Whether It’s A Fixed Price, Usage-Based Or Hybrid Subscription, The User Always Wins

In this piece, Zuora’s head of strategy Nick Cherrier dispels rumours of the ‘death of subscriptions’ and explains why the Subscription Economy has never been stronger.
Reports of the death of subscriptions are, to bastardise a classic Mark Twain line, greatly exaggerated. That hasn’t stopped the ‘rumour’ doing the rounds – and the most commonly declared ‘killer’ is usage-based pricing.
I would suggest that far from being dead, subscriptions – the entire Subscription Economy in fact – have never been in a stronger position. And far from being a threat to (or murderer of) subscriptions, usage-based pricing is one the chief reasons that subscriptions are riding so high.
In my view, subscriptions and usage-based pricing aren’t competitors. In fact, I don’t see them as comparable. Subscriptions come in all shapes and sizes – this has always been one of their great advantages. While it’s true that Netflix and Spotify have made fixed-price or “all-you-can-eat” subscriptions perhaps the best-known variant, many other versions exist (and are being developed as I write this). Usage-based pricing is just another of them.
To give an example, let’s move away from the undisputed heavyweight champions of recurring revenue models and look at some very successful companies not quite as well known for their subscriptions.
Breitling is a Swiss watchmaker, established almost 150 years ago. They offer a subscription program called Breitling Select that is a classic fixed price offering. As a subscriber, you can choose from up to 3 watches over a 12-month period for a one-time fee in addition to a monthly rate. You send back one watch before trying another and, after two months you have an opportunity to purchase one of the watches at a special rate.
Like any subscription variant it has its pros and cons. It’s extremely simple and easy to understand, for a start. It also makes budgeting straightforward, for both the watch-wearer and for Breitling. But, there’s no price differentiation, which means Breitling may not be making optimal use of customers’ willingness to pay, and leaving money on the table. And, it’s not strictly ‘fair’ if you take into account usage – a person who wears a watch to one fancy dinner party and then forgets about it pays the same as someone who wears their watches every day over twelve months.
For the consumer who worries about value for use, pay-per-use pricing is, of course, enticing. A good example is Rolls Royce’s TotalCare option for its aerospace customers. With TotalCare, Rolls Royce, the world’s second-largest aircraft engine manufacturer, charges its customers a fixed rate per flying hour. Airlines only pay for what they use and Rolls Royce has an incentive to keep their engines in perfect running order (if they’re out of action, the revenue stream stops).
On the other hand, pay-per-use makes predicting revenue somewhat more difficult for the subscription company. There’s also the problem of the taxi meter effect. That’s a phenomenon where people have a tendency to fixate negatively on the link between units of consumption and price (to the extent that some even prefer to opt for a more expensive lump sum just so they don’t need to think about the accumulation of fees as the meter ticks over).
These might be considered the two poles of subscription pricing. In between is a spectrum covering numerous hybrid models. There’s Freemium – think Dropbox, which lets you try a version of its service at no charge, but offers premium versions for a monthly fee. There’s overage-based pricing, a middle ground between the two poles – think Audible, which gives you a limited amount of free content per month and then lets you make purchases on top of that. There’s tiered with overage – think Origin Energy which lets you self-select the most appropriate subscription level while also including an energy use component. And there are many more, all of which have advantages and disadvantages.
There are so many options because one-size fits all is anathema to the Subscription Economy. Having said that, broad rules do apply. Zuora research suggests that there’s a sweet spot for most companies: those who have between one and 25 per cent of revenue coming from usage-based pricing grow faster than those with no usage-based revenue. However, there is a tipping point beyond that quarter mark where growth eventually stalls.
So, yes, there is a best-practice range for proportion of usage-based pricing, but there is no such thing as a “correct” subscription variant combination for an industry or sector. It would be far too prescriptive (and just plain wrong) to say, for example, that a financial services company must blend tired pricing with classic set-price. Instead, the best measure of success is whether those who use a particular service come out as winners. If they don’t, they’ll walk. The era of “take it or leave it” is well and truly over.
That’s a good state of affairs for the people buying energy, listening to music or watching streamed content. But the fact that there are so many options – the fact that the model is so easy to tweak or adjust – means companies willing to modify and experiment, win as well.
Usage-based is one of the primary reasons that subscriptions remain so flexible for customers and for businesses. It hasn’t killed subscriptions; it’s made them better.
Latest News

Air New Zealand & Bastion Shine Save Christmas With Their Latest Campaign
When it comes to New Zealanders, are they really just glorified Tasmanians who are much better at sport?

