The term “subscription” refers to a revenue model that lets customers access products and services for a fixed monthly fee.

In this article, we explain the structure of subscriptions and their pros and cons, drawing from real-world examples of Japanese companies employing this method.

What’s in this article?

• What is a subscription?
  
• Examples of subscription–based businesses
  
• Subscription market size
  
• Similar business models
  
• Advantages of subscriptions for companies and business owners
  
• Advantages of subscriptions for users
  
• Disadvantages of subscriptions for companies and business owners
  
• Disadvantages of subscriptions for users
  
• Main payment methods for subscriptions
  
• Improving the efficiency of subscription payment operations
  

What is a subscription?

A subscription is a pricing structure that allows you to enjoy various offerings on a fixed duration for a flat rate. The amount billed is the same regardless of usage or frequency. The more you use, the more you save, providing great benefits to frequent customers.

Now that we’ve covered the definition of a subscription, let’s look at some of the most widely adopted service types. The subscription business model has become increasingly common and is well suited to digital content such as streaming video and music plans. It is now used in numerous fields, including food, cars, furniture, and home appliances.

Examples of subscription–based businesses

Video distribution

Video streaming services, which offer unlimited access to movies, dramas, anime, sports, variety shows, and more, have become increasingly widespread since the pandemic. The main appeal is the ease of watching content anytime on smartphones and tablets. With so many providers already in the market, such as Amazon Prime, Hulu, U-NEXT, and DAZN, competition is fierce.

Online music distribution

Music subscriptions grant unlimited listening to as much music as you want for a set price. Popular options include YouTube Music, Apple Music, Spotify, and Amazon Music. In addition to flat rates and the number of songs available, user-friendly features are also a deciding factor.

E-books

Rakuten Magazine and d Magazine are platforms that let you access a wide range of books and manga for a monthly fee. They enable readers to access content on their smartphone or tablet.

Games

Game subscription services such as Nintendo Switch Online and Xbox Game Pass, which allow gamers to try a wide variety of games for a fixed price, are ideal for this purpose.

Cloud

Cloud subscriptions make it possible for customers to store files and data online, accessible from various devices with an internet connection. This is very convenient for sharing files and data with others and for multiple people working on the same project. Leading examples are Google Workspace, iCloud, and OneDrive.

Lessons

The popularity of the subscription model continues to rise in the world of learning, and it’s now possible to take online classes in various fields. You can choose from an extensive selection of courses, including hobbies such as illustration, knitting, nail art, and programming, to more professional lessons for those who want to develop business skills.

Food and drink

Food or grocery subscriptions—which regularly deliver ingredients such as meat, vegetables, and fish, beverages such as coffee, sweets, and packed lunches—are highly convenient for households busy with work or childcare, as they save the hassle of shopping.

Cars

Car subscriptions permit users to rent a vehicle for a monthly fee, similar to the traditional car leasing model. However, there are differences in the types of vehicles that can be rented, the length of the contract, insurance details, and other factors.

Furniture and appliances

Furniture and appliance subscriptions are highly practical for short-term stays. They also allow customers to try the furniture at home to see if it suits them and then buy it if they like it.

Subscription market size

Projections for the video subscription market

Here is a selection of the subset of video membership data in the subscriptions market. According to GEM Partners Inc., a data and digital marketing services company, the total size of the domestic consumer interest for video on demand (VOD) offerings (the sum of “subscription video on demand [SVOD],” “rental-type video distribution [TVOD],” and “video distribution sales [EST]”) are estimated to be ¥574 billion in 2023—an increase of 8.2% year on year. Japan’s video distribution sector is expected to expand gradually, reaching ¥737.1 billion by 2028.

Similar business models

Several distinct kinds of business models resemble the subscription framework. Learn more about them and how they differ below:

Rentals

The rental revenue structure allows users to borrow and use products without purchasing them. The main difference between a subscription and a rental service is that a subscription is an ongoing plan, while a rental agreement is often for a relatively short period, and they must return the rented item by the due date.

Leasing

Leasing is another fixed-rate plan. Car subscriptions are a particularly popular service that is closely similar to leasing. Unlike subscriptions, leases are generally challenging to cancel mid-contract.

Recurring payments

Recurring payments are another operational framework that is very comparable to subscriptions in that they also provide products and services on a continuous basis. Yet, memberships tend to be differentiated from automated transactions, which are based on a pay-as-you-go system where you only pay for what you use. Recurring payments are easy to understand if you think of them as the offerings and products you use, such as toner and copy paper, that are included in the contract for the copy machine itself, or utilities such as gas, water, and electricity.

Subscriptions and recurring payments are both categorized as stock businesses.

Advantages of subscriptions for companies and business owners

Many companies consider moving to a membership–based model because of its significant advantages. Let’s examine the specific benefits.

