The customers of tomorrow will be more mobile, live longer and more varied lives than their parents – while having to deal with greater demands on their disposable income, and an ever-increasing need to reduce their impact on the planet they call home.
The life expectancy of children born in the United States today is more than 78 years. In that time, they will spend more time in education, graduate with more debt, and rent until a later age than any generation before them. These children are also likely to pay more for a new home and to change homes and jobs at a faster rate. They can expect to visit more countries, own more cars, spend more time online, and watch more videos on demand than cable TV. While this is happening, they’ll experience an unprecedented change in the form of the fourth industrial revolution and the inevitable change in our climate.
Such variety will demand a customer experience (CX) that is more responsive to the changing needs it creates. Customers try to avoid products that will quickly become old or obsolete due to the pace of technological change. Why would they accumulate possessions that cost money to move every time they do? Why would they hoard the earth’s resources, when they need them in their possession for such a small proportion of their life? All these considerations make ownership less attractive to the next generation than rental or subscription. Businesses are transforming to subscription models because they want recurring, predictable revenue.
Transforming a new revenue model requires both customers and employees to adopt new processes. The complete lead to cash value chain is affected – the linear, transactional interactions of marketing, sales, provisioning, customer support/billing, become an iterative, ongoing relationship. A subscription allows customers to continually discover, evaluate, purchase and use the product or service. As they do, they bond with the brand and become its advocate. Consequently, the challenge is not just one of the processes. The entire operating model is affected, and the success of such a change will be as much a function of the people involved as it is dependant on changes to process or the technology that supports it.
Although it presents its risks, transformation on this scale can be worthwhile and self-sustaining. A subscription model allows an organization to gather more information about its customers’ behaviors. Such insight enables predictive analytics and demand segmentation that make revenue streams more predictable and pricing more efficient while giving customers more of what they want at a price they’re willing to pay.
However, such a change to business models creates a concomitant change in customer behavior. As the world moves towards subscription-based consumption, are we witnessing the end of customer-loyalty?
In an ‘on-demand’ future, the prevalence of switching costs will decline, increasing customer choice and competition. The balance of competition will tip in favor of those businesses that align to customer value and build competitive advantage through their attractiveness to both new and existing customers. The growth of such businesses will partly come at the cost of those businesses that rely on customer apathy and fear of switching costs (e.g. if a customer is only subscribing to use their car then they won’t need that extended warranty or a full-service history from an approved garage).
In light of these competitive pressures, subscription-based businesses must understand their customers better and respond to their changing requirements more rapidly. Successful transformation depends on the design of an operating model that is led by CX. Delivery of that experience in an agile way will turn the potential of a subscription-based business into a reality both now and in the future.
Every organization has an upper limit on the rate of change it can tolerate, and so transformation on this scale will take time. The customers who seek such a service have already been born, so now is the right time for business leaders to consider whether a subscription-based model is right for them. If it is, then now is also the time for leaders to consider how their businesses will satisfy the demands of CX on-demand.
