Wednesday, October 17, 2012

Subscription Models and Supply Chain

Currently there is a fundamental shift in how customers are consuming products and services. We are slowly moving from a buy model to subscription services, where the emphasis in on getting a repeat customer to consume the product on a consistent basis, of what is being called the “subscription economy”. Until very recently, subscriptions models worked well for goods and services that needed a refresh on a daily or a weekly basis. i.e. Utilities, Magazines, newspapers etc. But, times are changing.

There has been an exponential rise in the number of consumers who access their music through subscriptions on applications like Pandora, iTunes or Spotify. There is also an increasing trend where consumers are slowly changing traditional behaviors like owning cars. Instead they are subscribing to car rental companies like Zipcar. Customers are also refraining from buying hardware for memory storage and are utilizing cloud services, which also run on subscription models. We are moving away from owning goods and gravitating towards becoming users of services that deliver experiences–like music, movies, cars, productivity software etc. 1

Interesting experimentation is going on with the likes of, etc. who are trying to get consumers to avail subscription models for goods that we use daily. Subscription economies not only change how consumers pay for goods, but also how the goods are delivered to the consumers. This means that the supply chains need to be reorganized, from demand forecasting to capacity planning. There will be fundamental shift in how businesses organize themselves. Looking much ahead into the future, if the subscription model for physical goods takes off in a big way; it will be interesting to see how businesses adopt to new realities of subscription economies.

Does the rise of Subscription Model alter Supply Chains significantly?


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