The Subscription Era: is our society becoming a pay per month economy?
Using your search engine of choice, try finding something that you can’t get a subscription for. Toiletries? Yep, easily possible. Subscription gifts for friends and family? Give TreatBox a go. Vegan and gluten-free snacks? GF Snackbox has your back. Clothes for work or everyday? There’s a fair few out there…
Subscriptions are prevalent in every aspect of our lives, providing people with the option to choose to split payments or portion control certain items and deliver the same amount every month to ensure a steady supply.
For consumers, it seems a sensible option to pay a small cost monthly (or quarterly) for things you would buy anyway. You pay for convenience, flexibility and with the expectation, you are getting a better deal for a product you use regularly. There’s also the added bonus of getting products that you can’t always get in shops and the element of discovery.
Certainty in an uncertain economy
With reports on the daily of an economic crisis, industries collapsing and companies going under, could the subscription economy be approaching a boom?
The subscription box market is estimated by McKinsey to have grown by more than 100% every year since 2011. Companies can now guarantee a steady monthly revenue, increase customer loyalty, forecast growth reliably and manage piqued interest better. All positive so far?
So, let’s look into the pressure points from a retailer perspective.
Subscription pressure points
You can have people taking advantage of free trials, resulting in higher than average churn (no, not the butter making method) but the ‘annual percentage rate at which customers stop subscribing to a service’. It’s the people who cancel, or whose credit cards fail, or similar. The lower the churn, the better.
For companies converting to a subscription method, there is a short time of “swallowing the fish”, but for startup subscription services, or existing businesses creating a new product offering, can be incredibly effective. Adobe is a perfect example of this. Initially, you had to pay a large upfront sum for one product and repeat that for every product. They changed to a subscription method, and while there was a temporary fall in revenue, it soon picked up as people began paying per month for access to the full suite of products. All this soon after the 2011 recession. So we will see a similar change this year, or has the subscription economy hit its peak?
Manipulating or marketing?
Businesses may see subscription services as a no-brainer. For consumers, however, there may be downsides hidden behind the apparent affordability of subscription services.
Research in the fields of psychology and behavioural economics has uncovered the way in which consumers perceive products sold in smaller and regular price increments to be a more attractive proposition than paying the full price up-front. In the same way, in which mobile phone contracts pay £30 a month over buying a brand new iPhone every two years, subscription services are able to appeal to consumers by framing their product as more affordable. Seeing a £25 monthly cost listed over a £300 annual cost is more appealing.
Nick Kolenda – a researcher who once taught companies how to manipulate psychology and now teaches consumers how to spot such techniques – says that subscription services exploit fundamental flaws in how the human brain handles numbers.
“Our brains aren’t good at calculating 12 times $25 to get the actual larger value. They see the 25, and that feels subjectively more pleasing.”
For many consumers, the absence of a large upfront cost can incentivise them to subscribe.
Whilst this is an apparent benefit, over time subscription services can be more expensive than purchasing a product or service upfront.
Blast from the past
Subscriptions are not a new trend. They’ve evolved From the 1930s to modern-day, paying monthly for a product that we couldn’t afford upfront, or for a self-care treat, is nothing new.
Remember TV rentals? Shops like Radio Rentals, Rumbelows and more all provided a convenient rental service in return for money. With Radio Rentals being around since the 1930s – yes, really that long ago – we’ve been accustomed to paying monthly for products like TV’s and white goods.
Products & Services
Now we rarely hear of TV rentals; instead, we pay for services like Netflix or its predecessor Love Film. Some of the most popular subscription services include physical goods.
Subscription boxes have been around in their current form since 2004 when “The Sampler” was created as a product discovery box. Now BirchBox, a monthly personal care box, is valued at nearly half a billion dollars and is the sixth biggest subscription service.
We pay per month for services, SaaS (Subscription as a Service) is an ever-popular method. Services like Netflix are a perfect example of this! Netflix started life out as LoveFilm, and now an entire catalogue of TV, films and documentaries lie in our phones. Or Spotify – millions of hours of music, podcasts and audio, all accessible to anyone with an internet connection. SaaS can help to digitalise products that were previously offline or were too costly to offer for free, such as OS Maps. They now offer a £3.99 a month service that gives you all their maps in your hand. (I’m a huge fan, it’s convenient and I’m a huge fan as it means I don’t have to walk around with a massive bit of paper hanging around my neck.)
Marketing ideas for subscription businesses.
