SINGAPORE (Oct 8): Companies in Asia Pacific are increasingly moving towards a recurring fee model where customers pay for a subscription to access products and services rather than a one-time purchase, according to a study commissioned by Citi bank.
Nearly half of 580 executives polled in the study believe that subscription-based models will be widespread in their industries within three years.
Close to one-third also see that all their organisations’ revenues will come from such models in the future.
Titled “Signing up to the subscription economy: The race for recurring revenue in Asia Pacific”, the study was conducted by Longitude.
“Disruption has given consumers abundant choice, making customer retention a critical priority for companies. As a result, businesses are evolving their models to be direct and customer facing,” says Ernesto Pittaluga, Asia Pacific Corporate and Public Sector Sales Head, Treasury and Trade Solutions, Citi.
“At Citi, we have seen firms in sectors like consumer goods and healthcare lead the way in implementing subscription-based models and increasingly we are seeing companies across other sectors consider its potential,” he adds.
Already, Pittaluga notes that three-quarters of the executives surveyed in the study indicated the shift to subscription as a board-level priority. “We would expect this shift to intensify over the next few years,” he says.
Of the consumer goods and healthcare sector respondents polled, 50% believe that the subscription-based model will be widespread in three years’ time. In the technology, media and telecommunications sector, an even higher 55% of the respondents believe that such a model will be wide spread.
The energy and power, industrial and insurance sector respondents also echoed the sentiments, 44%, 40% and 42% respectively believing that such a model will be widespread.
“Subscription models have been around for a while but what is surprising is the pace of adoption across a range of industries in Asia Pacific. We see a major shift that is only likely to accelerate in the next few years,” says Rob Mitchell, CEO of Longitude.
“In the short term, a barrier to subscription-based models is reduced revenues because there is less reliance on up-front purchases. But, as these models become entrenched, companies are reporting better client retention and increased profitability,” he adds.
Expected long-term revenue growth as well as strong customer retention and loyalty is driving this switch to a subscription-based model. Such a model is seen by 82% of respondents as an opportunity to be a lead disruptor in their industry.
A positive impact on customer retention and long-term customer relationships is anticipated by 76% of respondents looking to implement such a model, while 71% of total respondents anticipate long-term revenue growth.
However, only 4% of respondents have a clearly defined, enterprise-wide subscription strategy.
Barriers to implementing the model includes a lack of understanding and familiarity with the model, concerns over short-term revenue decline, new finance accountability processes and structures as well as the need for alignment across the organisation.
“Over two-thirds or 67% of respondents indicate that stronger alignment between business and finance is needed to ensure success. Our corporate clients’ end-customers increasingly expect instant fulfillment and 24-by-7 accessibility so our clients’ business models are naturally evolving,” says Citi’s Pittaluga.
