build better customer relationships with subscription options
DESCRIPTION
A webinar from TRACTBIlling that explains how to offer subscription options to customers, pitfalls to avoid and economics of various subscription business models. Businesses that implement subscription billing will eventually go through the same trials, tribulations, proliferation of service offerings and evolution of price plans as experienced by telecommunication service providers. To grow and identify new sources of revenue and compete effectively, these companies will need Dynamic Revenue Management - a single system that can handle quotes, account creation, orders, pricing, payments, settlement, subscriber management, analytics, and business intelligence. TRACT is an integrated billing system that delivers Dynamic Revenue Management seamlessly from the cloud, on demand. TRACT helps companies identify new sources of revenue through improved billing AND increase sales by dynamically tailoring pricing packages to customers’ usage patterns and preferences. TRACT integrates quickly and speeds the launch of new offers, promotions and bundles. Why offer subscription options to your customers? Create multiple price plans Inject relevant promotions Longer-term, more predictable revenues Market Differentiation! Customer convenience Attract a new breed of customer Build relationships with customers Understand customer buying behaviors for smarter product managementTRANSCRIPT
Page © Copyright 2011
Build Better Customer Relationships with Subscription OptionsSusan McNeiceSeptember 28, 2011
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What we’re going to talk about and why.
Subscriptions and the way they are being used today
Limitations of current subscriptions models and the impacts that has on your business.
What you can do within the realm of billing / backoffice systems to avoid these pit-falls
Talk about some examples
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Susan McNeice is VP of software research with Yankee Group, driving the company's research in the areas of marketing, operations and operations software strategy. Her areas of expertise include telecom operations, subscriber and policy management, customer care, self-service, real-time charging, dynamic cataloging, business intelligence/analytics, revenue assurance and service assurance.
Susan has more than 30 years' experience in IT. Prior to joining Yankee Group, she led a global research group at Stratecast, a division of Frost & Sullivan. Before that, she was director of marketing at Vibrant Solutions (now Teoco). She also led several teams for AT&T in software strategic planning, software definition and program management.
Susan holds an M.S. from the George Washington University School of Business and a B.A. from the University of Delaware. She has been quoted in The Wall Street Journal, Dow Jones' Market Watch and the San Jose Mercury News, and has published articles in several industry publications.
Susan McNeice
Your Speakers Today
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Chris Couch is Transverse's COO and Co-Founder. He spent 18 years as a professional focused on telecommunications softwaree solutions. Most recently, Chris served as Senior Vice President and Chief Marketing Officer at ACE*COMM Corp., a leading provider of wireless OSS, BSS and value-add services platforms. He also led consulting practices at American Management Systems and Logica, where he oversaw or participated in the ground-up launch of several wireless carriers around the world.
Your Speakers Today
Chris Couch COO and Co-Founder Transverse
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Buying Patterns are Shifting
From Transactions To Subscriptions
From Impersonal To Relationships
Selling Patterns are Shifting
Consumers have long responded to predictable, discounted, multi-unit purchases in CPG. This is now moving into the realm of services, whether physical, virtual or digital.
Subscription selling also delivers more predictable revenue streams and provides the seller with the opportunity to engage consumers on a human, personal level in what some assume is a less personal world. In fact, we’re just substituting one level of personalization for another, one that is more automated and intelligent.
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Types of Subscriptions
Fixed Dollar Amount, Variable Consumption over Time RFID-based Toll Services Prepaid Phones with Top-Up
Fixed Units and Dollars Ongoing over Time Six haircuts for $300 – no expiration date Newspapers and Magazines Auto Insurance
Fixed Time, Fixed Dollar Amount, Variable Units
Fixed and Variable Dollars Cell phone plans with fixed amount plus overages
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Look Who’s Offering Subscriptions Now!
ZipCar
Salesforce.com
RealtyTrac.com
Match.com
Netflix
Amazon.com
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Why Offer Subscriptions?
Create multiple price plans
Inject relevant promotions
Longer-term, more predictablerevenues
Market Differentiation!
