The Funnel Model And The Subscription Economy

Jörg Ladner, 2020,

This article is not about strategies or tactics for implementing marketing and sales plans. There are many useful publications on these topics. This article is about the why. Why should planners in subscriber economy companies deal with marketing and sales and then read the “useful publications”?

Actually the distribution of tasks is regulated. Marketing attracts interested parties and sales turns interested parties into buyers. In this way, both contribute to achieving the overriding corporate objective: increasing the value of the company.

In the buying economy, market share, turnover and growth are closely linked to the permanent search for new buyers. This is because buyers who have spent their budget lose their importance. They no longer have a budget to make further investments. The focus now turns to the next potential buyer, who has been fed into the sales process by marketing. This is why the classic authors of sales theory describe this process as a funnel at the end of which the buyers fall out. The image of the funnel carries an important metaphor: the process runs like a one-way street in one direction only.

The customer of the subscription economy is a subscriber. A subscriber is different from a buyer.

  • A subscriber pays a periodic fee and saves his budget.
  • A subscriber is only bound to a product for a period of time.
  • A subscriber changes the scope of services booked in order to obtain additional benefits.
  • A subscriber cancels his or her contract to switch to a competitor.
  • A subscriber has a lower brand loyalty.

Companies in the subscriber economy pursue different strategies depending on their level of maturity:

  • Start-ups and companies with a brand new offering focus marketing and sales on lead generation and the acquisition of new subscribers.
  • Established companies increase Customer Life Time Value (CLTV) and Average Revenue per Account (ARPA) and focus on subscriber marketing and maintenance of the subscriber base.

For start-ups and companies with a brand-new offer, the tasks of marketing and sales seem to be similar to those of the buying economy. But when we take a closer look, we see an important difference. The subscriber is a shy deer. From the first subscriber on, the providers have to deal with the risk of loss. And the risk grows with every new subscriber. However, the high costs of subscriber acquisition must be earned. Therefore, a culture of subscriber care must be established in marketing and sales from day one on to keep the churn rate as low as possible.

Companies with a sufficiently large subscriber base use a different strategy. Instead of lead generation, the focus is on subscriber marketing and cross- and upselling. Growth is achieved by improving ARPA and CLTV, accelerated by reducing the churn rate. Dealing with the subscriber becomes the main task.

Let’s go back to the image of the funnel from the beginning. In subscriber economics, the process of attracting subscribers is not a one-way street. Subscribers do not disappear at the end of the street in a parking garage of anonymous users. The subscribers return to the “funnel” in a loop. Subscribers remain targets of marketing and sales until they finally leave. And this is the cumulative reason why planners should pay special attention to marketing and sales in subscriber economics: The “funnel” is no longer a one-way street!

There’s another reason. Marketing is evaluated according to the number of leads generated and sales according to new sales. No one wants to waste their time with existing subscribers with these standards. The evaluation system is opposed to what is necessary. New standards for compensation need to be developed and established.

In two sentences: The classic funnel model is obsolete. A culture of care for existing subscribers must be established.