Cousin Eddie’s inane attempt in Christmas Vacation to console a devastated Clark Griswold after he found out his firm gave him a Jelly of the Month Club membership instead of a generous cash bonus.  Clark had good reason to resent receiving a product subscription, but  how should consumers feel about more companies moving to subscription models?
 
If you’re like most people, you’ve noticed a steady rise in reoccurring payments.  Decades ago, monthly bills were restricted to things like rent and utilities, but they’ve since expanded to include regular charges for cellphone plans, movie streaming, and online news.  And, the list keeps getting longer, as even more organizations find opportunities to automatically tap their consumers’ wallets for things like clothing (e.g., Stitch Fix), meal kits (e.g., HelloFresh), and shaving tools (e.g., Harry’s).
 
These examples aren’t particularly surprising—each day people wear clothes, eat food, and shave their bodies, so it makes sense to automate the purchase process and save consumers time shopping for such staples.  However, subscription services for some other products should make any of us wonder, ‘Why?’
 
For example, BMW has begun to offer “heated seat subscriptions” in certain vehicles for $18 a month.  According to James Vincent, writing for The Verge, “BMW has slowly been putting features behind subscriptions since 2020.”  The automaker’s other reoccurring charges include automatic high beams and adaptive cruise control.
 
There’s also sneaker maker Cloudneo, which offers a “100% recyclable running shoe that’s only available by subscription.”  For $29.99 a month, customers receive “an endless supply of shoes.”  When pairs are past their useful lives, customers request new ones while returning their old ones, which the company grinds down and melts into plastic pellets used in its new product manufacturing.
 
These last two examples and several of those mentioned earlier are innovative approaches that reimagine marketing’s 4 Ps.  All share strategic similarities as they fall under the subscription umbrella, but there also are significant and sometimes unsettling differences that make me want to better understand: When is subscription pricing right for both companies and consumers?
 
To answer this question, I turned to someone who has navigated the challenging process of transitioning his company’s signature product from a one-time purchase to a monthly subscription.  Jason Kichline is founder and chief technology officer of OnSong, namesake of one of the world’s most widely used music performance apps.  It allows musicians to digitally store, sort, and customize their music, saving them time and enabling them to focus on what they do best.
 

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An annual guest speaker in my capstone marketing course, Kichline has told us of his firm’s deliberations about transitioning the OnSong app from a one-time Apple App Store purchase to a monthly subscription.  OnSong started to offer a feature-enhanced, subscription version of its product a couple of years ago.  This past June, OnSong finalized the monumental move by eliminating the one-time purchase option.
 
For many companies, the decision to go to full sail on a subscription model is simply a matter of what nets the most money, i.e., will more revenue from reoccurring payments offset sales not realized from potential customers who want a one-time purchase?
 
Although OnSong certainly considered income projections, it’s analysis was much more circumspect and other-oriented, which is evident as Kichline explains three main reasons for the move:
 
1.  Relationships:  “We’ve always placed a high value on supporting our users.  A complex and full-featured app like OnSong demands a level of support that goes beyond that of a one-time purchase. A subscription creates the opportunity for a more formal relationship with users and the need to continually provide them with value.  Our goal is to make our customers incredibly happy with the level of service, support, and features we offer.”
 
2.  Continuity:  “Although OnSong has been successful for more than 10 years, many software firms don’t last as long—they go out of business, or they’re acquired.  A developer can keep an app around for a long time for some side money or an owner’s salary, but a buyer typically wants ROI.  For this reason, new owners turn many one-time-purchase apps into subscriptions and try to ‘leverage’ the existing user base.”
 
“Even though app customers often assume they’ll be forced to upgrade to a subscription, we didn’t feel it was fair, so we grandfathered existing users.”  Still, because going out of business also leaves customers stranded, we believe that subscribing to OnSong is the best path forward for all.  A subscription to OnSong is an investment in the company and its product’s future.”
 
3.  Value-Added:  “The defining measure for most consumers is what they receive compared to what they pay.  Although a subscription costs more than a one-time purchase over time, it also provides greater benefits, including important updates and improvements in an ever-changing technological environment.  A cancelable subscription also reduces financial risk for consumers by allowing for product trial, which is often not possible with one-time software purchases.”
 