Customer convenience
Attract a new breed of customer
Build relationships with customers
Understand customer buying behaviors for smarter product management
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Subscriptions Mean Sticky Revenue
Source: Yankee Group 2011 Consumer Survey, Waves 1-6
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Subscription Enablement - Requirements
• True SaaS Delivery
• Any combination of business modelsand subscription features
• Account options and entitlements• Payment/discount tiers• Timing options
• Unlimited scalability with real-time operations
• Business-user friendly; Experimentation features
• Business Insight
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Subscription business will trend toward Dynamic Revenue
Subscriptions represents a relationship with a customer based on a business model that forces and incentives customer interaction with the business.
Over time subscriptions evolve to improve existing business models and create new ones. Dynamic Revenue includes, but is not equivalent to, a subscription business model
– Subscriptions focus on simple recurring revenue– Dynamic Revenue focuses on leveraging the relationship with the subscriber and transitioning
the subscriber from a single recurring revenue stream to a source of multiple revenue streams.
Products / Services
Payment
Subscribers
Company
SubscriptionDynamic Revenue
Products / Services
Payment
Subscribers
Company
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Subscriber and Revenue Trends
Time
Revenue
Early in the development of a subscription business model uptake and revenues tend to ramp quickly.
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Subscriber and Revenue Trends
Revenue
TimeAs competition enters and the market approaches saturation revenues begin to decline. Once the decline begins it is usually rapid.
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ARPU Trends
Time
ARPU
The same trend holds true for Average Revenue per User (ARPU) - which measures on average how much each subscriber is buying. However the decline in ARPU usually happens earlier and at a much faster pace.
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ARPU Trends
Time
ARPU
ARPU can be positively effected by changes to the product mix or price.
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ARPU Trends
Time
ARPU
The introduction of new products or offers can also have a positive effect on total ARPU.
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Subscription Trend Summary
Subscription revenues, on a per product basis, tend to decline over time and when the decline starts, it is usually rapid.
This decline is initiated as subscriber growth reaches the upper percentile of market penetration for a given product or market segment.
As revenue growth slows, the market and the players in the market will begin to act differently. The market structure will no longer be reflective of a growth market and it will seek an equilibrium point.
Which reduces revenue and ARPU at an even faster pace ... Unless you can respond rapidly using a multitude of product mix and
price levers.
This creates a This creates a
Price War!Price War!
It is all about fundamentals and the ability to adjust levers.
Supply-Side Dynamics
• Supply: marginal cost (per unit) at different levels of production
• Key contributors/levers:–Fixed costs–Variable costs• Downward shifts—
representing dropping unit costs at different levels of production—are advantageous
Demand-Side Dynamics
• Demand: marginal benefit (per unit) for demanders at different levels of production
• Key contributors/levers:–Product’s perceived value
proposition–Information on demanders
and their demand curves–Market concentration• Upward shifts—
representing increasing demand at different levels of product—are advantageous
Pric
e (
Co
st)
Quantity
Sup
ply
Dem
andProductionQuantity
Equilibrium
Profits
Costs
Basic Microeconomics Framework
Pric
e a
nd
pro
du
ct m
ix le
vers
Pric
e a
nd
pro
du
ct m
ix le
vers
Uni
t Pric
e
Quantity
Effect of improving Demand Side levers
When it changes the perceived product value proposition, the billing system has the potential to shift the demand equation.
Mar
ket P
rice
(Fix
ed)
DemandCurve
Before
After
Change in Quantity
Uni
t Pric
e
Quantity
DemandCurve
Before
AfterCha
nge
inP
rice
Cha
nge
in R
even
ue
Changein Revenue
Fixed Quantity
• Positive changes in the product—or its perceived value proposition—have the potential to drive improvements in sales and/or ARPU, along with revenues
• Product differentiation can lead to short- or long-run market advantages, depending upon how quickly the differentiation can be imitated
Fixed Price Model Fixed Volume Model
• Use historical customer information to:• Create price/product mix offerings, a selection of “packages”, that target a wider range
of segments profitably.• Add usage or consumption based pricing to allow lower tier offerings that don’t
cannibalize higher tiers. • Enabling customers to create their own product mix.
