The subscription economy is here — there is no denying it. Buyers are demanding the shift from B2B organizations as much as consumers are from B2C.
According to Gartner, “By 2022, more than 80% of software providers will change their primary business model from traditional license and maintenance to subscription models, regardless of whether the software resides on premises or in the cloud.”
While new solution providers are being created within this model, traditional software organizations not born in the cloud are taking the hardest hit. The transition from perpetual licenses to a subscription model is challenging, fraught with peril and affects a number of solution management and marketing aspects, including updating and enabling sellers with:
- Value Proposition Messaging
- Packaging and Pricing
- Deployment Options
While this shift may cause short-term disruption—it also offers long-term sustainable revenue performance. Not only does this subscription model serve buyer expectations better, it also supports budget availability and flexibility (learn more at the end).
How can your product marketing and management teams and overall selling organization prepare for this strategic shift?
Remodel Your Value Proposition
Your front-line salespeople will need reprogramed selling methodology and tools. This starts with the value proposition messaging. Regardless if they are account executive, pre-sales engineer, or renewal sales professional, every salesperson in your organization needs to be able to engage in clear conversations about the differences and added customer value the subscription offering affords.
The value messaging must encompass the clear differences from the customer’s perspective.
PRO TIP! Companies that offer a hybrid option can hold a selling advantage over competitors that offer only cloud or only on-premise options. This flexibility allows a company to migrate their offerings over time as well as increased levels of security and flexibility.
Choose Your Deployment Options with Care
Next, with the overwhelming market “push to the cloud,” sellers need to understand deployment options. It is likely your buyer may favor one over another. Know these preferences and reasons.
Some buyers may prefer to maintain software on-premises due to a distrust in the cloud and in order to maintain full control, management and security. They might have complex integrations or poor local connectivity. Others might have legacy applications or regulatory requirements.
The cloud may be more attractive to others due to the more expert provider maintaining control and for greater accessibility. There is a lower cost to entry, and it may support customers who do not have core IT competency.
Hybrid deployment options provide the greatest level of flexibility and encompass the best of both worlds. This is increasingly common as a “step towards the cloud.” The shift to the cloud becomes a smooth journey versus what could be a leap into the unknown. This concept of Hybrid has expanded beyond just a mix of on-premises and cloud to include hybrid cloud approaches and multi-cloud approaches—offering the most flexibility to the buyer.
Transform Packaging and Pricing
The last critical element for the subscription economy shift entails packaging and pricing. If this is done wrong from the start, buyers will suffer numerous price adjustments and confusing changes. There are a number of approaches, but here we will examine four.
Freemium subscriptions are free but often provide limited capabilities in exchange for personal details and usage information. The longer-term goal is to convert users to paying customer. We are all familiar with software with this sort of model — think Adobe Acrobat or Dropbox.
Fixed price packaging offers a fixed price for a single product or bundle, a fixed set of features, and a fixed price per term. Amazon Prime is a great example with its annual pre-paid subscription for bundled services. It doesn’t matter how much you consume; you get it all for one standard annual price.
Tiered pricing offers a range of tiers or plans that afford “choice” in terms of packaged capabilities and user counts. The customer has the power to upgrade or downgrade as needs change. Think packaging such as “Standard/Basic,” “Advanced” or “Premium” like Netflix offers.
A usage or metered subscription option is a pay-as-you-go and only for what you use model. There is usually a minimum but no maximum. Pricing often is addressed in tiers with declining cost per usage unit as usage increases. This option leverages some of the tiered model while also depends on actual usage. Think utilities or transaction-based services (telecoms pay-per-minute or storage per gigabyte, ride shares per mile, per API calls for things like incorporating Google maps into your app).
Seek to Serve™ Your Target Buyers
Shifting to a subscription model is not just an industry trend. A subscription-based model will have a profound impact on how you sell and how well you sell. This model offers to serve both your target buyers and your selling organization with greater value.
The value your buyers will gain is emphasized with buying flexibility and accommodating buyer needs. With subscription models, they can expense your solution now either as an operating expense (OpEX) or as a capital expense (CapEx).
Traditionally, perpetual software purchases existed in the realm of CapEx purchases, which demands greater planning, scrutinizing and documentation as an asset. With a subscription cloud or on-premises term subscription, the expense is treated as usage rather than ownership. Therefore, the purchase can be made from a larger operating budget that is more flexible and can be applied against either CapEx or OpEx.
The value your selling organization will realize is the result of better serving your buyers. Your salespeople will have a greater opportunity to deliver more value to your clients — with pricing and packaging that offer greater flexibility than ever before. Over time, this translates to sustainable revenue performance.
See the power of a subscription model in practice. Learn how Mereo principals supported Ariba to ramp up revenue by transitioning to a subscription-based model.