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What is the Future of Subscription Services?

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Post April 1, 2019 by Sydney McMurter
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What is the Future of Subscription Services?

As digital technology enables new opportunities for automation across various industries, it makes sense that subscription services have evolved and gained popularity in recent years. These services, such as Netflix and Birchbox, are essentially automated shopping – improving efficiencies in the lives of their customers while generating recurring payments and building strong brand relationships.

According to a 2018 US study by McKinsey, the subscription e-commerce market has grown by more than 100 percent a year over the past five years and includes a wide range of categories, including beauty, meal kits, and apparel. Many retailers have taken notice of this trend and built their own subscription services or acquired an existing one, and Amazon continues to dominate with Amazon Prime and Subscribe & Save.

These business models often achieve success by doing work for customers like filtering, finding, discovering, and delivering products. While customers in the past may have disliked these tasks, help with shopping (such as a personal shopper) was not available to the average person. Nowadays, digital capabilities provide more affordable conveniences as well as more product options. For example, if a shopper can’t find a product locally, they can often easily order it online from another region or even another country. Information is more accessible too – if they are unsure about the product quality and price in their city’s retail store, they can read multiple reviews and details online and compare between different stores and online retailers.

Connecting to Modern Customer Needs

While access to more products and information seems positive at first, it can also contribute to an exhausting and overwhelming shopping experience. Some people just don’t have the time or energy to participate in this digital/physical landscape of seemingly endless options. Subscriptions, memberships, and season passes can help reduce the anxiety of decision-making. Customers make a decision once and do not have to make it again unless they are unhappy with the service and want to cancel.

They also offer value, exclusive benefits, curation, and convenience. Value subscriptions cater to customers’ rational side – if it is cheaper to have a subscription than to make “pay-as-you go” individual purchases, then why not subscribe (especially if there is a free trial)? The challenge with this rational approach is that it doesn’t build strong loyalty. Free trial hopping (where customers never intend to become paying subscribers) is a concern for businesses, but the free trial strategy can also get customers hooked on a service.

Subscription services that offer exclusive benefits, curation, and convenience will have a more emotional appeal. Exclusive benefits will give customers a sense of belonging and offer access to something they can’t get elsewhere, while curation provides customers with decision-making relief and product discovery. Sometimes more isn’t better – and personalized, relevant options specific to each customer’s needs and preferences remove the process of filtering and evaluating while shopping. Convenience is always valued – and anything that makes customers’ lives easier will attract subscribers.

The Future of Subscription Services

Whether the service is media or product boxes, as long as people want to outsource certain aspects of the shopping process to someone else, there will be a demand for subscriptions.

A key challenge will be to deliver value and delight customers in an increasingly competitive market battling each other on personalization, cost, delivery times, and special edition/exclusive products. As more brands use the subscription strategy and customer expectations continue to rise, it will be more difficult to keep up and maintain a point of difference. If the service starts to become unnecessary, too expensive for what it offers, or boring – thoughts of cancelling or switching providers will creep in – so it is important to keep improving in order to maintain loyalty and stay ahead of competitors. Integrating a service with a customer’s lifestyle and identity will develop loyalty and a long-term brand relationship.

It is also possible that this trend may fade. A threat to the business model is a rebellion against the rigidity of subscriptions. There may be a point where a customer feels like they have too many subscriptions or that they are locked-in with one provider. For example, if a consumer has one brand that provides their groceries, one that provides their music, and one that gives them their clothing, will they crave more variety and free will again? Will we reach a point when we want to take back the decision-making power rather than relying on an algorithm to tell us what we want?

A hybrid future with both the convenience of subscriptions and the freedom of individual purchases is the most likely, since each model caters to different needs. Nevertheless, it is an important trend to follow and consider the reason behind its success – that it addresses pain points and unmet needs in the shopper journey and offers a solution.

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