Google To Pay $111m To News Publishers In Canada
Google lumped with latest $100 million-plus fine. Which, when it's all said & done, is like 50 cents to the rest of us.

Thursday TV Ratings: The Chase Takes The Crown For Entertainment
Much like navigating the single-malt whiskey menu at Rockpool, Thursday night TV proves a tricky one for network bosses.

Before Adland: Luke Spano’s High-Stakes Switch
The Avid Collective MD reveals his life pre-adland. As exciting as it is, it's not international playboy spy & Lothario.

New Study Busts Aussie Advertisers Over False “Clean, Green & Sustainable” Claims
Aussie adland in strife over some of its 'green' claims. By that we mean environmental claims, NOT fibrous vegetables.

Network 10’s Rod Prosser On TV Ratings: “One Measurement System Is Better For The Industry”
The only thing B&T would love more than a chat with Rod Prosser would be a game of squash. Yes, he's a 'yellow dot' man.

It’s Friday Quiz Time Again!
Take B&T's trivia quiz for your chance to win a $100 booze voucher and possible cirrhosis of a major internal organ.

Innocent Bystander Wines Challenge The Boring With New Campaign
As the Latins famously say "in vino veritas" or "in wine, there is truth". And, truthfully speaking, B&T hated this ad.

Apple Enlists Taika Waititi For Gorgeous (& Not Christmas) New Work!
Think the month leading into Christmas is all Curtis Stone's Christmas prawns? It's Apple to the rescue today, readers.

Clean Up Australia Unveils Brand Refresh Via uberbrand
Do you have "litterbug" on either your resume or LinkedIn profile? Change your trashy ways immediately on this news.

Musk: Advertisers “Go Fuck Yourselves”
B&T warns this article contains language readers may find offensive. And by that we don't mean Elon Musk.

Triple M Puts The Gold Back In The Gold Coast
The Gold Coast is Australia's "glitter strip". That is if you think bogans, bikies & personal trainers are "glitter".

SenateSHJ Launches New Trans-Tasman Practices
SenateSHJ has launched a new digital, data and insights capability designed to help clients tackle the growing complexity of communication challenges. SenateSHJ Digital, Data and Insights (DDI) will combine the firm’s existing Digital and Insights functions to create a Trans-Tasman capability focused on digital communication, and the generation and use of data to improve communication. […]

Nova Shakes Off Swift Mania With Dedicated Station
Want to make yourself the most despised person in the office? Read on with the launch of Taylor Swift radio.

QMS CEO John O’Neill On His Plans To Get OOH Spend Up To 20% (Watchout TV!)
B&T's chatting with outdoor supremo, QMS' John O’Neill. Eerily the outdoors never got mentioned in any small talk.

AANA’s New Code Means Stricter Rules Apply To Advertising To Children
There are now stricter ad rules applying to kids. Yet, nothing a bottle of Fanta & a box of Froot Loops can't fix.

New BrandStory Format From Bonzai Allows 3x More Ad Space on Mobile
Creative technology platform Bonzai has announced the launch of BrandStory – a new premium mobile ad format. BrandStory offers triple the ad space and 2.8 times greater time in view than single scroll ad formats, addressing the surging demand from brands worldwide for more real estate to drive real results by seamlessly intertwining awareness, exploration […]

“Cut The Crap!” Piers Morgan Sensationally Outs “Royal Racists” On His TV Show
The corgis, anyone in the Palace with a funny hat & even Camilla off the hook, as Piers delivers royal racist dirt.

Wednesday TV Ratings: 365,000 Sign Up To Watch The Last EVER Hot Seat on Nine
Mrs McGuire reportedly unhappy about Eddie loafing about the house after Nine cans Hot Seat.

