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What marketers need to know about the subscription economy

Have you wondered how COVID-19 spiked subscription services?

Consumers shop online
(Image credit: Brooke Cagle/Unsplash)

As the pandemic fueled online shopping, companies with a low or minimal online presence needed to adapt and find ways to capture the e-commerce shopper. Marketers have an important role to play by helping to encourage brand and subscription loyalty during hard financial times.

Some companies tried loyalty programs and others leveraged subscriptions to attract and retain consumers.

“Digital natives have made the subscription market the new normal,” Sanjay Manchanda, chief marketing officer at Chargebee, a subscription management platform, told SmartBrief.

“Most people don’t even realize how many subscription products they’re using each day.  From coffee, watches and cars, to lawn care products, pet insurance and food services, and into business software,” Manchanda explained.

 

How consumers use retail subscription services

Some 62% of US households subscribe to a paid retailer membership program, with 80% subscribing to one program and 20% subscribing to two or more, according to Numerator’s new Retail Membership Tracker.

Numerator’s research shows subscribers to multiple retail membership programs are more likely to be from the following categories: millennial and Generation Z, Black and Hispanic, affluent suburban households and larger households.

Multi-program subscribers also tend to be impulse shoppers, support brands based on their values and place online orders weekly to save money.

Amazon Prime is by far the most popular retailer membership program, followed by Walmart+, DoorDash and DoorPass, Uber Eats Pass and Instacart Express.

Separate research by eMarketer also looks at how Amazon, Best Buy and Walmart are spurring growth via subscription programs, with Amazon making $31.77 in 2021 from subscription revenue, a 15% year-over-year increase.

EMarketer also found subscription programs tend to see spikes during holiday periods and a slight drop-off afterwards.

 

How will inflation affect the popularity of subscription services?

More people gravitated toward subscription programs during the pandemic as their shopping needs turned digital but will this continue as in-person shopping returns. And perhaps inflation and rising prices will affect household budgets?

The number of retail subscriptions held by the average subscriber fell to four in March this year from five in October 2021, according to research by PYMNTS and sticky.io. The top reason cited by 65% for canceling a subscription was to reduce household expenses, and 55% also said it was the most important reason.

Subscription fatigue has been much talked about, particularly in reference to entertainment subscription programs following Netflix’s first fall in subscriber numbers in a decade.

Manchanda described the hype around subscription fatigue as “overblown.”

“New businesses are building themselves entirely around subscriptions and traditional businesses are adopting subscription offerings at a stunning rate, and that is actually a key reason behind Netflix’s subscriber loss. There is simply an increase in competition and consumers are choosing to go with Disney+ or Hulu or Paramount+ over Netflix,” Manchanda said.

 

Our take

The cost-of-living squeeze will undoubtedly affect subscription programs, as it will affect other consumer spending. But there are strategies marketers can employ to encourage brand and subscription loyalty during hard financial times. One way is by demonstrating empathy.

For example, Walmart is acknowledging consumers might need help at the gas station by doubling the fuel discounts available via its Walmart+ membership. This tactic also has been adopted by Krispy Kreme, Sam’s Club and  BJ’s Wholesale.

Brands can also take an innovative approach to subscriptions by implementing “Pay Per Unit” plans, which have seen a 30% increase among startup merchants, according to Chargebee.

“People traditionally think about subscriptions as pay-per-month or pay-per-year,” Manchanda said, but pay-per-unit programs “track usage and charge customers a fair price based on how much of the service they’re using.”

This approach “offers a better customer experience, especially for low and mid-volume level customers who won’t pay exorbitant costs and will get the most out of their investment,” Manchada said, adding, it also enables marketers to show “a commitment to customer value which builds trust and loyalty.”

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