Demand Side Lever Examples
When it creates a sustainable supply advantage, billing can help to change the competitive landscape.
Uni
t Pric
e
• In competitive industries, sustainable cost advantages, translated into increased quantity sold, put pressure on inefficient producers
• At the same time they drive increased revenues (and profits) for efficient producers
• If inefficient producers cannot duplicate cost advantages, they may be driven from the market, resulting potentially in increased market concentration and margin advantages for those remaining
• Positive changes in the product or how it is perceived can differentiate the product and allow premium pricing
• With sufficient differentiation, a separate market may be spawned—with the producer enjoying a monopoly until the differentiation is imitated
• Alternatively the product may create and occupy a favorable product tier that can be capitalized on
Uni
t Pric
e
Quantity
Quantity
Cha
nge
in R
even
ues
Supply
Demand
Demand
Supply
Cha
nge
inR
even
ues
Advantage Through Sustained Supply Shifts
Subscription Maturity Model
Business Stage Business Emphasis Billing Capabilities
Stage 0“Ground Zero”
Roll-out of subscription services usually as a test market
Ad hoc - No formal definition of billing capabilities exists and activities are most frequently performed in a manual inconsistent and event driven manner.
Stage 1“Simple Subscriptions”
Simple subscriptions with transactional based pricing. Subscriptions characterized by ‘unlimited’ and ‘one-size-fits-all’.
Awareness - Billing starts to become complex, more costly. Typically implemented as a set of point solutions’. The definition and scope varies and is often driven by organizational structure or alignment.
Stage 2“Activity Management”
Caps and charges on usage are added to subscriptions. Market segmentation becomes more prevalent.
Managing - The organization recognizes the need for, and understands the benefits of, performing and managing billing activities in a formal and consistent manner.
Stage 3“Entitlements”
Pre-authorization of the use of services based on prior consumption or purchases
Improving - The organization proactively manages the function for improvement and is deploying quantified functional performance measurements. ‘Light’ integrations.
Stage 4“Personalization”
Micro-segmentation of your customer base with individualized offers
Optimizing - The organization proactively redefines billing activities, processes and outcomes to optimize the function's performance based on changing needs of the business. ‘Heavy’ enterprise integration.
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Being able to progress through the stages of the maturity means being able to manage Dynamic Revenue. Dynamic Revenue goes far beyond just subscription management or recurring billing by
enabling companies to create, manage and capture all aspects of any complex offering. Dynamic Revenue is inherently event oriented.
Transform any event into revenue.
– Usage Event Processing
- User Definable Events
- Flexible Rules Based Processing
• natural business language for rule definition
- User defined look-up tables
• for reference and rates
- Automatic event reprocessing
- Usage Limits / Tiered Pricing
– Service Resource Management
- User definable categories Product Management
Base Subscriptions Add-ons
– Append
– Override
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Customer adds a basic subscription.
Rule | Specification | UoM | Limit | Rate-no rules -
IPTV Service Basic PlanIncludes channels 1 - 10
Movies are a la carte & paid in advance One Time: -
Recurring $20.00 per month
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Customer adds the ability to buy movies on on credit (in arrears).
Rule | Specification | UoM | Limit | Rate-no rules -
IPTV Service Basic PlanIncludes channels 1 - 10
Movies are a la carte & paid in advance One Time: -
Recurring $20.00 per month
Post-pay MoviesAllow movies to be purchased on
credit Add-on Type: Append
One Time: - Recurring: $0 per month
Rule | Specification | UoM | Limit | Rate
Purchased Movies | If event.field1 = movie return true | Event | unl | 3.00
Appended Add-Ons
No overrides exist
1. Movie Purchase Event is guided to Parent
Service
2. Process Overrides
3. Process Parent Subscription
No matching rules
3. Process Appended
3.1. “Post-Pay Movies”Matches “Purchased Movies” Chg = $3.00
Event is consumed, stop.
Customer Purchases 1 movie.
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Customer adds a bucket of 5 movies.