“Looking to the future, OnSong wants to provide a web-based version of the app that will store music and resources in the cloud, as well as manage bands and teams.  A subscription model supports this additional functionality and added value.”
 
Kichline acknowledges that the transition to a subscription model has not been without challenges, which include effective communication with consumers, who can be swayed by public perceptions in social media.
 
Still, the change has been a good one for OnSong and its customers.  After experiencing one “tight month,” the company’s revenues quickly rebounded to previous levels with continuing growth.  That success should also be taken as a sign of the strength of OnSong’s value proposition in the eyes of consumers—the benefits they receive from the app are well-worth its reoccurring cost.
 
For Kichline, key to the whole process has been “having the mind of the consumer.”  His analysis above and this summary statement make me ask:  Do the subscriptions for BMW’s heated seats and Coudneo’s recyclable running shoes show an understanding of “the mind of the consumer” and a desire to truly meet customers’ needs?
 
Cloudneo’s product subscription may represent such a market orientation for certain hardcore runners who cycle through sneakers at a rapid clip.  They might wear out a pair of running shoes every few months and could easily spend $360 or more per year on performance footwear.
 
BMW’s subscription is harder to justify.  In his Verge article mentioned above, Vince raises good points that call into question the automaker’s motives:
 
“BMW owners already have all the necessary components [for the heated seats], but BMW has simply placed a software block on their functionality that buyers then have to pay to remove. For some software features that might lead to ongoing expenses for the carmaker (like automated traffic camera alerts, for example), charging a subscription seems more reasonable. But that’s not an issue for heated seats.”
 
When BMW manufactures vehicles with heated seats, it likely passes on the added material and labor costs to consumers at the time of purchase.  So, the automaker is essentially holding back a feature for which customers have already paid so it can charge twice for what is an increasingly common new car addition.  Such a motive certainly wouldn’t represent a customer-centric attitude.
 
As BMW has shown, there are situations in which paying a reoccurring fee for a product makes little sense for consumers.  However, when companies prioritize the three principles that Kichline has identified (relationships, continuity, and value-added), subscription pricing is “Mindful Marketing.”


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9 Comments
sydney brennan
9/1/2022 10:54:20 pm

When I read the title, I immediately thought that all subscriptions were annoying and that many of them were just trying to take more money from the consumer; however, after reading the post, I realize that some are useful. I still think some are not necessary, which the post agrees with: like the BMW heated seats subscription. I think it is mindful because it upholds societal values in that allows consumers to get the updates and improvements. It also upholds shareholders because it allows the supplier to charge the consumer more.

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Lexi Landis
9/9/2022 04:07:27 pm

I found this post to be very interesting and informative. When I generally think of subscriptions, I think of them to be generally negative and unnecessary, compared to a once-and-done type of payment. After reading this post, I have changed my opinion of subscriptions. I thought it was interesting to see what OnSong has to say about subscriptions. They called a subscription “an investment in the company and its product’s future”, and I found that to be so interesting because I have never considered a subscription to be that. Of course there are still some subscriptions that are unnecessary, such as the BMV heated seats subscription, but overall subscriptions are supposed to make the consumers’ lives easier and provide convenience.

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Zach Bare
9/13/2022 05:01:37 pm

I can relate to this post because like myself, many people have subscription services. Some subscription services are negative and don't benefit the consumer. For example, the heated seats subscription from BMW. That is not necessary especially if a consumer is already putting out lots of money for a car like a BMW. After reading more of the article, OnSong changed my perspective and how I think about subscription services. OnSong seems more focused on building a relationship with their user and make them feel happy with their service. Also, OnSong sees the subscription as an investment into their products future. It was cool to see that not all streaming services are eager about taking money and some like OnSong want to build a relationship with their customer.