Stable income

The primary benefit of subscription plans for business owners is that they can count on ongoing revenue. Sales tend to be volatile with structures that can sell out because external events and seasons heavily influence them. In comparison, these services are easy to predict, allowing entrepreneurs to focus on growth, developing new products, as well as facilitating better inventory management and employee retention.

User data can be stored

Understanding what customers want can help businesses expand. The subscription model enables organizations to collect user data over time and analyze trends. They can improve retention by enhancing customer satisfaction and identifying and developing popular products.

Demand and market trends

The subscription market in Japan is becoming ever more diverse, and this trend will likely continue. A growing number of companies are considering introducing a new enrollment–based business model, and competition is expected to intensify. They need a differentiation strategy, such as flexible pricing and enhanced service quality.

Advantages of subscriptions for users

Understanding the benefits to users is key to implementing a subscription–based model. This allows companies to increase customer satisfaction and encourage continued use. They need to have a clear understanding of the basics.

Strong cost performance

One key benefit of a membership service is that it keeps costs down. With video streaming, for example, subscribers can watch as many videos as they want under a flat-rate plan. If first-time users are offered a discount, such as a free trial, they can also lower their initial expenses. Value for money plays a central role in the decision to subscribe.

Fixed-rate costs simplify budgeting

Because subscription services are based on a flat rate, customers can anticipate expenses upfront, making it easier to manage household finances.

Simple to register and cancel

With membership plans, it is easy to sign up and start using the service immediately, and is relatively straightforward to cancel. However, users must cancel using the method specified by the provider, so it’s advisable to check the terms and conditions before signing up.

Disadvantages of subscriptions for companies and business owners

Let’s look at the potential downsides of implementing an enrollment service for entrepreneurs. It’s easy to focus on the benefits, but there are also some important points to be aware of to avoid any concerns when implementing a subscription model.

It takes time for profits to stabilize

With a subscription–based enterprise strategy, the number of subscribers is limited at first, and it takes time for revenues to grow. Businesses must focus on acquiring new users and need sufficient funds at the start.

Products and services need to be kept up to date

Even if a platform has many users, they will soon leave if they are dissatisfied with the service. To maintain retention rates, companies need to work to prevent churn by regularly reviewing and improving their products and offerings.

Startup costs

Launching a new membership plan involves several expenses, including product and service development, advertising, and system implementation.

Disadvantages of subscriptions for users

Next, let’s look at the downsides for users. Businesses can reduce churn by understanding what members value in a subscription plan.

Users are charged nonetheless even if they don’t use the service

Enrollment services are based on the premise that they will be used regularly for a fixed fee, so users will continue to be charged unless they cancel. For instance, streaming video services offer a wealth of content for a reasonable monthly rate, so it’s easy to sign up for multiple plans. It’s common for people to sign up for a service but not use it, so it’s a good idea to periodically reevaluate your subscriptions and cancel any you don’t need.

It might include unnecessary services

Given the business model, it’s almost inevitable that subscription services will include products and offerings that a user is not interested in. Still, customers need to assess whether the enrollment fee is appropriate for their needs. To illustrate, if you aren’t provided with many game titles that match your preferences after signing up for a membership, consider buying games outright.

Prices are subject to change without notice

The price users pay when they sign up will not last forever. It’s standard for costs to increase after the trial period, and subscriptions generally go up in price as inflation rises.

Main payment methods for subscriptions

Payment services are key for membership platforms. Here, we present the most prevalent subscription payment methods.

Credit cards

This transaction method is important for subscription–based revenue models. Users register their credit card information in advance, and the proprietor sets up the system to automatically initiate billing when payment is due.

Carrier settlement

Telecommunications companies such as SoftBank, NTT Docomo, and au provide this option. It lets customers pay for subscriptions, online shopping, and other charges in a single monthly payment, along with their mobile phone bills. Since this method enables subscribers to pay later, even without a credit card, carrier settlement is a popular option for students.

User ID payments

This option uses a preregistered user ID and password from an external service such as Amazon Pay, PayPay, Rakuten Payment, and LINE Pay. User ID transactions save customers the hassle of repeatedly entering credit card information and basic information. That said, numerous platforms do not allow user ID payment methods for subscriptions.

Improving the efficiency of subscription payment operations

If you’re a business owner uncertain about which payment service to implement when launching a membership–based enterprise strategy, try Stripe for your global transactions.

Stripe Billing has a dedicated subscription payment feature that adaptively manages recurring billing in a flexible way. For example, you can charge varying amounts for the first and subsequent subscriptions or a monthly and annual rate each year.

Billing makes it straightforward to create subscription fee plans that work for your business model. Experience a smoother, more efficient subscription transaction service.