Rule | Specification | UoM | Limit | Rate-no rules -
IPTV Service Basic PlanIncludes channels 1 - 10
Movies are a la carte & paid in advance One Time: -
Recurring $20.00 per month
Post-pay MoviesAllow movies to be purchased on
credit Add-on Type: Append
One Time: - Recurring: $0 per month
Rule | Specification | UoM | Limit | Rate
Purchased Movies | If event.field1 = movie return true | Event | unl | 3.00
Appended Add-Ons
1. Movie Purchase Event is guided to Parent
Service
2. Process Overrides
Event is consumed, stop.
Rule | Specification | UoM | Limit | Rate
Free Movies | If event.field1 = movie return true | Event | 5 | 0.00
5 Movie BucketAny 5 movies
Add-on Type: OverrideOne Time: $10.00Recurring: NULL
Override Add-Ons
2.1. 5 Movie BucketMatches “Free Movies” Chg = $0.00 / Bucket =
1
Customer Purchases 1 movie.
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Customer purchases movie after 5 movie purchases.
Rule | Specification | UoM | Limit | Rate-no rules -
IPTV Service Basic PlanIncludes channels 1 - 10
Movies are a la carte & paid in advance One Time: -
Recurring $20.00 per month
Post-pay MoviesAllow movies to be purchased on
credit Add-on Type: Append
One Time: - Recurring: $0 per month
Rule | Specification | UoM | Limit | Rate
Purchased Movies | If event.field1 = movie return true | Event | unl | 3.00
Appended Add-Ons
1. Movie Purchase Event is guided to Parent
Service
2. Process Overrides
Rule | Specification | UoM | Limit | Rate
Free Movies | If event.field1 = movie return true | Event | 5 | 0.00
5 Movie BucketAny 5 movies
Add-on Type: OverrideOne Time: $10.00Recurring: NULL
Override Add-Ons
2.1. 5 Movie BucketBucket = 5 No match.
3. Process Parent Subscription
No matching rules
3. Process Appended
3.1. “Post-Pay Movies”Matches “Purchased Movies” Chg = $3.00
Event is consumed, stop.
Customer Purchases 6th movie.
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Customer adds 10 movie bucket with 5 movie bucket.
Rule | Specification | UoM | Limit | Rate-no rules -
IPTV Service Basic PlanIncludes channels 1 - 10
Movies are a la carte & paid in advance One Time: -
Recurring $20.00 per month
Post-pay MoviesAllow movies to be purchased on
credit Add-on Type: Append
One Time: - Recurring: $0 per month
Rule | Specification | UoM | Limit | Rate
Purchased Movies | If event.field1 = movie return true | Event | unl | 3.00
Appended Add-Ons
1. Movie Purchase Event is guided to Parent
Service
2. Process Overrides
Rule | Specification | UoM | Limit | Rate
Free Movies | If event.field1 = movie return true | Event | 5 | 0.00
5 Movie BucketAny 5 movies
Add-on Type: OverrideOne Time: $10.00Recurring: NULL
Override Add-Ons
2.1. 5 Movie Bucket
Bucket = 5 Match ‘ Free Movie’Chg = 0 / Bucket =6
3. Process Parent Subscription
3. Process Appended
3.1. “Post-Pay Movies”
Event is consumed, stop.
Customer Purchases 6th movie.
10 Movie BucketAny 10 movies
Add-on Type: OverrideOne Time: $15.00Recurring:NULL
Rule | Specification | UoM | Limit | Rate
Free Movies | If event.field1 = movie return true | Event | 10 | 0.00
2.1. 10 Movie Bucket
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Wrap Up
Your subscription business will evolve whether you want it to or not. Are you ready?
A billing is more than a subscription manager, it’s an asset. It’s about the moving to more and more profitable Dynamic Revenue models.
A billing system that won’t allow you to progress through the stages of the Subscription Maturity in an agile manner will cost you customers, revenue and have a much higher cost to operate.
Competitors will seize on this!
Let us show you how Dynamic Revenue Management can help evolve your subscription business.
Contact: [email protected]: www.tractbilling.com
Can your billing system do this?