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Subscription business model
from:The subscription business model is gaining increased currency in current business environment and has been successfully used in concerns like book club, mobile phone companies, magazines, cable TV companies and internet providers.
In this model a customer is required to pay well in advance subscription money to use the service or the product that the company provides. For example rather than selling a product individually, week by week or monthly ,the company subscribes a customer for a given period which could range from a few months to a couple of years. Some subscriptions can last for life time also.
Initially this business model was used by newspapers and magazine companies only.
The purpose of this process is to build brand loyalty and to ensure recurring sale.
There are three kinds of subscriptions
Unlimited Subscription: In this a customer pays one time for unlimited access to product or service for a fixed period of time.
Limited Subscription: In this form a fixed set of service or product is available to customer for a fixed period of time.
Basic Subscription: In this customer, on initial subscription is provided with some basic services with additional services delivered on pay as you use basis.
This model has both advantages and disadvantages for both the customer and the vendor.
For Vendors : The vendor gets revenue well in advance and does not need to worry weather the next edition of the product or service would be able to generate the same curiosity amongst customer as the current one or not. Through advance subscription, the vendor also succeeds in building brand loyalty amongst customer.
It in a way also increases the sales, as the customer cannot say no to any specific issue of the service.
For Customers: the customer is saved from repetitive trips to the vendor to buy the service and a consumer may find subscriptions convenient as they save time and energy.
However a customer should be careful and should subscribe only if he or she intends to use the service for a long time. The reason for this is that once subscribed for a service, he is bound by the agreement to continue with it for a specified period of time. Also the onetime cost of subscription can be quite high if a customer who plans to use the service frequently, but later does not.
Also it is felt that “one-time-purchase" model does not give vendors incentive to maintain relationships with their customers.
However it’s good to remember that a vendor only succeeds when the customer subscribes again, so customer and vendor should work to align their goal for mutual benefit for this business model to succeed.
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