Close to half of 580 executives believe a subscription-based business model will be widespread in their industries in three years’ time
Fuelled by the growth of the digital economy and consumer demand, companies in Asia Pacific region are increasingly tapping into the potential of a subscription-based business model, according to a study commissioned by Citi.
The companies in the region are moving towards a recurring fee model where customers subscribe to consistent access to product and services, instead of making one-time purchases of goods and services, said a press release.
Longitude, a Financial Times company, conducted the study titled "Signing up to the subscription economy: The race for recurring revenue in Asia Pacific". The findings were first released at Citi Asia Pacific Treasury and Trade Solutions' annual flagship treasury and finance conference in Shanghai in mid-September.
Of the 580 executives polled across 14 markets in the region, close to half or 46 percent believe that subscription-based models will be widespread in their respective industries in three years' time. Close to one-third also envision that all their organisations' revenues will come from these models in the future.
Over half of the surveyed executives work in firms earning annual revenue of US$2 billion or more. The remainder represented firms earning annual revenue in between US$500 million and US$1.99 billion.
Ernesto Pittaluga, Asia Pacific Corporate and Public Sector Sales Head, Treasury and Trade Solutions, Citi, said, "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."
"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.
"Already, three-quarters of the executives surveyed in our study indicated the shift to subscription as a board-level priority and we would expect this shift to intensify over the next few years," he said.
In the consumer goods and healthcare sector, half of the respondents believe the subscription-based model will be widespread in three years' time.
In TMT, 55 percent of respondents indicate that the model will be widespread within that timeframe while 44 percent, 40 percent and 42 percent echoed similar sentiments in the energy and power, industrial and insurance sectors respectively.
Rob Mitchell, CEO of Longitude, said, "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."
"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 said.
Drivers of the subscription-based model include expected long-term revenue growth and more advantageously, strong customer retention and loyalty. A vast majority – 82 percent – of respondents also view the shift to a subscription-based model as an opportunity to be a lead disruptor in their industry.
Of the respondents who are planning to implement subscription-based models, 76 percent anticipate a positive impact on customer retention and long-term customer relationships. A total 71 percent also anticipate positive impact on long-term revenue growth.
While respondents polled are at various stages of implementing a subscription-based revenue model, only 4% have in place a clearly defined, enterprise-wide subscription strategy.
Barriers to the implementation of a subscription-based model include a lack of understanding and familiarity of the model, concerns over a short-term decline in revenue, the need for new finance and accountability processes and structures, and the need for alignment across the whole organisation.