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GUEST OPINION As iPhone sales stall, what challenges lie ahead for Apple’s newly launched subscription services?

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Apple is looking to bolster revenue in the face of increased competition from Amazon and Microsoft for the title of most valuable business in the world. Greg Harwood, pricing specialist and director at Simon-Kucher & Partners, explains why Apple is expanding its subscription service offers and the challenges it faces.

Apple unveiled its new TV streaming platform, Apple TV+, on Monday as part of a new suite of products, which include plans to launch a credit card, gaming portal and enhanced news app.

Simon-Kucher, a leading firm of pricing strategists says the company will need to differentiate itself from the competition if the strategy is to work.

Apple is already dabbling in the services space with Apple Music subscriptions, iCloud storage and AppleCare warranties, but Apple is now set to double down on services to drive its next phase of growth. The company will need to enact a strategy that will power the next generation of growth by building longer term relationships, generating recurring revenues, and providing various opportunities to cross and upsell to existing Apple customers.

The Apple TV subscription service is set to capitalise on the value of digital content – an integrated Apple video streaming service including TV shows and films being financed by Apple itself. In today’s world, content is king – and the vast drive towards video streaming has been extremely lucrative for established players such as Netflix, Amazon, Disney, Hulu and AT&T – so the potential move for Apple to enter this space is a particularly interesting one.

The move towards TV subscription services and creating original content is one that certainly requires deep pockets but represents significant potential returns if executed with the customer in mind.

The Apple News subscription service builds on the existing Apple News infrastructure and will offer access to new content from the likes of The Wall Street Journal and Vox, which is kept behind a paywall.

The aggregator news service will offer flexibility, on-demand experience and convenience for an affordable price; that said, the rumoured 50% Apple cut is likely to create some friction for publishers looking to drive their own reader revenue strategies.

Challenges ahead?

Clearly the opportunity for revenue diversification is significant, however, the pivot towards subscription services also presents Apple with a number of challenges that need carefully addressing:

  1. How best to acquire customers on to the services?
  2. How best to monetise customers?
  3. How best to retain customers in the long term?

In principle this sounds simple, but each question comes with trade-offs and mastering the subscription economy is no easy task.

For Apple, acquisition is made easier by the fact that they already have a large and captive audience to target. On the other hand, given the highly competitive landscape and the endless choice of digital content that is available via the subscription mechanism – Apple will need to differentiate itself from the competition and examine what it can offer customers that they cannot already get elsewhere.

Whilst Apple has a captive audience to market to – it will then need to find a way to retain those customers. The beauty of a subscription business is that you now have detailed data on the customer relationship, and it is no longer a transactional relationship, which means, if leveraged correctly, the customer retention strategy is more personalised.

The question of monetisation is a critical one in any consumer facing business – there is only one shot at landing the pricing and therefore it needs to be right from the start; taking a longer- term view and thinking through the price model ahead of time will be critical to ensure customer acceptance of the offering.

Here at Simon-Kucher we believe that the path to subscription excellence is a constant evolution: there is no a subscription business out there that has the perfect answer to each of these questions on day one; the key message being to start simple and go from there.

 

Simon-Kucher & Partners, strategy & marketing consultants: Simon-Kucher & Partners is a global consulting firm specialising in TopLine Power® with a focus on strategy, marketing, pricing, and sales. We help our clients achieve growth and profit targets by applying practical, evidence-based strategies. Simon-Kucher & Partners is regarded as the world’s leading pricing advisor and thought leader. The firm has 1,300 employees in 38 offices worldwide.

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