In 2020, Zuora and Subscribed Institute commissioned The Harris Poll international survey on what consumers most value about subscriptions: The latest “The End of Ownership” report.
And some fascinating findings from the latest Subscription Economy Index™.
We’ll also answer a listener’s question on pricing and offering options, and how they are different under Value Pricing 1.0 and 2.0.
Why do consumers love subscriptions?:
Convenience (42%)
Variety (35%)
Cost Savings (35%)
The benefits aren’t just seen as transactional or incidental. They actually have a cumulative, qualitative effect on building a relationship between brands and consumers.
Other adjectives: Transparency, efficiency, flexible (upgrade, downgrade, pause, etc., as needs change). No more ownership lock-in (depreciation, repairs, recycling, etc.), more variety. Always up-to-date
Jennifer Hyman, co-founder and CEO of Rent the Runway: “The world of fashion rests upon a myth. It does not work unless it convinces you, as the consumer, to buy more and more things that you don’t need. I’m saying the pride of ownership is dead, and the pride of access is the new luxury.” Ed: Is this true in IT? Apple?
There is no other business model that guarantees regular check-ins and active customer participation better than subscription.
Subscription Economy Index™ (SEI)
In 2020: Subscription business grew 11.6%, while product-based companies declined by 1.6%.
In FY2020 Q4: subscription businesses experienced 21% growth versus 3% for S&P 500 companies (a factor of 7 higher growth).
From TSOE Listener Lee Handley
“Have you seen ‘The Last Blockbuster’ “documentary on Netflix?] What a perfect topic to tie into a “Flawed Business Model” discussion. It helped me articulate an insight from your book. If the model is wrong, the business will fail—it’s only a matter of time.”
The Economy in Mind
In the March 13, 2021 Zuora newsletter, Tien Tzuo interviewed Jonathan Levin,
Dean of Stanford Graduate School of Business.
For the S&P 500, intangibles accounted for 17% of total assets in 1975, and 90% last year. For Microsoft, only 1-2% of its market value is accounted for by tangible assets.
This has major implications for national statistics and business cycle analysis. Historically, investments in assets were a leading indicator, but it’s been falling in recent decades.
Perhaps this is why, even with all the government COVID spending, there’s no inflation?
At the risk of discussing monetary policy, just recall the monetary equation:
Money Supply x Velocity (the turnover of a $1) = Gross Domestic Product
Take the money supply as a given, though economist Deirdre McCloskey [Episode #293] thinks it needs to be a global measure, not just one country, because of globalization and the interdependence of supply chains, etc.
What if the economy is bigger than we think. The GDP, as currently measured, was approximately $21.43 trillion in 2019.
We’ve had Mark Skousen on the show [Episode #205], and discussed his GO Index [we also discussed it on Free-Rider Friday #98]. It’s also discussed in Mark’s book, The Structure of Production: New Revised Edition, 2015:
On April 25, 2014, the Bureau of Economic Analysis (BEA) at the U.S. Department of Commerce announced a new data series as part of the U.S. national income accounts, and the BEA began reporting “Gross Output by Industry”
Cato Podcast with Mark Skousen, George Gilder, Steve Forbes
Government now recognizes the critical importance of Gross Output (GO).
GO measures spending throughout the entire production process, not just final output like Gross Domestic Product (GDP)
GO measure total sales volume at all stages of production, includes all business-to-business (B2B) transactions that GDP leaves out
In the third quarter of 2014, GO hit $31.3 trillion, almost twice the size of GDP, which was $17.6 trillion. GDP measures the “use” economy, GO measures the “make economy”
GDP is comprised of consumer spending, government spending, investment, and net exports, with the first two of these being the biggest contributors
GDP overemphasizes consumer and government spending as the driving force behind the economy because it ignores supply-side benefits of saving, business investment, and technological advances.
GDP shows Household spending generates more than two-thirds of total economic output, latest U.S. data on GDP, $17.6 trillion, consumer spending $12 trillion (68%), government spending at $3.2 trillion (18%), Private investment $2.9 trillion (16%), (Net exports at -2 percent.)
The GO statistic, by contrast, shows consumers less than 40 percent ($31.3 trillion), while spending by business is $16.6 trillion, more than 50 percent of economic activity
Consumer spending is largely the effect, not the cause, of prosperity
GO is over $23 trillion in 2014. GO is significantly more sensitive to the business cycle than GDP. In 2008–2009, nominal GDP fell only 2 percent, GO fell by 6 percent and B2B spending collapsed by 10 percent
BEA’s measure of GO does not include all sales at the wholesale and retail level.
Wholesale and retail trade figures are included in GO only as “net” or value added
Skousen believes this is a serious omission, comprising more than $7 trillion dollars in business spending in 2014
We need to include gross wholesale and retail trade figures. They are legitimate B2B transactions that deserve to be counted
Skousen created his own aggregate statistic, Gross Domestic Expenditures (GDE), which includes gross sales at the wholesale and retail level and is therefore significantly larger
GDE in 2014 is over $37.5 trillion, 25 percent higher than GO and 120 percent more than GDP.
Consumer spending actually represents only about 31 percent of the U.S. economy using the GDE statistic
The adoption of Gross Output is the most significant advance in national income accounting since World War II.
GO is a reflection of Say’s law (supply creates demand), a supply-side statistic, while GDP is a symbol of Keynes’s law, a demand-side number
Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts
So what if the GDP side of the monetary equation is a lot higher? There would be a lot more room for government spending without inflation.
Bonus Content is Available As Well
Did you know that each week after our live show, Ron and Ed take to the microphone for a bonus show? Typically, this bonus show is an extension of the live show topic (sometimes even with the same guest) and a few other pieces of news, current events, or things that have caught our attention.
This week was bonus episode 332 - Leaving Cal and Silent Cal
Here are some links we discussed:
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