3 Insights from Tien Tzuo’s Fireside Chat on the Subscription Economy
Tien Tzuo was the featured speaker for the Executive’s Club of Chicago inaugural program of its 2018-2019 Signature Series earlier this month. The topic, of course, was the subscription economy and Tien’s new book, Subscribed. Being one of very few consulting firms that has a practice dedicated to subscription and recurring revenue businesses, Navint sponsored the event.
Learning of Tien’s time at Salesforce, his view of the history of subscriptions, the evolution of Zuora, and where the subscription economy is heading made for an interesting hour. The fireside chat reinforced many of our own experiences with clients as they navigate toward the continuous customer and recurring revenue businesses. Here are three insights that Tien shared during the conversation that are reflected in our own practice:
1. The customer will guide your subscription business—put them in the center
The old way of doing business was about how to come up with a hit product and sell as many units of that product through as many channels as possible. We certainly had customers, but often we didn’t know who they were. We just knew somebody bought what we were producing.
A subscription model puts the customer, not the product, in the center of every interaction. We can see how the customer is interacting with and using our service, therefore we have no choice but to make them happy. The customer feedback creates a better product and a healthier relationship. We can deliver the outcome the customer wants, not just a product. It’s not about the song, it’s about entertainment; it’s not about the cars, it’s about getting from point A to point B; it’s not about excavators, it’s about moving dirt. And this is the magic—the customer will take you where you want to go.
This means getting into the marketplace really quickly, getting to know your customers really well, and iterating your products and services. The keys to the subscription business model are agility and iteration, which seems counter-intuitive to businesses that have historically focused on reproduction and scale.
2. Dynamic packaging and pricing is a must—be able to iterate easily
Early in the history of Salesforce, Tien says they learned that creating new packages and iterating on pricing was key to growing the subscriber base. “That first time we raised the price from $50 to $65 [per seat], all these customers quit because they said, ‘Well, if you can constantly raise the price on me, then I don’t know if I trust you.’ So, we swore we would never raise prices again. Instead, we would come up with other versions of the product that were optional. Then we said, ‘Look, this is the product you bought. We’re still making it better. But here’s another tier of the product that you can opt into. It has a higher price.’ And over time, we managed the customer lifecycle to find combinations that worked.”
Changing the pricing and packaging is a never-ending journey. A good example familiar to everyone is the telecom industry, which is constantly changing its packaging and pricing in innovative bundles based on customer usage. This is a great example of a dynamic marketplace in which competitors and alternatives arrive all the time. So, the ability to have iteration and agility, again, is key to making their subscription business successful.
3. Subscription is the business model of the future—get creative with your services
While Tien believes that subscription services are the way of the future, he stated that we are still very early in its evolution. Each year, Zuora produces the Subscription Economy Index, which reflects the growth metrics of hundreds of companies around the world. This year’s index showed that subscription businesses grew revenues five times faster than both the S&P 500 revenues and U.S. retail sales from 2012 to 2018. With these numbers, he said, it’s hard to imagine any industry not interested in that kind of growth.
Some surprising businesses are getting into the subscription world by being creative with their services. One example Tien shared is Fender Guitar. The new CEO decided to focus on the customer and, through research, realized that half of their sales are to first-time guitar buyers. However, 90% of these buyers quit playing after three months because learning to play guitar is hard. If the customer is still playing after twelve months, they are a customer for life. The CEO realized that Fender needed to do something to help these new players keep playing from months four to twelve.
So, Fender launched digital services targeted to first-time players. The first was a tuning app to give the company a sense of which customers were playing and which were not. Then they launched Fender Play, which was a series of videos that teach you how to play. But these videos do not teach how to play “Mary Had a Little Lamb,” but instead taught songs by Bob Marley, U2, and Maroon 5 because Fender knew that what new players really want are to be rock stars. These new apps gave Fender unique insights into their customers’ usage. Even if just a few players make it to month twelve, that significantly and positively impacts their revenues.
Fender is a good example of putting their customers in the center and being creative with providing value to customers to improve business outcomes.
Thank you, Executives’ Club of Chicago and Tien
These were just a few insights in the hour-long discussion on the subscription economy. Jeff Wissink will be publishing an extended Q&A with Tien in Forbes in the coming weeks. We’ll be sure to share it when it becomes available.
If you are interested in learning more about how Navint helps businesses focus on the customer journey, enable dynamic packaging and pricing, or transition to recurring revenue, contact us. We will be happy to have the conversation.