Why CMOs need to subscribe to a new marketing economy
- 08 July, 2013 12:56
The economic shift from transaction-based purchasing to subscription models has huge implications on how marketers interact with their customers, as well as perform their role as business leaders, Zuora’s CMO claims.
Zuora provides financing solutions for organisations that sell their products and services using a subscription-based billing model. The company was established by CEO and former Salesforce marketing chief, Tien Tzuo, with several former employees of PayPal and WebEx in 2007 and already represents more than US$1bn in revenue globally.
According to its chief marketing officer, Brian Bell, the company’s existence was driven by the global shift away from a traditional transaction-based economy to recurring payment models. Its offering extends from billing to subscription commerce and finance capabilities and is applicable to any company shifting from buying to subscribing to services.
Examples include cloud-based B2B companies like Marketo and Zendesk, through to emerging consumer entertainment brands such as Netflix and Spotify. One of the more interesting recent customer examples Bell highlighted is Dollar Shave Club, where consumers can subscribe to a regular razor supply delivered in the mail.
Media and content providers News International and Faifax Media in Australia are also utilising subscription-based digital models to monetise their content assets. In June, United Airlines announced it is moving to a subscription model where consumers can subscribe to special travel services like more leg room. Another Los Angeles-based airline startup, Surf Air, is also offering an all-you-can-fly model to customers who pay a monthly subscription fee.
“What's interesting about this new kind of business we're in is that it also has ramifications from a marketing perspective,” Bell said. “As a company, we have very boldly put forth a vision that the world is moving to a subscription business and economic model. We're out there talking about this transformation, and it's resonating with the market.
“The reason this is such an exciting opportunity as a marketer is because a big part of success is pricing, packaging and managing the customer relationship. That's where the essence of the subscription business model is: That relationship with the customer.”
Bell pointed out businesses in a product economy focus on tracking how many shipments are made, or how many SKUs and physical units were sold. In a subscription economy, it's about how many subscribers you acquire, and the relationships you grew with customers.
“The product economy you price things per unit, whereas in the subscription economy your pricing service plans are pay-as-you-go and very often evolve over time,” he said.
“In the product economy, you also have one-time orders. Someone walks into a store, goes online, they purchase something and that relationship is sort of over at that point in time. When you subscribe to something, you are actually transacting in an ongoing relationship.
“It even changes the financials. In a product-driven business, you're looking historically backwards to see how much was sold in the last quarter or the last year. With subscriptions, you're focusing on a recurring revenue metric. You're saying ‘what's that recurring revenue I have right now, and how do I retain those customers and acquire new customers and increase the dollar that I'm getting from each customer?'
“That’s why the role in marketing in the subscription economy becomes much more important because you have constant access and continue to focus on acquiring the customer, retaining those customers and increasing their dollar value. And one of the most powerful ways to do that is by leveraging the data you get it and using that to change the way you price and package to those customers.”
Learning to transition
Bell joined Zuora as its first CMO 12 months ago after building up his marketing credentials across a range of software and B2B companies. He is no stranger to the subscription concept, having been tasked with transitioning software giant CA Technologies (formerly Computer Associates) from its upfront licensing model to a cloud-based, recurring revenue business.
However unlike CA, which is a mature software brand with a long history and “brand baggage”, Zuora is a start-up that needs to put a stake in the ground about where the industry is going, Bell said.
This means Zuora needs to be highly responsive to things happening in the market. “We're always saying to ourselves, ‘how do we get into the conversation?'” Bell told CMO. Key to this is PR and communications, responding to stories with its own commentary, and hosting live events, he said.
Equally important is the online community. Zuora broadcasts all of its events on the Web, as well as encourages social media interaction. “My own view is that every company is really becoming a media company,” Bell claimed. “If you're in marketing and you're not thinking about how to make your brand a media brand, you're going to miss out.”
Technology innovation is another important contributor and Zuora’s marketing team is constantly experimenting and trying new platforms and tools, as well as A/B testing in email and direct marketing.
“I'm a big believer in trying new things,” Bell said. “We're looking at how we create our own TV channel that customers can come and view on our website with information we stream on a regular basis, and we're looking at how we improve inbound organic demand through search engine optimisation. These new technologies leverage big data, which is something I think is changing the world of marketing.
“A lot of my focus is also still around the thought leadership and evangelism of the subscription economy by bringing more proof points to the conversation through quantitative and qualitative research.”
As the market matures and as business grows, Bell said Zuora expected to cross the “proverbial chasm to mainstream enterprise”, where it is commonplace to look at subscription billing and commerce.
“Evangelism and vision will continue to be important but the brand needs to be much more about best practices and playing an advisory role in how more mainstream enterprises can move to this new world,” he said. “We’re looking to not just be visionary, but actually a trusted advisor.”
The innovative CMO
As an experienced marketer, Bell agreed the role of the CMO has “absolutely changed”. “It's not just about driving the van; you are truly in the middle of the business. That means really understanding the dynamics of the business and where the opportunities are in the market becomes very, very important,"h e said.
“The second big change is technology. This doesn't mean you need to be a developer per se, but I think any CMO today needs to understand how you leverage technology as a competitive weapon.”
As an advocate for innovation, Bell claimed CMOs that don’t create a culture in marketing where people are encourage to take risk and embrace new technologies and ideas will become obsolete.
“There are always going to be failures, but that’s how you learn to iterate and improve,” Bell claimed. “A lot of the great technologies out there are inexpensive and the cost of failure is relatively low. If you can come up with a new idea or try a new tactic that no one else has quite figured out yet, the upside is tremendous.
“On top of that, you’ve got to be analytical. Not only can you get data on performance today, but you can get real-time data and can add to that almost immediately. That's becoming a core part of the CMO role.”
More CMO interviews
- Searching for value in the digital marketing realm: Marin Software's Matt Ackley
- A new brand of conversation: Deloitte's David Redhill
- The innovative and social CMO: Andy Lark
- Changing the brand one conversation at a time: Vodafone Australia's Kim Clarke
- Becoming a change agent: Dachis Group's Erin Mulligan Nelson