As connected devices and a secure, accessible cloud proliferate around the world, the companies who embrace this new reality are doing just fine! The key reason? Digitalization is driving subscription business models based on recurring revenue. And subscription businesses are growing much faster than traditional businesses. According to the Subscription Economy Index (SEI), subscription companies are growing five to nine times faster than the S&P 500.
3 Best Practices from Fender for Traditional Companies Seeking New Recurring Revenue Streams
But the transition to services can be a real challenge for traditional product companies.
The successful launch of Fender Play has shown that you can indeed teach an old product rocker new service-based licks.
Founded in 1946, Fender is the world’s largest maker of electric guitars. They also produce bass guitars, amplifiers, and other associated audio products. Fender estimates that 90% of musicians that play on a stage use Fender gear. Despite the ubiquity of their products, Fender saw room for improvement in their business model. Internal market research showed that 90% of new guitar players quit within the first three to six months, sometimes within 30 days. On the other hand, if a player sticks with it for at least a year, they are likely to become a guitarist—and a loyal customer—for life. To tackle this challenge, Fender launched a subscription learning app called Fender Play. The app, which includes more than 3000 online video lessons, takes people on the journey from complete beginner to basic proficiency and beyond. The results have been face-melting. Within 3 years, Fender Play had more than 200,000 paying subscribers, with a 95% retention rate. On average, Fender Play subscribers spent 40% more on Fender products than non-subscribers. The strategy also helped Fender thrive during the COVID-19 pandemic. By offering more free trial subscriptions to people around the world sheltering in place, Fender has increased its subscriber base to over 1 million. For other traditional product companies looking to make the transition to digital subscriptions and recurring revenue, the Fender story points to three valuable best practices.
#1 Practicing experimentation makes perfect
When trying new service offerings, it’s OK to admit that you don’t know what you don’t know. Experimentation leads to deeper knowledge about what customers want and how much they will pay for it. Fender has experimented relentlessly with everything from app design to how lesson videos are shot. “You find holes by falling into them,” explains Ethan Kaplan, GM Fender Digital. “And then you fill them and you never do that again.” From a business perspective, the most important area for experimentation may be with pricing and packaging. Fender is constantly tinkering with offer, winback, and retention pricing. This can be difficult on multiple platforms, so it is generally easier to run subscriptions on a single, flexible system. “The flexibility within the infrastructure to adjust trial durations and pricing things really helped us nurture the player base throughout the customer lifecycle,” says Kaplan.
“The flexibility within the infrastructure to adjust trial durations and pricing things really helped us nurture the player base throughout the customer lifecycle.”
#2 Stay in tune with the customer
The experience of playing a musical instrument can vary widely from person to person. To understand their customers, Fender needed to understand as many of those individual perspectives as possible. Because Fender Play is a digital platform, it gave the company the opportunity to interact with a huge range of customers through the Fender Play community. “We constantly talk to over 52,000 users in our community, often through surveys and focus groups,” says Kaplan. “Raw data is important, but you also need to understand the qualitative human element of the customer experience.” When the world went into lockdown as the COVID-19 pandemic hit, Fender knew their customers were going to have increased demand for the Fender Play service. In response, they launched an expanded free trial program that quickly signed up over a million new subscribers. “It’s been so successful that it caught us kind of off guard,” admits Kaplan.
“Raw data is important, but you also need to understand the qualitative human element of the customer experience.”
#3 Listen to the analytics
Going digital generates a large amount of data, but success depends on being able to interpret it. Fender has become quite sophisticated in using analytics to understand how people learn the guitar. For example, pure retention is important, but so are harder-to-quantify metrics like engagement. “Learning guitar is a very individualized thing,” says Kaplan. “For example, how often people use the product doesn’t necessarily correlate to how long they use the product, because people learn in very different ways. Sometimes data that you think is correlated isn’t, because people are messy, and people are complicated.” Analyzing data in real time has helped Fender understand the ebbs and flows of user volume, trial starts, and usage patterns. But they also have to adapt when new data disrupts established paradigms. For example, during the COVID-19 lockdowns the number of people using skyrocketed, and the times of day when people used the app also changed.
As Fender has learned first hand, subscription services create a more direct relationship with customers.
For traditional product companies, that means a renewed focus on the human element of the business. After all, what’s good for people is good for business.
Author:
Fritz Cambier-Unruh, Staff Writer, subscribed.com
Photos:
Seth Reese