Flexibility key as consumers adjust growing subscription lists
What this means: Subscriptions are a key way retailers have driven consistent demand and loyalty on e-commerce platforms. They function well for consumers who value convenience and want to set it and forget it, but in the new normal, subscriptions may need to evolve. Consumers are feeling subscription and autopay fatigue across their purchases, particularly with content, fitness and sometimes products, which means the industry can’t be reliant on this behavior as consumers weigh their subscription portfolios.
The subscription archetype has surpassed traditional media content, such as newspapers, magazines and streaming services. Subscriptions are available across retail: for meal kits, pet food, fashion, beauty care, razor brands, coffee of the month clubs and so on.
Diving deeper, the sprawling consumer bundle Amazon Prime is arguably America’s most popular subscription service. Amazon announced that its Subscribe & Save program, which allows customers to schedule deliveries on thousands of everyday essentials, passed on more than $1 billion in savings to subscribers globally in the past year. Amazon Prime also includes a streaming platform, a content producer, a public utility, a direct-to-consumer distribution channel, a loyalty program and possibly in the future phone service.
As consumers juggle more subscription services than ever, the Kearney Consumer Institute (KCI) fielded consumer research to understand how shoppers view their spend on subscriptions. More than half of respondents said they wanted to spend less than $50 a month on subscriptions, despite national data suggesting that — on average and depending on consumers’ definition — they probably spend at least 40% more than what they estimate, according to Market Watch. Streaming, music/video and gaming subscriptions came out as the highest spend categories, but variation was vast among consumers, according to KCI.
The market demand for subscriptions surged during the pandemic as shoppers turned to e-commerce so they could shop safely at home, Chad Lusk managing director in Alvarez & Marsal’s Consumer and Retail Group told Retail Leader Pro. Categories that saw material gains were food, household items, beauty, personal care and pet supplies.
“While subscription demand more broadly started to wane pre-2020, the pandemic created a learned behavior for online delivery to a much larger portion of the population that has benefitted subscription services,” he said.
According to KCI research, more than half (55%) of consumers hold a shopping subscription along with 44% who said they have a pet-related subscription. Half of consumers have some type of food subscription, and 40% have some type of beverage subscription, according to KCI. Trailing behind, 35% of consumers have a book and/or toys subscription.
“Subscriptions provide a very convenient replenishment service,” Lusk said. “Depending on the category, consumers gain the opportunity to get a dependable source of specific products they regularly use, such as food or personal care products, curate different items from their favorite brands, like in apparel, or get surprised and test out products they haven’t tried, in beauty, for instance.”
Inflation’s impact on subscriptions
This year, inflation and fickle consumer confidence have created headwinds for subscriptions with more consumers uncertain about their renewal brands. As a result, brands and retailers must work harder to provide their consumer value, which means more than cost but requires easy billing, excellent customer experience and tangible points of differentiation.
“During more difficult economic times, replenishment services of favorite, repeat products that fit in established routines are likely to prevail over more expensive, curated boxes of discovery items,” Lusk said.
What value consumers gain from a subscription service often depends on how much they would otherwise spend on the items and how much they’re willing to pay for convenience and variety. For instance, many meal kit subscriptions cost more than $10 per serving, putting them on-par or less than takeout and restaurant options, but perhaps more than the equivalent of grocery shopping for those ingredients. However, the value gained is in time and energy needing to plan and execute meals with more variety, Lusk explained.
Moving forward, as consumers reassess their subscription mix and which they will retain, flexibility becomes key.
“If a subscription model is too rigid without the ability to adjust orders, consumers are much more likely to drop the service,” Lusk said. “However, if consumers feel they can adequately skip or adjust individual orders and their overall frequency to their needs and budgets, then consumers are more likely to hold their existing plans.”
In turn, retailers, brands and creators will continue to take advantage of the subscription model to reach more audiences and create sticky customer retention.
“These subscriptions allow companies to benefit from recurring, relatively predictable revenue and deliver meaningful value to the consumer,” Lusk said. “Now some estimates anticipate the subscription economy to grow by greater than 70% per year from 2023 to 2028.”
What’s next: Often, subscriptions are vehicles for promotions to entice consumers to sign up. As the consumer looks towards more value for their money, retailers may be able to use subscriptions to their advantage in sales and promotions in order to preserve pricing and maintain value over time.