Subscription Models Equaled Strong CRM in Our Pandemic Year

I HAVEN’T been on a plane since March 7, 2020—since most of the world had to shut down due to the COVID-19 pandemic. Massive shifts in consumer behavior happened overnight; people stopped hugging, eating out, using public transportation, going to the office, the movies, retailers. Many of us stopped going to the market; those who didn’t picked their spots. And so small businesses were among the hardest-hit groups, as many of them depended on foot traffic in their stores to survive. But one bright spot in all of this is how companies leveraging subscription business models seemed to have fared relative to the overall economy. In fact, the value of operating a subscription business may never have been
higher than during the pandemic.

SUBSCRIPTION MODELS HELD THEIR OWN (AND THEN SOME) in 2020

Recently I spoke with Zuora founder and CEO Tien Tzuo for an episode of “CRM Playaz” and asked him how subscription-based companies fared in 2020, and he estimated that a quarter of the companies using Zuora’s subscription management platform actually grew faster than the previous year. Another one-eighth were still growing, just at a slightly slower rate, and only one-eighth actually shrunk—but only by 5 to 10 percent. These companies have a recurring, loyal customer base, and they were able to pivot.

SUBSCRIPTIONS HELPED TO SELL MORE PHYSICAL GOODS

Most people think subscriptions mostly work for companies selling digital services or streaming platforms, but Tzuo noted that one of Zuora’s customers, guitar maker Fender, sold lots of guitars on the strength of its subscription base. “Nobody wants a smart guitar. No one wants to connect their guitar. But Fender built this whole digital experience, with apps helping with tuning the guitar and teaching you how to play the guitar.” And if you buy a guitar, you get invited to sign up for the app.

The bottom line is Fender grew its subscriber base tenfold in 30 days. And if it hadn’t had that digital relationship with its customers during the shutdown, it would have been in rough shape since it depended on physical store traffic pre-pandemic. But its 2020 results were superb: It signed up a million subs, and it had a banner year selling guitars. Adding a subscription component to its traditional business has been a game changer for Fender, as it has for many businesses.

SUBSCRIPTIONS HELP WITH BUSINESS PIVOTS TO AVOID DISASTER

Maybe the best example I heard for how subscription models performed in 2020 was from Lola.com CEO Mike Volpe. Lola is a business travel management platform that was flying high and growing fast pre-pandemic. But literally overnight it lost roughly 97 percent of its revenue.

Some companies might have called it a day, but the Lola folks relied on strong customer relationships built from the consistent interactions that come with subscription models, which have to show customers enough value to keep them reupping every month/year. Volpe said they were selling to finance teams, and every customer conversation included questions from customers asking if Lola could help them manage expense reports more easily.

Within months, it created a new expense management service it could offer to customers who couldn’t use its travel services. And because the new service was co-created using feedback from customers, those customers were more likely to give it a try. That proved to be a great move, as Lola could stay connected with customers and keep itself top of mind
for when people are ready to resume traveling.

SUBSCRIPTIONS ARE ALIGNED WITH CUSTOMER NEEDS AND EXPECTATIONS

Fundamentally, people are buying less and less stuff. As Zuora’s Tzuo puts it, “If you’re a car company and your business model is based on cars sold, you’re going to have a hard time growing. But if your business model is based on miles driven, that continues to go up. Hours of news consumed seems to be going way up, but number of newspapers sold is really coming down.” These examples illustrate the shift consumers have made to favoring access over outright ownership of things in a growing number of areas. And the idea of tying customer access and consumption more closely to your revenue model might allow you to be more aligned and in tune with your customers over the long haul. This also allows you to focus on increasing the value you’re delivering to them. And that’s a win-win for everyone, especially when times are tough.

Brent Leary is cofounder of CRM Essentials, an Atlanta-based advisory firm focused on small and midsize businesses. He is also the author of Barack 2.0: Social Media Lessons for Small Businesses.