Years ago it was normal to buy the latest music at a record store, and rent the latest movies and video games from a video store. Consumers had collections of albums, movies, and even video games.

This creative content can now be accessed anywhere, at any time, across any device. Services like Spotify, Netflix, and Xbox Game Pass have transformed these limited and prized collections to a commodity, where anyone can easily access more albums, movies, and video games than could ever fit into a home. For this convenience a monthly fee is paid that’s typically smaller than outright purchasing an album, movie, or video game. 

Subscriptions exist for audiobooks, cosmetics, shoes, groceries, meals, supplements, and many other products and services. The days when a company had a one-time deal with a customer will soon be in the past. 

Offering a subscription extends a more affordable option over the high price of ownership. For example, through the Adobe Creative Cloud, consumers can access the entire suite of Adobe products for a low monthly fee vs. one hefty fee for each piece of software. Even some automotive companies, such as Volvo, are jumping into subscriptions, offering a vehicle for a monthly fee that covers all maintenance and insurance.

Let’s take a look at the current subscription-based economy and what it offers to companies that provide such a service. 

Why Offer a Subscription?

One of the most important reasons that companies offer subscriptions is to connect with their most loyal customers and keep them coming back to purchase. Companies can use the data customers provide to better communicate with them, provide valuable experiences, and keep them from churning. 

Another reason a company may offer a subscription on physical products is to bypass selling their services or goods through a middleman and go directly to the consumer. Examples include Dollar Shave Club, Hello Fresh, Hubble Contacts, or even a subscription box like Birchbox. This can help to generate more revenue for the company and possibly provide a better customer experience as they’re purchasing directly from the company instead of a third party.

A real game-changer in subscriptions may lie in connecting physical devices to digital content or experiences. For example, take the high-end Peloton bike which runs on a monthly subscription for workout classes. This type of subscription service is only the beginning and may continue growing in the very near future across multiple industries. 

From a One-Time to Recurring Purchase

According to a recent survey, 68% of adults today no longer value possessions and do not believe that ownership defines them. Subscriptions have made product ownership obsolete… for the most part.

When making a typical one-time purchase, a customer evaluates the product, buys it, and then decides whether to return or keep it. Yet the mindset of many consumers has shifted from ownership to access. Because of the subscription economy, customers do more than assess their one-time purchases… they continually assess the quality of their subscription — along with their level of satisfaction — every time they use it. 

A subscription-based company must be on the lookout for specific subscriber indicators. For example, indicators such as fewer engagements, watching fewer sessions, or even fewer multi-platform logins, may indicate a dissatisfied subscriber. Using an abandoned cart or repeat purchase strategy will not work to provide subscriber satisfaction. Meticulous segmentation is a must to continually gauge the satisfaction levels of subscribers.

The Subscription Economy Is Exploding

In the last nine years, the subscription economy has grown nearly 6x (more than 435%). In addition, subscription businesses have grown, in many cases, 5-8x faster than traditional businesses. Even during Q4 of 2020, subscription companies grew 7x faster than companies within the S&P 500.

The subscription-based economy has been fueled by rapid adoption among younger generations. Our research shows that 32% of 16-24 year olds in the US have a subscription, where only 7% of those aged 55+ have one.

The lockdowns of 2020 and 2021 not only accelerated the digital transformation of many companies but also brought about the desire and need for consumers to easily access the experiences they desire vs. actually buying the product to have that experience. So, instead of buying a car, they can have the experience free from the burden of ownership through a subscription. 

According to Emarsys’ research, “Emotional factors are central to people’s motivations for signing up [to subscriptions], as 32% of US consumers surveyed admitted they signed up to the subscription because it feels nice to receive something every month.”

At the core of this is convenience and choice… having the ability to quickly access anything, at any time, anywhere. And now that they’ve tasted this kind of experience, they want it in everything from clothing to groceries to transportation and more.

The On-Demand Economy and Subscriptions

Alongside major growth in the subscription economy is the on-demand economy. From 2016 – 2019 in the US, the on-demand economy nearly tripled and is expected to reach $335 billion by 2025. 

As multiple on-demand companies pop up (food delivery, healthcare, transportation, etc) a potential future will be the pairing of subscriptions with on-demand services. One of the best examples is Amazon Prime, where customers pay a subscription to get their products faster. There’s also Lyft and Uber, where both companies offer a subscription that includes reduced fee rides, among several other services.

The hub for many of these subscription services is the mobile device. For many of us, the things we need to use every day exist on our mobile phones. Apple made this claim back in 2009 with their “There’s An App for That” ad. In 2009, the Apple App Store gave customers access to 71,000 apps. By 2020 that app number grew to 3.4 million! Whether hailing an Uber, connecting with others at work through Zoom, or working out with the aid of an app, most of our subscriptions are connected through a mobile app. 

The State of Mobile Apps

In 2020, mobile app downloads increased 33% due to the pandemic and in-app revenues from subscriptions jumped 34%.

Gaming and entertainment apps such as YouTube and Netflix were so popular that consumer usage placed enormous burdens on the internet infrastructures within the US and Europe. 

When gyms closed, many people turned to fitness apps, such as adidas Runtastic (240% year-over-year increase), to stay fit and reach their fitness goals. Meanwhile, health and fitness equipment purchases more than doubled.

What’s great about creating a mobile subscription for your app is that users spend an average of four hours per day on mobile apps, accounting for 90% of their digital minutes on a mobile device. 

Because of this, there’s a great deal of zero- and first-party data you can collect about your subscribers you can use to form long-term connections. 

Your Data Is Priceless

In the US, 93% of consumers surveyed said that marketing communications they received were irrelevant. A recent survey by Infogroup found that 44% of consumers are willing to switch to brands that personalize marketing communications better. 

According to a study in The Harvard Business Review, to maximize customer value, a company must engage with customers on an emotional level. 

An honest and transparent relationship is foundational for any long-term relationship. As a result, customers expect this from you if they’re going to stick around.

By being transparent (specifically by sharing with customers how you’ll use their data to create more meaningful relationships), you can build trust and garner more loyalty. Customers are 56% more likely to remain loyal to a company if it provides complete transparency.

The data customers provide through your app is very valuable and provides you with an understanding of what they desire, their preferences, their experiences, and even when they may possibly churn. Customers who use your app more often allow you to learn more about them, especially if they share their data and preferences.

If your company can connect with customers on an emotional level, by creating meaningful experiences, you’ll have a major competitive advantage and subscribers won’t feel the need to jump to a competitor. You’ll have more opportunities to focus on retaining subscribers to grow and sustain your company instead of just focusing on acquiring new users. Plus, on average it costs businesses 5-25x more to acquire new users vs. retaining existing ones.   

Final Thoughts

With the rise of our increasingly connected world, people are eager to find ways to make their lives easier. Convenience is the desired experience of most consumers. 

They want to be able to view movies, watch TV, and listen to music at their convenience. They want access to transportation on-demand, without having to pay a high up-front cost. And they want their clothing and groceries customized according to their needs and delivered to their homes.

Companies across all industries are using subscriptions to drive new lines of revenue. One-time transactions are quickly becoming something of the past. The ability to connect deeply with customers, by using their first-party data, is the future of creating personalized services for each and every customer. 

The more customers gain a taste of truly personalized repeat services, tailored specifically to them… they won’t want to go back to what they had before.

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