However, the market is now tending more and more towards individualized products and services that are specifically tailored to customers' needs. In addition to individualization, the development of long-term customer relationships and the maximization of customer lifetime value are of particular interest. The sale of products and services in the subscription model is a suitable way of maximizing customer lifetime value. However, due to the increasing individualization of offers in the industry, the effective management of different subscriptions is becoming increasingly important. Existing systems are reaching their limits here, which is why specialized subscription management systems are being used. These systems are either ready for immediate use or can be tailored to the individual requirements and needs of each company. In the following, we explain what this means in concrete terms.
Subscription models - not always as simple as Netflix
First, let's take a look at a simple subscription model. One of the best-known subscription offers is the Netflix streaming service. Only the customer and service dimensions are considered here. Netflix customers only have the choice between four different tariffs, which differ in terms of video quality, the number of playback devices and the advertising displayed. The service, the streaming of films and series, remains the same for all four tariffs. Netflix's pricing model is a simple "tiered pricing" model. This means that there is tiered pricing, which is the same for all customers. Those who pay more, for example, receive more accounts or higher quality.
The third dimension: Subscription models in the industry
If we now look at subscriptions in the industry, it quickly becomes apparent that they are much more complex than the Netflix model. In addition to the customer and service dimensions, there is a third dimension: a complex and networked machine. The extension of the simple Netflix model to include a networked machine offers many opportunities to tailor subscriptions to the individual customer, but also means a great deal of complexity in the provision and management of the subscription. We would like to explain the challenges using the example of a packaging machine.
Subscriptions in plant and mechanical engineering: Differentiated offers are crucial for maximum customer satisfaction and acceptance.
In our example, there are two different service offers for machines that are used for packaging in the medical industry. These offers are based on the individual use of the machine by the customer.
Example 1: The machine is used by customer 1 for packaging high-priced medicines. This means that the high quality of the end products and low machine downtime are particularly important for customer 1.
Example 2: Customer 2 uses the same machine for packaging very low-priced medicines. For customer 2, it is more important to have high throughput figures. Due to the lower product price, downtime or product rejects would not be as serious as for customer 1.
Due to the different priorities of the respective customers and the associated different use of the machine, it is possible to offer individual price models. For customer 1, for example, a price model with higher unit costs, including high quality control of the packaged products and 24/7 support would be conceivable. Customer 2, on the other hand, requires neither strict quality control nor 24/7 support. It would therefore make more sense for him to offer a price model with a lower number of unit costs and without included special services such as a quality check or 24/7 support.
This example clearly shows that there are significantly more complexities in the introduction of subscriptions in the industry than with Netflix. In both of the options considered for monetizing the packaging machine, value-based pricing takes place, which helps to build long-term customer loyalty. The added value that companies measure for themselves is crucial for customized subscriptions. This value can vary greatly, particularly in the case of complex machines that are highly configurable to the customer's needs.
Strategies for selecting a subscription management system
Advanced monetization solutions are required to implement such individual subscriptions and pricing strategies on the IT side. These must be able to handle the complexity of networked services while ensuring the flexibility and adaptability to respond to individual customer needs and market changes. The "best-of-suite" approach strives to provide a comprehensive solution that combines a variety of functions and brings together different processes on a single platform. Although these integrated systems can directly fulfill many of the general requirements, they still reach their limits. In practice, this often means that users of such systems have to accept compromises, as often not all of their specific needs are covered. The idea of an ideal solution that meets all requirements seamlessly therefore usually proves to be wishful thinking and is almost impossible to implement in reality.
Best-of-suite vs. best-of-breed
In contrast to the "best-of-suite" approach, the "best-of-breed" approach focuses on putting together the optimal software solution from different providers for each specific requirement and each individual use case. This approach is particularly useful in the industrial sector for subscription models because, as shown in the example above, complex machines are often integrated into the order-to-cash process. The result is a monetization ecosystem that offers the Composable commerce-approach and brings with it both specific advantages and challenges.
Which of the two approaches is the right one must be considered individually for each company. The following comparison summarizes the main advantages and disadvantages of each approach.
| Best of Suite | Best of Breed |
|---|---|
| + Simple integration and management | + Flexibility in system selection and integration
|
| + Simple license management | + High functional scope and high coverage of customer and business-specific requirements |
| + Easier maintenance and operation | + High effectiveness and efficiency
|
| - System-internal processes not transparent (black box) | - High level of integration and interface management |
| - High dependency on the product provider | - Risk of inconsistencies and incompatibilities occurring |
Our assessment
In a dynamic market characterized by increasing competition, companies cannot afford to compromise. The "best-of-breed" approach, in which specialized solutions are combined in a targeted manner, creates a flexible and agile monetization ecosystem that is crucial for competitiveness.
Such flexibility and customer focus is crucial in order to stand out from the competition and ensure sustainable success. The best-of-breed approach enables companies to react quickly to changes and continuously optimize their services. This strategy is therefore not just an option, but a necessity for companies that want to survive in today's dynamic business world.
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Related links & articles:
- Subscription Management at doubleSlash
- Monetizing networking (Trend Dossier 2024)
- The subscription as a business model
