Examples of Physical Product Subscriptions

Subscriptions are nothing new, and physical subscriptions are no different. Netflix began by sending out physical DVDs (and even VHS tapes). Amazon offers a subscription for regularly purchased goods. It’s a proven strategy for goods in the consumer space, but what of physical products in different industries, those not dominated by consumer goods?

Enterprises creating high-end machinery are already looking to subscription options for their physical products. Their belief in this model, equipment as a service (EaaS), is they can access new markets and drive business value by offering customers to access high-end products like machinery or industrial devices affordably and with further benefits by extending the business relationship.

This shift towards subscription models for physical products offers convenience and affordability for consumers and a steady, predictable stream of monthly recurring revenue for businesses.

Categories of physical product subscriptions

There are a few key distinctions in what defines a physical product subscription: consumer vs. business products and single-use goods vs. repeated-use products. For this Wiki, we will focus on products that have repeated use, like cars or high-end machinery. In that context, physical subscription products aren’t things like beauty box subscriptions, dollar shave club, or amazon subscriptions.

Real-world examples of physical product subscriptions:

Industrial Printing hybrid subscription/usage plan
Heidelberg Printing, a leading manufacturer of industrial printing equipment and services, uses a hybrid pricing model. Their clients can subscribe and pay a monthly fee for access to a range of printing equipment and services, or they can pay a pay-per-use fee for individual printing jobs or specific equipment rentals. Their products also offer IoT connectivity, and their printers have over 3000 sensors to collect data. This enables both Heidelberg and its customers to better offer usage-based pricing plans and create new business solutions.

Next-gen medical devices with IoT connectivity
Karl Storz, a leading manufacturer of medical devices, launched a combined effort with Heidelberg University to create one of the most cutting-edge hospitals in Germany. Access to bleeding edge-medical tech (with IoT capabilities) was only achieved using subscription business models. The result is the ability to offer unparalleled medical care at an achievable value.

Car sharing subscriptions
No list of physical product subscriptions would be complete without mobility. Companies like DriveNow or Miles offer subscriptions that allow individuals to access a fleet of shared vehicles on a pay-as-you-go basis or as flat daily fees. This can be a cost-effective alternative to owning a personal vehicle, particularly for those who only need a car occasionally.

Benefits of physical product subscriptions for providers

One of the biggest hurdles with adopting a subscription model stems directly from convincing customers ownership is less valuable than access. The truth is, in many cases, both customers and businesses gain from physical subscription offerings over the traditional way of just purchasing something outright. While owning a product in the past granted many benefits, like increased customer autonomy, the new approach focuses on maintaining the relationship between buyer and seller. Obviously, this approach can be abused, like manufacturers making machinery difficult to repair without specialized technology or tools which are owned by the business, but when handled with a customer-centric approach, it can drive very fair value.

With physical product subscriptions, businesses can focus on building consumer loyalty through valuable solutions and providing themselves with a predictable source of income. Plus, offering alternative pricing models can offer a competitive edge over your competition.

Physical subscription products also usually offer additional benefits like insurance or specialized support bundled into the order. Additionally, there is usage data readily available from digital products, like medical devices or industrial machinery. With the extended scope of the contractual relationship, communicating usage and IoT data can be an accepted part of the business transaction. Businesses like Heidelberg Printing or Karl Storz realized utilizing usage data to create a totally new usage-based business model is a way to further differentiate their physical product offerings.

Challenges of physical product subscriptions

The most obvious hurdle for a physical product subscription is adoption. Why should a customer pay a recurring fee rather than a one-time fee and own the product? This approach demands giving up a high degree of agency for a new, often poorly understood, set of benefits. Additionally, it’s possible that subscriptions actually provide worse value than purchasing outright.

A customer-centric approach is essential for it to work. On top of this, there are market differences. Certain cultures dislike extensive business/customer relationships and prefer to ensure their own autonomy. In addition, in certain countries, credit is not as accepted as a form of transaction as in the US or the UK, for example. Access rather than ownership is in many cases a very hard sell. The product also very much makes a difference.

To overcome the adoption challenge, this is where innovation and thoughtfulness in terms of what a subscription or a pay-per-use model takes precedence. Building an innovative digital business model is not just about offering a high-tech product, but solving a problem. A secondary problem to adoption is that the subscription offering truly must fill a need.

Summary of physical product subscriptions

The summary of physical product subscription challenges is simple: there are adoption hurdles that can only be overcome through genuine innovation. This innovation must be customer-first. It is up to the business to determine how and if a new pricing model will drive enough value to overcome those hurdles, and if it really is customer-centric.

For many customers, pricing as a flat-rate subscription isn’t enough, the value isn’t there. In addition to solving a genuine, customer-centric problem, all the aforementioned companies offer some form of pay-per-use and flat fee hybrid to address pricing concerns. The future of payments is probably going to look a lot more like a power bill than a Netflix subscription. At a minimum, some kind of hybrid of both.

Conclusion

All in all, the subscription model for physical products has gained popularity in recent years due to several factors. Once adopted, consumers appreciate the convenience and predictability of subscriptions or the transparency of pay-per-use models. Companies benefit from more consistent and stable monthly recurring revenue and can offer new, valuable solutions with usage data. Recurring payment products combined with usage data also allow companies to build stronger relationships with customers by providing regular, value-added experiences. Overall, the subscription model, or truly better worded as a recurring payment model, benefits both companies and consumers, leading to its widespread adoption in various industries.

If you’re interested in learning more about how subscription or hybrid models can benefit your company, consider getting a free consultation or solutions demo from us at Nitrobox.