How we need to navigate the subscription society
Strategy Leaders
Spending on subscription services jumped more than 50% in lockdown, but is there still more to play for? Hearts & Science CSO Simon Carr looks at the evidence.
There’s a good chance, after years of reluctance, you are now happily paying for a whole range of subscription services. Video and music streaming, audiobooks, fitness apps; we are now much more at ease parting with our cash for things the internet often gave us for free, especially post-lockdown.
Yet subscriptions now extend beyond just digital-only services, and the rise of direct-to-consumer brands in particular has seen an enormous range of physical products join the fray, often with impressive gains.
Indeed, Zoura’s Subscription Economy Index reveals that subscription businesses have grown revenues five-nine times faster than traditional businesses over the past six years, while research from Barclaycard Payments, which processes nearly half of the nation’s credit and debit card transactions, shows that the UK’s reliance on subscription services spiked during the pandemic, leaping 23% year-on-year.
Spending on digital and subscription services also jumped by 39.4% year-on-year, while during lockdown it increased by 50.2% year-on-year.
So for any brands nervously wondering if consumers might be growing fatigued by the number of subscriptions they’re signed up to, the answer – for now at least – is no.
How the market is changing
Yet that does not mean we can move forward without seeking to understand more about these trends, what further room exists for growth, or what implications (and complications) subscription businesses might face. But first, let’s look at how the market has come to embrace this model.
According to Barclaycard, 81% of UK households now pay for at least one subscription service, increasing from 65% in 2020. Those signed up are now paying an average of £620 per year for their services.
The pandemic and its multiple lockdowns have certainly helped facilitate this growth, but so too have advancements in payment technologies, bundle deals, and contract-free models, which help remove hassle and uncertainty.
Furthermore, 40% of people now say they plan to sign up to more services, with nearly half of those who currently pay for at least one subscription service say they are saving as a result (48%).
Factor into this the £180bn pooled into the UK’s national savings between the start of the pandemic and June this year, and we might safely assume there is a sizeable cohort with cash to spend, or at least no reason to review their finances and subscription services yet.
Indeed, analysis from Enders and the Bank of England reveals that 42% of the top 20% of earners have seen their savings increase over the last 18 months.
YouGov has also been tracking the statement “I feel I have too many subscriptions to things (Netflix, Spotify)”, which has seen a small increase from 17% in 2016 to 24% this year – but still the majority (64%) of people disagree with the statement, suggesting there is much left to play for.
Keeping momentum
From a strategist’s point of view, there are some interesting considerations we should take note of for our subscription-based clients.
The first is a slight challenge to common wisdom. Bryon Sharp, for example, argues that growth primarily comes from gaining new users rather than driving increased loyalty, and that the majority of a brand’s users will be light and infrequent.
The rise of the subscription model might challenge such a notion, and when devising our marketing strategies, we should pay attention to how consumers really behave within the subscription model: what drives churn, what drives loyalty, what hinders the path to purchase, what drives consideration, and how susceptible people are to paying for different tiers of subscriptions.
I have witnessed, for example, the opposite of what Sharp holds to be true in some cases, and that will impact everything from pricing strategies, to marketing messages and audience targeting.
Certainly in 2022, there is the potential to target people who wish to fully commit to a subscription brand and spend on a higher tier – and designing the right offer will be a crucial part of that strategy.
However, this might entail a corresponding shift in business metrics. A recent CMO survey from WARC already shows market share and ROI are no longer the top ranked KPIs for measuring marketing effectiveness, having been usurped by penetration and sales, and customer loyalty. So marketers will need to evaluate what metrics they need to prioritise under the subscription model and balance CPA costs with customer lifetime value, for example.
Identifying future growth
There is also scope to experiment with subscription gifting, particularly at a time when the UK is experiencing supply chain issues impacting the delivery of physical products. Gifting should also appeal to the growing number of people who, out of sustainability concerns, are uncomfortable giving or receiving physical products.
It will also be interesting to identify what other messages, services and products subscription heavy users might also be open to. There are many parts of the digital world that are still experimenting with commercial models – online publishing being the obvious example.
However, the wider behavioural shift to embrace subscriptions could signal the market is ripe to swap the content-for-your-data model for something more honest and monetarily transactional, or openly rewarding for consumers. This would be particularly valuable in a post-cookie world.
Here we should start thinking longer-term about the broader shift towards a more privacy conscious Internet, and the sustainability of so-called surveillance capitalism. If consumer and regulatory sentiment turns hard enough against the status quo, then we really could be looking at a future in which many more products and services are charged for.
Although this carries its own risks – our current, largely open Internet is a level playing field, and it would be detrimental to entirely change that – it still seems likely the future could see us transact with more than just personal data, opening up many new opportunities for all sorts of organisations.
Until then, any subscription-based businesses should feel there is much more to play for, and the conditions moving into 2022 appear just right to usher in further growth.
Simon Carr is chief strategy officer at Hearts & Science
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