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Emma B
9/14/2022 05:53:24 pm

This post is interesting because it makes me appreciate the importance of subscriptions for many companies and businesses. For OnSong, subscriptions are important for continual improvement of the service. By switching to a subscription, the app is able to continually develop its software and provide enhanced quality. In my opinion, many apps or services that require a subscription are typically of a higher quality than free apps or apps with one-time fees. For example, Spotify Premium, which requires a monthly subscription, allows you to search almost any song and play it whenever you want. You can also create playlists, download playlists for offline listening, and listen ad-free, all features which are unavailable through the free version. Because Spotify is constantly adding songs and updating the app software, a subscription is understandable. On the other hand, I do not think that BMW has sufficient reasoning for charging a subscription for the already installed heated seats. If I were car searching, I would expect a higher quality and expensive car such as a BMW to come fully equipped with heated seats at no extra cost. Many cheaper cars in the market today already have heated seats for no subscription cost, so I would not consider buying a BMW if I had to pay a monthly fee for heated seats.

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Liz Onelangsy
9/15/2022 10:11:44 am

This post caught my eye as I wouldn't have seen subscriptions as helpful before reading this. I always found subscriptions annoying and expensive especially since I am subscribed to almost all the streaming services like Netflix, Hulu, Disney+, and Hbomax. Although while reading this post, I noticed how beneficial it is and how many reoccurring subscriptions provide a good amount of content for what it's worth. I read in the post, "Although a subscription costs more than a one-time purchase over time, it also provides greater benefits," which I believe is true. For example, a monthly subscription on Streaming services like Netflix provide you with thousands of movies and Tv shows to watch from. For Spotify, you can listen to endless songs and create playlists to always have your favorite songs where you can find them. Yes the costs for some subscriptions can be frustrating, but most are beneficial and its always easy to cancel your subscription if you need to.

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Eliana Hamon
12/7/2022 11:32:27 am


I do think that subscriptions make sense, but I also do not think they make sense all the time. For instance, I have subscriptions to Netflix and Disney + and appreciate having them. these subscriptions make it easy for me to watch movies and tv shows whenever I want to at the click of a button. On the other hand, the heated seat subscription from BMW does not make sense to me. I would not pay $18 a month for my car’s seats to be heated. Most cars today come with heated seats for free. It seems ridiculous to have to pay for heated seats in a luxury vehicle when you are already paying so much for that product. People's preferences determine what subscriptions they would purchase. I know of underwear, socks, and razor subscriptions. I personally would not get a subscription for underwear, but I have considered the makeup subscriptions and the food subscriptions. Most subscriptions are easy to cancel whenever you want to, which is very nice for customers who either wanted a free trial or decided it's not working for them. Subscriptions are helpful but they can also add unnecessary monthly expenses. They are convenient if you do not like shopping, but they also can be pricy if you have a ton of subscriptions.

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Dominic Spain link
12/7/2022 03:17:22 pm

I thought that this was very interesting due to how easy it can be for people to just click a button fill out some information and they are able to get privileges that others don't have. My parents and I have a subscription to a couple of different streaming services and my mom was thinking about canceling some of them because she was contemplating if we actually use them. The main issue that arises is how much money people can pay for all of them, but the positive that comes from it is how much content you can be exposed to and information that you can possibly learn from these services. Overall, they have positives and negatives.

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Cole Fisher
12/7/2022 10:07:12 pm

I found this article to be very interesting because I am subscribed to various different services. OnSong shows the movement from one time purchases to service based offerings. Overall, this article convinced me that subscriptions are put in place to try and give the consumers what they want, but there are definately some unneeded subscriptions I can be having. Subscriptions in most cases add value and are beneficial for the consumers. On the other hand companies like BMW have seemingly useless subscriptions like their seat warming subscription, which I think consumers should stay away from.

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Logan Good
12/8/2022 10:52:41 am

After reading the article on subscriptions, I do believe that most subscriptions are mindful. Like in the case of OnSong, the subscription adds value to the customers by giving them additional perks. I believe that companies that handle subscriptions like OnSong are customer-minded, and therefore have more mindful marketing. However, after reading about BMW and their "heated seat" subscription, I believe subscriptions can also be abused. It is absoulutely not in the customer's interest to pay for a feature that they can't even use, and will have to pay even more to use in the future. This seems like a money grab, and is very unethical and mindless marketing.

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