Prioritising Access: Leveraging Recurring Payments for Merchant Success

The prevailing sentiment among consumers, especially the younger generation, is that access holds more value than ownership. This shift has turned the traditional sales model on its head, with subscription-based sales processes becoming increasingly popular. Merchants aiming to capitalise on this trend must adapt to the recurring payments paradigm.

Historically, the sales process has been likened to a funnel. At the top, businesses raise awareness of their products. As consumers move through the funnel, they engage with the product, discover its benefits, and finally make a purchase. Post-purchase, businesses hope to retain customers and encourage repeat purchases.

The recurring payments model, however, is better represented by a bowtie. The left side resembles the traditional sales funnel, where businesses attract and engage customers, ultimately converting sales and maintaining relationships. However, unlike the traditional model, the process doesn't end with a purchase. Instead, the centre of the bowtie emphasises ongoing customer experience and commitment.

The major difference in this model is the customer’s journey, represented by the right side of the bowtie. Over time, as customers remain in the recurring payments model, they progress from initial product adoption to brand loyalty and eventually become brand ambassadors.

For merchants, the recurring payments model offers compelling benefits, primarily through revenue reliability due to long-term customer relationships. This model also lowers entry barriers for customers using services like software-as-a-service, enabling businesses to launch without substantial upfront investments in infrastructure or inventory. Additionally, companies can upgrade their products seamlessly post-launch.

However, maintaining a subscription model comes with responsibilities. Businesses must continually improve their offerings and cannot afford to take customers for granted. If they fail to meet customers’ needs, numerous competitors are ready to step in.

There are many entities ready to disintermediate the relationship. Competitors and companies that can manage and track subscriptions for customers, pose significant threats. Merchants must actively nurture consumer relationships to prevent losing customers who might cut back on costs.

Adopting the recurring payments model offers significant advantages, including increased revenue reliability, enhanced consumer choice, and reduced churn. However, finding the right balance in subscription offerings is crucial.

The traditional cable TV model, with its inflexible subscription tiers, pushed consumers towards more efficient streaming services. Streaming services provide greater control over content, highlighting the importance of flexibility in subscription models.

The software-as-a-service subscription model highlights the potential for increased lifetime customer value. Previously, consumers purchased software outright and used it until it became outdated. Now, with a subscription model, customers pay a monthly or annual fee for continuous updates and new features, enhancing the software’s value.

By embracing the recurring payments model, businesses can significantly enhance customer satisfaction, loyalty, and ultimately, their bottom line.