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- Deep Dive: share-of-wallet conflict in the Subscription Economy - 28. May 2019
In the “Deep Dive” format, experts from the Mediaplus Group immerse themselves in the world of marketing trends and provide in-depth insights into current challenges: how can new trends be categorized socially and economically, and how can problems be addressed with an interdisciplinary approach? Magnus Gebauer, Senior Consultant at Mediaplus, sheds light on this with his contribution to the “share-of-wallet conflict in the subscription economy”.
“Do you really need a cow in order to get the milk?” A simple and logical question posed by Zuora founder Tien Tzuo. Zuora is the world’s leading infrastructure provider of the Subscription Economy. If you believe what Mr. Tzuo says, in a few years’ time there will be no reason to own even one single product. A daring thesis that is well worth a closer look.
The Subscription Economy is a cross-industry phenomenon. Hello Fresh and the Dollar Shave Club represent a multitude of services that are set to turn established markets upside down. Even the more conservative car manufacturers are discovering digital subscription for themselves. Mercedes-Benz is testing its own vehicle subscription with “Mercedes me Flexperience.” Word has spread that this business model pays off. Zuora talks about growth rates of over 300 percent in the last seven years.
New players, new fortune
Even in the world of media and entertainment, there’s no stopping paid subscription offers. Excessive CD and DVD shelves are a thing of the past thanks to Netflix, Spotify and co. Disney +, Apple TV + and newly announced platforms such as Quibi will reinforce this development, and at the same time they are changing the way the entire moving-image market evolves. But why are these digital subscriptions so in demand?
Subscription Economy stands for maximum customer focus. For the consumers of today it’s no longer just about owning a product or using a service. They demand solutions that they can adapt to their needs in a flexible and individual way. There are four major triggers for using paid media subscriptions:
- Greater flexibility through the possibility of on-demand usage
- Access to high quality and often exclusive content
- (Partial) Advertising freedom
- Curated/personalized content
Paid Media Subscriptions are a convenient on-off relationship – with 30 days notice.
The share-of-wallet conflict
Netflix and Amazon Prime Video are not only competing with each other – in the fight for part of the available entertainment budget, video-on-demand (VoD) services are also facing subscription offerings from the audio sector as well as digital journalism. Add to that the new subscription offers of the booming gaming industry and countless new players, such as the digital magazine app Readly. More and more services are fighting for users, but there is a cost for paid media subscriptions. The question quickly arises about how many subscriptions a user is willing to sign up for. An internal survey among colleagues at the House of Communication at Serviceplan has shown that two to three different services are used – at a cost of 25 to 35 euros per month. Not a small amount but not nearly enough to be fully sustained by subscription services. The share-of-wallet conflict over the available budget is obvious. In addition, it is clear that there is not one subscriber prototype; from the binge-watcher to the news aficionado to the gaming nerd, everyone uses subscriptions differently.
Is it possible to buy an ad-free life?
Theoretically, one could buy an almost ad-free life through subscription media. Theoretically! In practice, this is simply too expensive for the average user. Added to that, paid media subscriptions do not cover all content by far. The services expand the media portfolio and reduce usage time from other offerings, but don’t completely substitute them. Subscription customers continue to use other media offers that can be advertised. But the fact is that the advertising space, especially for heavy users, is visibly smaller.
Flat rate solutions are not in sight
What the impact will be for the individual media channels can’t be solved with a flat rate. There are far too many differences in the market conditions for the video, audio and digital journalism categories.
Pay-VoD deducts usage time from linear TV, as there are very similar usage motivations here. However, Pay-VoD users can still be reached via ad-supported video channels and will have ad-funded offers in their media portfolio. Music streaming takes less usage time from classic radio than Pay-VoD on linear TV. Above all, music streaming replaces physical sound carriers. Also, music streaming is not ad-free per se. Spotify and Deezer, in addition to the payable accounts, also have advertising, free variants in their portfolio. And what is the reaction of the publishers? Many have adapted their strategies and introduced paid-content models in recent years. In terms of advertising, however, for digital journalism there is no erosion as paywalls do not mean “ad-free”. To be ad-free, users tend to rely on an ad blocker instead of paying for content.
What significance does that have for media strategy?
Through the Subscription Economy, more and more channels are losing valuable ad space. A fact that can’t be ignored, but it’s no reason to throw in the towel. Even if the initial situation becomes more difficult for advertisers, solutions exist.
Advertise in less erosive channels on a more continuous basis
Marketers were used to the fact that moving image and audio media give them almost infinitely scalable reach in a short time. But it is precisely these media that are subject to the strongest erosion phenomena. By contrast, journalistic offers, social media and out-of-home continue to offer attractive advertising space and will therefore grow in the media mix. For those who don’t shy away from the effort, they are also able to penetrate into media that move away from the classic advertising space: influencer marketing, sponsoring, product placement, native audio or in-house productions offer a variety of possibilities for brand staging – and are a welcome support for content producers. In terms of advertising pressure, it is advisable to be moderate but continuously present. This is how you build up depot effects for the brand – the marathon runner clearly beats the sprinter here.
Increasing complexity: the right planning tool question
It is hardly surprising that media planning will become even more complex in the future. Advertisers will need to expand their media mix to reach the right consumers. A broader media mix makes the use of high-end planning tools inevitable. Here’s how to answer these questions: is the range of a channel already exhausted? Is it worth adding another? What are the contact costs and how good is the advertising impact? AI-based planning tools such as the Mediaplus Brand Investor provide appropriate answers.
Back to the beginning
In the future it will also be possible to reach consumers via advertising. However, more levers will need to be set in motion and finer adjustments made. And what about the cow in your own four walls? She still won’t be needed in order to drink a glass of milk. Subscription guru Tien Tzuo is absolutely right. Unlike him, we don’t consider paid subscriptions to be the centrally dominant business model in the medium term. Rather, they are an additional, if not insignificant distribution channel which applies to grocery shopping as well as media consumption.
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