How Subscriptions Have Replaced One-Off Purchases
Even if you’re a casual consumer who doesn’t pay attention to trends, you’ll likely notice a bump in your recurring payments. It’s not just Netflix and gym memberships that are getting charged to your credit card monthly. Groceries, health and beauty products, gaming, even wine can be delivered to your door on a schedule you choose. That’s not by accident. Businesses see the value in hooking you to a subscription model.
It wasn’t that long ago that the subscription market was barely a blip. According to Hitwise, subscriptions accounted for $57 million in U.S sales in 2011. By 2016, that number had ballooned to $2.6 billion. That’s growth of more than 100% a year over that period. Its impression on our day to day living continues to be significant.
Popular subscription models
Amazon Subscribe and Save, Dollar Shave Club, Ipsy, Blue Apron and Birchbox are the top five subscription services in the market. Amazon and Dollar Shave Club on their own have more subscribers than the next top ten combined. When categorizing subscriptions into markets, Food and Beauty lead the way, accounting for about 60% of customers in the subscription business. As for what’s trending, Kids and Apparel have the largest year-over-year upswing in online visits.
Who’s subscribing
The subscription demographic is fairly diverse. If you had to create a clone of what a typical subscriber would look like, they’d have the following traits:
- 25-44
- Female (55%) although men are more likely to have more than two subscriptions.
- A household income over 100k
- A college degree
People who are purchasing these subscriptions tend to care about online reviews, prefer to shop online, and would describe themselves as someone who is into the arts.
Why subscriptions?
Convenience
First, it’s important to mention that subscriptions don’t require as significant a change to consumer behaviour as you may think. It’s not like businesses are putting out new products or services that aren’t familiar to consumers. What they’re doing is shifting the way consumers think of purchasing. For instance, food subscription boxes aren’t necessarily introducing new foods, they’re just giving you the option of not going to the grocery store every few days. They’re saying it’s more convenient to pay a weekly or monthly fee and have your groceries delivered. You can substitute food delivery with pretty much any subscription business and the concept still rings true.
Fight for attention
On top of convenience, businesses understand that competition in any market is at an all-time high. The internet has essentially democratized sales, leaving customers with more options than they know what to do with, quite frankly. So once you do capture a consumer’s attention, you need to keep it. Subscriptions are the perfect means of doing that. Businesses are banking on the fact that as long as they continue to offer a high quality of service, you won’t take the effort to cancel and/or find a different subscription. From a customer perspective, it should be easy to try before you buy, or make it easy to cancel subscriptions. But from a business perspective, it’s not in the best interest to simplify cancellation as this may increase churn.
Predictable revenue
The predictability of revenue is another plus for businesses. Convincing consumers to sign up for a subscription means businesses can more accurately predict their revenue. This makes it easier to plan and be nimble with how they operate, knowing with a degree of certainty how much they will be earning month over month.
What does this mean for consumers
Get used to it. Subscriptions aren’t going anywhere. In fact, Stanford grad school alum Tien Tzuo and author of the book Subscribed — Why the Subscription Model Is the Wave of the Future and What to do About It, says, “If you’re not shifting to this business model now, chances are that in a few years you might not have any business left to shift.” The challenge for consumers is knowing that “subscription creep” is a thing and it’s more important now than ever to get into the habit of managing these recurring expenses. Products like Butter can help consumers keep track of subscriptions and where their money is going. We’re in a time right now where it’s possible to travel, eat, be educated and entertained by subscriptions. Those are all things that can happen daily. Without knowing how to properly manage those subscriptions, you can find yourself paying a lot more than you want and without the convenience or value that subscriptions are meant to offer.
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