16 Feb Exploring subscription management in manufacturing
by Tom Lovell
The subscription economy has been growing exponentially for over a decade now, but it is hitting different industries at different points and with varying impacts. For some, like those in the SaaS and high tech fields, they’ve thrived thanks to the wild success of subscription revenue models. But for other industries like healthcare or manufacturing, the inclination towards subscription-based offerings has been hesitant, to say the least.
However, according to the latest Subscription Economy Index, subscription business is outperforming the more traditional S&P businesses by a large margin, including in manufacturing. This data even includes the past year, 2020—an indication that even in a pandemic year full of economic challenges and market uncertainty, subscription revenue is yielding big returns for the manufacturers that embrace it.
Manufacturing is a vast field to transform digitally, however, and not every manufacturer will experience the pivot to subscription models the same. So before you dive off the deep end into the sea of consumption and usage-driven revenue, let’s review three major areas manufacturers, in particular, should consider before pivoting to a subscription model: identifying the relevant excess opportunity, aligning your brand with societal trends, and honing in on your ideal subscription-based customer.
Identifying the relevant excess opportunity for subscription management in manufacturing
Market trends have proven time and time again that it’s typically newcomers from outside the industry that step in and transform the way business is done—they can see what those so embedded in the industry can not: excess opportunity in the customer base. But this doesn’t mean longstanding organizations that predate the hippest and newest companies have no chance. What it takes is leaders with a vision for how their customer’s wants are changing.
In manufacturing, this may look different than the traditional consumption-driven services like Netflix, Spotify, or other entertainment streaming sources. Rather than curating cultural taste, manufacturers are prime to establish new models of using—rather than owning—the equipment, parts, or materials they produce for customers. Maybe this looks like a monthly subscription for customers always coming back for more supply of a certain solution or chemical, or maybe it means leasing out equipment so that your customer businesses can effectively rent it out for a time, but return it when they no longer need it. Whatever it may be, there are many ways manufacturers can take advantage of their immense knowledge and industrial prowess to more closely match the needs of their customers. Just take a look at how GE has been transforming to more closely align with the excess opportunity it found in its space: networked and digital R&D through open collaboration partnerships.
Aligning your brand with societal trends
Another key consideration, especially following a year of tremendous upheaval like 2020, is analyzing how your brand corresponds to the long-term trends shaping society. In the past year, several new but long-term trends have entered the business forecast no matter what field you specialize in: remote and digital business operations, work from home goods and services, and ethics-based consumer choices. Companies that have beaten the odds and found the most success in the past year are those that have made strategic decisions to pivot their brand’s mission and align with these new demands. Consumers are more often making brand choices based on the company that appears to align with their own moral mindset and based on brands that are in tune with their current situation: we need products and services that make virtual meetings, social isolation, and work from home easier.
Now you may wonder how these trends will affect manufacturing, long stereotyped as the industrial backbone working behind the scenes. However, manufacturers have a unique role in this new business landscape. By presenting more current messaging to their business partners, be they distributors, wholesalers, or contractors, manufacturers can unlock a greatly increased degree of customer loyalty and trust—key ingredients to succeeding with a subscription-based revenue stream. Pivot your manufacturing brand to show you understand and you care about the current situation: advertisements for subscriptions that include routine upkeep services/warranties on complex equipment, environment-driven promotions offering usage-based partnerships so customers can rest easy by wasting less, or marketing messaging that allows customers in unique work situations to lease products they don’t plan on using forever.
Honing in on your ideal subscription-based customer
Pandemic and economic irregularities aside, subscription models are most successful—especially in manufacturing—when there is a firm understanding of the ideal subscription customer. Since subscription management in manufacturing is all about slow but steady revenue over a long period of time, the customer is more king than ever before. You’ll need to develop personas well in advance of launching any subscription-based offerings to understand precisely who you’re marketing your new subscriptions to.
First, there are a few critical things to understand about what your prospective customer base for recurring revenue is NOT:
— Your subscription customer base will NOT be 100% or even the majority of your revenue. Traditional revenue streams will likely remain the biggest fraction of your total gains. However, the revenue earned from subscriptions will aid in growing your total profit and providing market longevity.
— Your subscription customer base will NOT forego ownership in favor of usership (at least not entirely). While some business lines will cater themselves to a usage-based model more than others, some products like semi-finished parts and replacements are one-and-done deals that must remain on an ownership model.
— Your subscription customer base is NOT forever. While the subscription model does promise more long-term recurring revenue, it doesn’t mean you can snatch up a customer and then neglect them till the subscription expires. Nurture and upkeep of customer relationships throughout the duration of the subscription are critical for attaining that golden ticket in the subscription economy: renewal.
— Your subscription customer base can NOT be measured with the same KPIs used by SaaS subscription businesses. As a manufacturer, your metrics for customer success in subscription management will look different, perhaps partially blended with the SaaS KPIs, but also catered to the traditional needs of manufacturing finances and supply chains. Make your success metrics and objectives your own—not someone else’s. Ultimately, subscription models are meant to enhance your existing partner and customer relations—not take away focus on your traditional selling methods.
Whenever you decide your organization is ready to start designing the processes and integrating the technology to support subscriptions, Simplus is ready to help. We have helped countless clients transform their revenue operations to become more future-proof and reliable, and we can guide you in doing the same through subscription management in manufacturing. Reach out today.
Tom is VP, Manufacturing CoE here at Simplus. For over 15 years, Tom has helped companies implement data and process-driven strategies to bridge the gap between business and IT. These strategies have improved patient outcomes, reduced financial risk, and improved operational efficiency in healthcare organizations while bringing to bear streamlined costs, reduced risk, and improved revenue at manufacturers. His passion is architecting and sharing practical solutions that deliver valuable results for customers.