What is the Subscription Economy? Why is it a turning point? How is it impacting the Utility Industry? What are the opportunities that companies in the industry can seize by riding this trend? In this article we give you all the answers.
You can deal with an emergency, like the one we are experiencing, by just dodging the blows to survive. Or you can step back and consider these simple key points: what was not working “before” for my company? What are the margins to attack? And in what direction will the industry move in the future?
Such questions are easy to post, but they often have complex and not always immediate answers. In such situations, however, it’s important to start with practical matters, and that’s what we’ll do in this post. We’ll be focusing on the massive Utility Industry, a sector that has a large impact on our lives and one that is experiencing a period of great change, even before this unexpected and unpredictable health and economic crisis.
In this post we covered the topic of digital payments: we identified the advantages for users, the opportunities for companies, the ways to stimulate them. In this post, we focused on the topic of digitizing the Customer Base, something that is fundamental, especially given the current crisis.
Now, we want to look toward the future, which this crisis is proving to accelerate. So, let’s talk about the importance of the Subscription Economy in the Utilities sector. Let’s start by defining the playing field.
What is the Subscription Economy?
Digital has radically changed the way we live in the world and, consequently, the way we consume. It is a revolution that concerns individuals as well as the entire productive and economic system.
It is within this paradigm that the so-called “Subscription Economy” is placed. We are talking about a true shift of the center of gravity, from “possession” to “access,” from “ownership” to “membership,” from “product” to “relationship.”
Some examples, to name a few, are Netflix, Amazon Prime, Spotify, Uber, and Salesforce. All of these companies share a very simple factor in common, one with enormous potential: they don’t sell products, but constant access to services.
Today, for the most part, we are no longer buying or renting movies. Instead, we can watch movies on demand and from any device through services like Netflix, simply by paying an annual fee. It’s the same with music. Today, everything is immediately available online. Consider your own Spotify or iTunes library, which, if on physical media, could occupy tens of thousands of shelves. The same is happening with one of the goods that, until yesterday, were most associated with possession: cars. And, according to many analysts, it could soon happen even to homes.
And here we begin to approach the world of Utilities which, in this panorama, are certainly no exception. First, let’s some data, which gives us a measure of this kind of change.
The Subscription Economy: some data
The numbers give us a clear measure of how solid and overwhelming the Subscription Economy is.
In the last seven years, companies based on a subscription model have increased their revenue five times faster than companies in the S&P 500 index. Over the past seven years, their revenues have grown by an average of 321%. By 2023, up to 75% of companies that directly interface with consumers will offer subscription-based services (businesswire.com).
And this will increasingly involve energy providers as well; we’ll focus on this later in the post.
Another interesting fact: the segment of the population that prefers subscription services are those between 25 and 44 years of age (source); we are therefore talking about the most interesting segment, both for the present consumption and for the immediate future. And, we have no doubt that when young people will actively enter the market, they will definitely embrace this mode: after all, they literally grew up in the world of Netflix and Spotify.
“Everywhere we look we see new ways the Subscription Economy is expanding into new spheres and putting down deeper roots as a core part of the global economy,” said Carl Gold, Chief Data Scientist at Zuora.
This rapid growth has been (and will be) possible for a very simple reason, which can be summed up as follows: there are benefits for companies and for customers, and the two are linked. In this sense, the focus is no longer on “products”, but on “relationships.” The competition shifts entirely to the ability to communicate with, to involve, to build customer loyalty, which becomes the most precious asset. After all, in the digital world, relationships are built on data.
All of this is more true than ever in the Utility Industry.
The Subscription Economy and the Utility Industry: it can be done!
We have repeatedly pointed out that the new subscription-based model is a real “revolution in progress,” one that is changing the playing field of almost all industries. And it’s also happening in the Utility and Energy sector, but we are only at the beginning. Translated: the opportunities are all to be seized, and those who are able to do it first will enjoy a fundamental competitive advantage.
If we think about the combination between the Utility Industry and Subscription Economy, there are three key keywords: sustainability, personalization, and loyalty. These are three factors that reinforce one another. This is what we must aim for, and the challenges are all played out here.
But let’s take a small and necessary step back and focus on the market in which the suppliers of water, electricity, and gas are moving. Within a few years, the market has opened up, and it has become crowded with many players. It’s also more fluid than ever before. Today it is easier than ever to change suppliers, which can be accomplished in literally just a few clicks. The result is a hyper-competitive market, which becomes a major challenge for managing Customer Churn.
Good; and what is this competition based on?
Not just the price of supplies; the differences between one company and another, on this side, are really minimal. Just as minimal are the margins for suppliers on raw material. That is why almost everything is played out, again, on the customer, and therefore, on loyalty. These are two objectives that can be achieved by getting to know their users intimately.
How to do it?
Simple: starting from data, and transforming this data into relationships, and knowing who’s in front of you, so that you can put on track a close, tailor-made, one-to-one, and personalized Customer Service.
All of this is possible today, thanks to the services of specialized companies such as Doxee (which, in this direction, already collaborates with companies such as Enel, Engie, and A2A). And it all fits perfectly with the subscription angle. Because it is the best way for companies to have a certain degree of economic certainty over the long term; this in turn allows them to establish a solid, close and (we would say almost) collaborative relationship with the individual user.
A lot is going on in the industry in this regard. Some start-ups are acquiring more and more important shares of the market, and this is influencing the behaviour of industry giants. Here, we’re referring to providers that base their entire model on subscription, such as Sparkfund (which has partnerships with Holiday Inn and Burger King, among others); SmartWatt (which has been chosen by FedEx, Nestlé, and Pepsi), Metrus Energy, or Redaptive. These are just a few of the best-known examples in a very lively market.
We were also talking about the attention from the giants: Sparkfund, for example, has established a partnership with Shell, starting in 2018.
The three keywords we mentioned earlier—sustainability, personalization, loyalty—should not be taken individually. Together, they form a virtuous spiral, which can be summed up as follows: providing energy in subscription mode reduces waste and emissions, increasing efficiency. In turn, this has a positive impact on the image of companies, and on the satisfaction of individual users: who feel part of responsible business, and who, at the same time, also perceive financial benefits.
Of course, all this must be communicated in a personalized way, with an attentive and “tailor-made” Customer Service, increasing the engagement of its Customer Base.
The final result? Loyalty; which is the final objective to which all companies in the sector must absolutely aim, today, in this complex situation, even more so than yesterday.