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During the Corona period, the world economy remained sluggish, but subscription-based models started working. Actually, to overcome Kovid, lockdowns were done on different scales around the world. Due to this, economic activity decreased and economic uncertainty increased. This increased the emphasis on both companies and customers to adopt the subscription model.
Subscription economy growing at 18% CAGR
According to global financial services firm UBS, the subscription economy has been growing at a compounded rate of 18% since 2020. By 2025, its size can reach $ 1.5 trillion (Rs 109.42 lakh crore). According to experts, the reason for the inclination of both companies and customers towards the subscription model is the change in their preferences and expectations.
Increasing interest of customers in taking service instead of ownership
The interest of the customers is now increasing in taking the service of the product rather than the ownership of the product. It is also beneficial for the companies as they earn regularly. According to the Subscription Economy Index (SEI) released by Zuora at the beginning of the year, the global subscription economy has grown more than four times in the last nine years till March.
Percentage of companies with subscription to be 75% in 2023
As far as the future growth of the subscription-based economy is concerned, Gartner has written in one of its reports that the percentage of companies offering subscription services will reach 75% in 2023 out of companies directly serving customers worldwide. On the other hand, IDC says that by 2022, 53% of revenue for software companies will start coming from subscriptions.
Subscription service for home delivery of beer in Mumbai-Pune
Interestingly, this subscription model is not limited to just entertainment, OTT and so on. During the lockdown due to Kovid-19, an e-commerce company named Tapped Flight started a subscription-based service for home delivery of beer bottles in Mumbai and Pune. In that two boxes containing three bottles (12 or 24 bottles) of four brands can be ordered once or twice every month.
Commission based rental service for Tractors and Farming Equipment
This model is already running in the tractor and farm equipment market. Five years ago, Mahindra & Mahindra adopted a subscription model for tractor and farm mechanization service. The company had started a commission-based rental service exclusively through Tringo, a wholly-owned company, for rental of tractors and farm equipment. TAFE’s JFarm service also rents tractors and agricultural equipment to farmers in Rajasthan.
The growing popularity of subscription models in the passenger car segment
If we talk about the Indian market, then the subscription model is becoming quite popular in the auto sector i.e. its passenger car segment. The country’s largest brand Maruti Suzuki has recently announced the expansion of ‘Maruti Suzuki Subscribe’. In this, customers can buy brand new S-Cross, Ignis and Wagon-R cars without paying a monthly subscription charge and use it for a specified period of time. Under the scheme, the company is offering WagonR Lxi to customers in Delhi at a subscription charge of Rs 12,722 per month. For Ignis Sigma, it has fixed a monthly charge of Rs 13,772 for 48 months.
Subscription model may be included in ‘add-on features’ of vehicles
Like Maruti Suzuki, the leading Korean car company Hyundai has also started a subscription model in partnership with Rev. Experts say that in 2021 other car companies can also adopt the subscription model. Moreover, in the coming time, companies can also include subscription model in the ‘add on features’ for the sale of vehicles.
IT solved the problem of payment collection, gave a boost to the subscription model
Although the subscription-based model has been in place for decades, it used to face major problems with payment collection. Technology solved that problem. The financial market has also been a big factor in this, which gives a lot of value to companies with regular income. The pressure on companies to create and retain more and more customers is also playing an important role.
Customers get rid of lump sum payment and long term commitment
The subscription based model is beneficial for both the customers and the companies offering the service/product as a service. Companies get a sure way of earning till the subscription period. They also know how much they are going to earn. As far as the customers are concerned, in this model they are comfortable in availing the service and making the payment.
Ease of use of health-fitness apps and music streaming services
Take the example of OTT: You can take a three-month subscription to OTT for a favorite series. It will automatically renew every month, you don’t need to worry about remembering the payment date. Same is the case with lifestyle services like health and fitness apps and music streaming apps.
Subscription model can come from cosmetics to consulting and banking
The digital payment ecosystem has promoted a subscription model instead of one-time payment. In the coming times, its impact will not be limited to payments made to OTT platforms (for entertainment). According to experts, subscription-based models can come from ‘pet food’ to cosmetics, enterprise software to consulting, even banking services.
Risk of getting customer details in wrong hands in case of cyber attack
There are also some issues with the subscription model. In this, the payment details of the customer are present on the merchant’s platform. In the event of a cyber attack, there is a risk of the details falling into the wrong hands. In such a situation, the Reserve Bank has made some rules to protect the consumers from any kind of fraud. In this, it has been made mandatory for the bank or card company to seek the permission of the customer for auto renewal.