In this article, the author explores how Amazon became the biggest player in the subscription economy and explains what you can learn from Amazon Prime for your business model. This article is especially helpful for pricers currently working with or seeking to implement a subscription pricing model. Manuel Wätjen is an Associate Director at Accenture and a member of the executive board at Vocatus – part of Accenture. His work focuses on applying behavioral economics to pricing strategy and sales optimization in B2B and B2C. He can be reached at Manuel.Waetjen@vocatus.de.

The Pricing Advisor, January 2024

What do the world’s most successful companies (based on market capitalization and profit: Apple, Microsoft, Amazon, and Alphabet) have in common? Their business model is mainly based on subscriptions or “XaaS” (Anything as a Service). One of the biggest players in the subscription economy is Amazon.

So, what can you learn from Amazon, and which tips can you use to become a successful subscription provider? We have taken a close look at this online giant:

Tip #1: Reduce risk with reviews and branding.

Design your price model to not only reduce the pain points but facilitate purchases.

Many unknown retailers and novel products that are difficult to assess as a customer because they cannot be touched or tested make online shopping a potentially risky venture. Customer reviews on Amazon reduce these risks and have become a unique currency all of their own: trust. Amazon has turned this trust into its very own brand AmazonBasics.

Tip #2: Identify and eliminate potential customers’ barriers to purchase.

Streamline the decision-making process and create new decision touchpoints.

Shipping costs are a key barrier in online shopping. Consolidating shipping costs into an annual fee (justified with additional services, such as music or video streaming) turns many minor pain points into irreversible costs. This makes each order less painful and more reasonable because the more often you order, the more worthwhile the subscription.

Tip #3: Manage decisions with shortcuts and subscriptions.

Identify and address your customers’ purchase barriers.

Despite fast deliveries and a simple user interface, customers tend to forget or postpone ordering everyday products on time. “Buy Now” and virtual dash buttons shorten the decision-making process to a minimum. The ability to subscribe to products eliminates the need for further decisions altogether.

Tip #4: Train price acceptance with regular price increases.

Actively develop your customers’ price acceptance. Price acceptance is not a tank you drain but a muscle you train.

Amazon manages to increase prices regularly because they announce price increases early, give understandable reasons by including more and more prime products, and reward loyalty by offering another year at the previous price if customers do not cancel their subscription.

Subscription-Take-Aways for startups and businesses in B2B and B2C

All in all, subscription models are not a universal solution, and there are a few rules to follow when implementing them. But even if you are not Amazon (yet), it is worth taking a good look at the following potential subscription models for your business.

As a start-up, you are usually more attractive to investors with a subscription-based business model because you offer a sustainable revenue model.

As a mature company, you bind your customers much stronger and thus create up-selling and cross-selling potential.

As a B2C company, you tap into new customer groups and make it easier for customers to use the latest products. Take Apple, for instance: analysts believe the technology company will offer a hardware-as-a-service model soon.

As a B2B company, you balance your interests with those of your customers. See Rolls-Royce’s “Power by the Hour” for example: in 1962, the company already implemented an engine and accessory replacement service on a “fixed-cost-per-flying-hour” basis. As a result, they aligned the interests of the manufacturer and operator, and transformed resilience a shared interest between provider and customer.

As you can see, a subscription model has great potential for many businesses.