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How Subscription Companies May Navigate Economic Uncertainty

1 min read · 525 views Bong-Geun Choi Oct 31, 2022

Economic strains on consumers are putting pressure on nonessential expenditures. Is the news all bad?  What may help subscription-based consumer companies navigate this challenging environment? 

 

Payments and commerce consulting group PYMNTS published their September 2022 Subscription Conversion Index commentary summarizing the current state of the consumer economy and strategies subscription companies may employ to navigate this environment.[1]

 

Consumers Are Anxious About Economic Conditions

Consumers are anxious about current economic conditions, especially inflation. 85% of consumers are concerned about inflation, with 58% believing that the cost of living will be higher next year.

 

Consumers, on average, are paying between $101 and $500 more per month on groceries and $101 to $250 more per month on gasoline.

 

Cutting Nonessential Spending

As a result of economic concerns, consumers are changing their spending habits. 11% of consumers have eliminated all nonessential purchases.  76% of consumers have changed the way they buy groceries, with 43% only buying the essentials.

 

Subscriptions Are Not Immune from Inflation’s Effects

Consumers are paying more for their subscriptions and indicate that price is a major driver in the decision to either initiate or terminate a subscription.

 

How Subscription Companies May Navigate Economic Uncertainty

In conversations with subscription companies, the report indicated that flexibility is key to navigating economic uncertainty.  Specifically, subscription companies must be flexible with their payment and cancellation policies.

 

Flexibility with Cancellation Policies

Subscription companies need to be flexible with their cancellation policies, recognizing that a consumer’s financial situation can change suddenly. First and foremost, subscription companies need to be completely open about cancellation and payment options.  Then, they need to be flexible with cancellation policies, allowing consumers to pause or cancel subscriptions as their financial situation changes. 

 

Flexibility with Payment Policies

Subscription companies need to offer more flexibility with payment options.[2]  This includes allowing customers to pay using their preferred payment method, e.g., digital wallets, credit, or debit cards.  It also means allowing them some flexibility to set up a payment schedule, even the flexibility to decide what day of the month to make their payments.

 

Still More Companies Entering the Subscription Economy

Despite challenges, more companies are recognizing the potential benefits of subscription-based models and are offering new products.

 

The NFL unveiled a $5 per month product that gives subscribers live game access on their mobile devices and additional on-demand content.  This is in addition to their NFL+ and NFL+ Premium packages. 

 

Tripadvisor, USA Today, and The Weather Channel are bundling their offerings into a subscription-based product.

 

Car manufacturers are increasing their subscription-based options with BMW offering an $18 per month heated seats subscription, Toyota offering a remote start service, and GM aiming for $25 billion in revenue annually from subscription-based software and services by 2030.


 


[1] Unless otherwise noted, all data sourced from: Economic Strains Put Nonessential Subscriptions Under Fire: Subscription Commerce Tracker Series, PYMNTS, September 2022

[2] Please see our blog Are Payments the Key to Subscription Success?


 

Bong-Geun Choi

Chief Economist

bchoi@fountinvestment.com

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