“In the month of April 2017, subscription company websites had around 37 million visitors. Since then, that number has grown by 800%”
It is difficult to find someone who doesn’t have a subscription service, whether that be a weekly food box, makeup kit, shaving set or even a weekly box of treats for your dog. Name it and it’s quite likely you could find a subscription for it. This shift away from more traditional methods of buying caught our attention and as we looked further into the reasons why people were choosing to subscribe, we found that there’s a lot to be said for the subscription market in behavioural economic theory.
In the month of April 2017, subscription company websites had around 37 million visitors. Since then, that number has grown by 800% . In the same year, 89% of British people were subscribing to at least one service. But why has the world gone mad for subscription services? On the surface, the answer seems to be in the huge variety of services and products now available via subscription. Undoubtedly, this ‘something for everyone’ trope of the subscription economy drives its popularity.
“Subscriptions are designed to bring ease to a busy, consumerist landscape, meaning people don’t have to battle with where to shop, what to buy, how much to spend etc.”
However, there are also many Behaviour Economic theories that may explain why we implicitly and explicitly love subscription models so much. Subscriptions are designed to bring ease to a busy, consumerist landscape, meaning people don’t have to battle with where to shop, what to buy, how much to spend etc. Instead they can get recurring access to what they want.
Recent research conducted by Zuora shows that 71% of adults across 12 countries have subscription services and 70% agree that subscribing to products and services frees people from the baggage which comes with ownership (e.g. upkeep, mess, declining value) . People are willing to pay for this freedom and perhaps even more than they might do for a non-subscription bought product or service. Why this is the case is highly faceted but an important feature of subscriptions to note is that they offer a personalised experience to the subscriber. As reported by McKinsey analysis, people noted the personalised experience as the most important reason for continuing a subscription . That’s not to say that people are blindly subscribing just because a customised service is on offer. People expect a premium experience when they subscribe, with 1 in 4 noting dissatisfaction and value for money as reasons for cancelling.
“Once a person has made the initial decision to subscribe, they are now recurring by default. “
Whilst there are positives and negatives within any market, the subscription economy is impressive because it has revolutionised buying processes. When you are buying something in person or online, you have to make the decision to purchase a product or service each time. There is often a sense of friction when you decide whether to buy something. An inner dialogue may even form as you debate with yourself whether to buy that piece of clothing or not. This reluctance does not exist to the same extent with subscription services. Once a person has made the initial decision to subscribe, they are now recurring by default. Subscription services have flipped the purchasing process on its head, meaning that after the initial sign up, the action has to be taken NOT to do business with a company anymore.
There is also the ‘pain of payment’ (or lack of) to consider when thinking about subscriptions. Author of the bestselling book ‘The Choice Factory’, Richard Shotton notes that paying by cards dulls this pain because it removes the customer from the feeling of spending money. If we apply the thinking behind this to subscription payments, the ‘pain of payment’ is almost non-existent after the initial sign up. Subscriptions are usually set up in the form of a direct debit which means the act of payment is removed. No one is getting their card out every month and actively making the decision to continue subscribing to a service. By distancing the consumer from the tangibility of money, you reduce price sensitivity.
“Subscriptions alleviate the consumer of ‘decision fatigue’. The more choices we make throughout the day, the harder it becomes for our brains and eventually we look for shortcuts.”
Another reason subscriptions are so popular is because they alleviate the consumer of ‘decision fatigue’. The more choices we make throughout the day, the harder it becomes for our brains and eventually we look for shortcuts. We might become reckless or lazy and ultimately give in to our desire to purchase. Social psychologist Roy F. Baumeister studied mental discipline in a series of experiments at Florida State University . These experiments demonstrated that there is a limited store of mental energy for exerting self-control. When people fought off the urge to scoff down M&M’s or freshly baked cookies, they were then less able to resist other temptations. Willpower turned out to be an actual form of mental energy that can be exhausted. Subscriptions remove this fatigue from people’s lives. Even subscription services which appear to give users more autonomy, such as Spotify, are making decisions for their subscribers every day. Apart from playlists the user can make themselves, everything else is curated by algorithms and Spotify employees, with playlists categorised by gender, mood and new music based on previous listening habits.
It is clear that the subscription model of payment has been crafted in such a way to ensure that it is both easy and attractive to consumers. As outlined, many theories of Behaviour Economics can help explain why this is. But what is the future of the subscription economy? Will providers continue to entice consumers and keep them subscribed? Or will consumers once again lean toward more traditional ways of spending and take back some autonomy over their buying? In unprecedented times as these, we will just have to wait and see.
By Izzy Wauchope