SaaS companies have brought in a new era of subscription marketing. No longer can you show physical products, the entire product is digital. How do you sell something that is completely non-tangible? Subscriptions, in general, are different to market, and often balance higher initial investment with customer lifecycle and product longevity.
Free trials are the bread and butter of a SaaS. It’s been adopted into physical subscriptions as well; we’ve all had an advert for a “Just pay P+P and get your first box free today” recently. It gives people a chance to experience the product without paying anything. Much like testers in a shop for perfume, you can try before you buy.
With a service, free trials vary massively, but they need to be quick. Three days to two weeks is normal, greatly reducing the sales cycle. Free trials can vary in length, but businesses tend to opt for short sample periods to entice consumers, with the ultimate goal of converting them to paying customers as soon as possible. Data from McKinsey shows that most people cancel accounts six months after having a free trial. Ideally, within the first day, you want to try and convert them to a sale, and get the payment in ASAP. It’s a risk vs reward situation, the churn could be higher, but converting sooner for a lesser amount can work.
Refer a friend and get £10 off your next order. Forward this email, and we’ll enter you into a draw to win a year’s subscription.
These kinds of incentives are widely used and are the tech generation’s mouth. Providing customers with a reason to refer, especially for an app download, a subscription service and similar is a key way to growing a subscription base.
Using in-app deep linking technologies here is a way to increase conversions massively for SaaS. Blackbox, an immersive mobile game, used deep linking directly to challenges and elements within their game, increasing the referral success rate by 13%. Having the link go straight to the place of referring or to an in-app experience over a signup page is much easier to sell. Signups can then be created through FOMO, hiding elements of the app or service until they join by paying the full amount.
Referrals can also be used opportunistically. Say if a friend wants to get the Costa app, if you refer them, you get 200 points, and they get a welcome bonus as well. It doesn’t have to be anything massive, but providing a good enough incentive to refer people in can help for long term loyalty.
INFLUENCERS & SOCIAL MEDIA
Using influencers can be beneficial, providing a unique deal or benefit to each influencer and then watch the impact roll in. Some startups are using an influencer first approach, such as Blue Apron, a food delivery service based in America. Influencer marketing is a key component of Blue Apron’s marketing strategy and a driving factor of their success in the hyper-competitive food delivery service industry.
It’s a very clever one, and influencer marketing is a huge industry on track to be worth up to $15 billion by 2022, up from as much as $8 billion in 2019, according to Business Insider Intelligence estimates, based on Mediakix data.
Influencers are frequently becoming the popular kid from high school; anyone with upwards of 1k followers can provide influence. Besides someone you know, or have actually met, is more likely to be trusted and generate engagement. In fact, influencers with 1,000 followers generated 85% higher engagement than those having 100,000 followers, and as the number of followers increases, the engagement tends to decrease.
While fear of missing out aka FOMO has always been used in marketing, attaching it to the desire of feelings similar to
- Your friends/competitors have it
- Getting a VIP service over other people
- Saving yourself time and therefore freeing time up to make more money
- Needing it to enhance your life /business
With SaaS, FOMO is generated through user experience. Basic vs Pro. Unlockable features, ad-free access, you know what you can get. Or trial state. You get access to everything, and then after a few days, you get reverted to basic and have to upgrade to get full access.
This can be effective for intricate and detailed apps, as the lack of functionality on the basic version will almost naturally get the person to upgrade. Your target audience is more likely to be capped here, so it’s important to understand and know your funnel, your potential audience and the other spaces in that area.
Product discovery is a key part of subscriptions and SaaS. Being able to consistently provide something new to your user base and keep them engaged is so important. It’s the key to longevity in subscription.
Amazon has their Subscribe and Save, offering 10% off if you buy one product regularly, like loo roll, food cupboard items and more. It’s a great way to be discovered if you have the capabilities to handle the potential increase in orders and the process itself from Subscribe and Save.
There’s plenty of examples of consumer product discovery opportunities with one of the most successful being Birchbox. Created in 2010, it now is the sixth biggest subscription service globally. Acting on product discovery, the brand grew and now supplies a blend of their brand and new products to thousands of subscribers monthly.
Three main takeaways from today:
- Subscriptions might not work for everyone, but you have to go all-in and bite the bullet if you do.
- Know your target audience down to a T before you even consider subscription marketing, and make sure you have the customer retention and product offering people want.
- Invest heavily in your marketing, both acquisition and retention.
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