B&T’s Search For Australia’s Greatest Ad Heads To Channel 7
B&T went through the looking glass this morning, with editor-in-chief David Hovenden (above) appearing on Channel 7’s The Morning Show to get the general public involved in our search for Australia’s Greatest Ad. Hovenden chatted with Kylie Gillies and stand-in host Matt Doran about what makes a great ad and showcasing some of our favourites […]

It’s The Best Of The Best – Directors Of First Impressions, Presented By Finecast, Part Of GroupM Nexus
They're the ones with the best hair and the whitest teeth! Yes, it's adland's top 10 directors of first impressions.

Opinion: The Tall Planner’s Kate Smither On The DBA Dilemma
The science is not in question – smarter people than I, with far more data, have codified it. The logic is not up for grabs…it makes sense that creating mental shortcuts to your brand keeps you at the top of your mind. Lead image: Kate Smither – Owner, The Tall Planner I wouldn’t even take […]

Ortto & Tall Bob Partner To Deliver Better SMS & MMS For Australian & NZ Businesses
Two Australian-born technology providers have joined forces to bring more power and choice to marketers in Australia and New Zealand with mobile messaging that is more local, cost-effective, and integrated. It’s a partnership that sees two Australian software companies come together to deliver a world-class mobile-first solution for marketers building data-driven, personalised, omnichannel campaigns. While […]

PubMatic Nabs Luke Smith From Seven West Media
Seven's Luke Smith quits for PubMatic. However, he's still in line for one of James Warburton's annual Christmas hams.

Slew Of New Hires At Snap Inc.
Snap Inc. has announced a number of new recruits. B&T unaware if it positively impacted SEEK's share price.

Michael McLacren Confirmed As Deb Knight Replacement For 2GB Afternoons
Think AM radio has a bit of an angry boys' club feel? It's not improving things with this news.

Reddit Gets Playful Brand Refresh
This will be of interest to any Reddit fans, graphic designers or lovers of an orange so bright it burns the retinas.

World Square Counts Down To Christmas With Sydney’s Biggest Advent Calendar
Hopefully this news will get you in the Christmas spirit. Either that or go and stand in Westfields for nine hours.

Zitcha & Broadsign Partner To Drive Global In-Store Retail Media Market
Zitcha and Broadsign have teamed up to integrate the Broadsign out-of-home (OOH) advertising platform with Zitcha’s retail media platform. The collaboration empowers retailers to maximise and monetise in-store digital display networks and enables advertising partners to easily view and book available in-store inventory and review campaign performance alongside the retailer’s other media channels. With the […]

B&T’s Search For Australia’s Greatest Ad Part 5!
B&T's vote for Australia's greatest-ever ad is much like the recent referendum sans the mudslinging and Kamahl.

Ignite the Thrill: National Drag Racing Championship Unleashes Media Campaign Via Murmur Group
If there's one sport in the world that's thumbing its nose at global emissions, it's probably drag racing.

Rethink Ink: Is It About Time You Reconsidered Print?
Print's not merely an excellent vehicle for brands, it's also perfect for getting the barbecue alight for the sausages.

Double Rainbouu & 7-Eleven Launch Exclusive Summer Fashion Label
Today, 7-Eleven has announced a one-of-a-kind collaboration with the popular Sydney-based anti-resort wear label Double Rainbouu. Dropping tomorrow, December 1, just in time for summer, this limited-edition capsule will infuse the fashion brand’s rebellious spirit with a distinctly iconic 7-Eleven flavour. The unisex collection features five must-have styles comprising two signature Hawaiian shirts, a peaked cap, a bucket hat […]

Cannes In Cairns Media Accreditation Open Now!
Work in media? Want to cover next year's Cannes In Cairns? There'll be no free piña coladas without this form.

In-House Agency Council Research Report: 78% Of Marketers Now Work With An In-House Agency
In-housing is definitely an industry hot button topic. Admittedly still a long way behind office affairs.

OMA Announces Winners Of The Q3 Creative Collection Competition
Who doesn't love the out of home medium? Apart from the very real chance of being shat on by a bird.