Why China’s internet companies are hot for subscriptions

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The following is an adapted translation from an article by “Zhouyixiao,” published on Sina Tech.

Have you had this experience recently? Whatever app you open, you’re presented with a “membership experience.” Whether it’s video, music, social, media, or even an ecommerce company, it seems like China’s internet companies have all started selling services with membership.

Just a few years ago, Chinese consumer acceptance of subscriptions was relatively low. That was partially because many consumers were accustomed to the pay-as-you-go model, and also because they were used to free internet services and didn’t want to pay. Additionally, offline retail membership programs had become utterly chaotic, to the point that consumers simply lacked trust in membership-based systems. Everyone had heard stories about beauty parlors, gyms, and the like selling long-term memberships and then closing shop overnight, running away with the membership fees.

But now membership systems are back on the rise. One of the earliest was QQ’s, which was followed by membership programs from video services Youku, Tencent, and iQiyi, then ecommerce platforms like Taobao and JD.

Why? As internet traffic has become more expensive, the cost of attracting new customers has risen swiftly. Extracting more value from an old customer is often much, much cheaper than signing up a new customer, and that’s one reason for the membership model’s rise.

Best biz model

Essentially, subscriptions allow businesses to establish long-term relationships with their customers, allowing them to better understand customer needs, which then allows them to invest in better-targeted customer services. When executed well, the program increases customer stickiness and loyalty while also prompting them to use the service more and spend more.

Hulu CTO Eric Feng has said that the best business model seeks out loyal customers. The rise of membership programs seems very in keeping with that philosophy.

For some in China, like self-made media personality Luo Zhenyu, membership programs are also a way of finding financial independence outside of the traditional system. As Luo put it: “Your members are your greatest supporters, the people you can count on no matter what.” And many of Luo’s supporters, who initially helped support his show by buying products, are now paying members enjoying special privileges in his app. It’s fair to say that the membership system has played a critical role in the successful rise of internet celebrities like Luo.

Overseas inspiration

China’s pivot towards the membership model has also been inspired by some high profile Western examples. Chief among them is Costco, the American membership-based chain stores that trendy Chinese internet and tech companies like Xiaomi and Pinduoduo have hailed as a model.

Costco sells goods with incredibly low margins – one to 14 percent, reportedly – and that’s possible because the company isn’t interested in making money via sales. It makes its money via memberships, which are required to shop at the store, and which cost between US$55 to US$110 each year, with a retention rate of 90 percent of members year-on-year.

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Netflix is another popular model, and both Netflix and Costco demonstrate another advantage of the membership system done right: users feel like they’re saving money (even if in many cases, they actually aren’t), and they feel like they’re a part of something.

The future

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