The Subscription Economy: Is "Subscribe for More" Here to Stay?

The phrases, ‘subscribe now’, or ‘sign up for more’, ‘get updates monthly, tailored to your interests’, and many more of these variations have become so inundated in our daily lives and the media that we consume. We don’t question it, nor do we think twice as much about it as we probably did ten to fifteen years ago. The subscription model is found everywhere. Its early onset dates back to P.O Box days, where people used to, and most likely still receive packages in their physical mailbox. Nowadays, we can sign up for virtually anything in the digital sphere such as music, content, and data programmes on various applications.

The advantages seemingly outweigh the disadvantages in terms of longevity, convenience and optimal opportunities it provides to and for us. It does however beg the question on whether subscriptions have become so embedded and naturalised that we overlook it, or whether it really is worth the value ascribed to it.

The question stands, can the subscription model indeed possess the capacity and potential to subsist in this ever-changing digital world we are living in, or whether there is the possibility of newer, revolutionary models coming through to replace them.

Why is the Subscription Model so Appealing?

The subscription business model is the process of selling a product or a service to a consumer, on the provisor that a monthly, or annual fee is paid out, in exchange for a reception of this resource, or experience of this service.

1. Customer Retention

It is, ‘based on the idea of selling a product or service to receive monthly or yearly recurring subscription revenue. They focus on customer retention over customer acquisition’. Instead of increasing customers and in turn, their growth as a business, businesses focus on maintaining loyalty with the customers they already possess, and keeping them consistently satisfied.

In this way, existing customers are roped into renewing their respective packages, ensuring the business stays afloat and thriving, even in the case where new customers are minimal compared to previous rates and experiences.

The first, and probably earliest example of the subscription model can be narrowed down to magazines. It is a product that is continuously ongoing, and resultantly, ensures customers are paying, eager for the next issue’s release. Based on this example, and many other examples in the commerce and cultural fields respectively, many businesses are now switching over to a subscription model, rather than receiving a lump sum in one go.

2. Staying Consistent with Financial Trends

Another reason why the subscription model is so appealing to many business owners is that it allows the business’s longevity and profitability to stay in line with trends and fluctuations in the value of money. It offers businesses, ‘predictable revenue streams and opportunities for ongoing engagement. Knowing you have a stable financial bedrock helps you plan, invest, and grow confidently’.

Businesses therefore know that they will receive income every single month, or year, depending on the nature of the subscription plan. Similar to customer retention, there is a guarantee that they will have multiple debit orders coming through from customers every month.

Furthermore, as per the Subscription Economy Index, the subscription model has grown by 435% between 2011 and 2021’, showing both the stability it provides to business owners, and the appeal it has on consumers who continually and willingly subscribe. The model operates effectively in accordance with inflation rates. Should the value of money decrease, it will be detrimental, but not immensely impactful to the business. However, should the value increase, there is the guarantee that the business is thriving at a higher rate than forecasted, and is maximising as much as possible on profits and return on investment.

3. Subscription Model’s Appeal for Consumers

Whether we as customers are aware of it, or not, subscription services run our lives.

The movies we watch, the music we stream, possibly the groceries we buy, and the manner in which we work most likely operate according to a subscription model.

Think about when you use Teams or Gmail at work. That most likely operates off of a monthly purchase facilitated by your employers. What about Netflix or Spotify after a long day, and you would just like to relax? Two more examples of the subscription model in practice. Consumers are closely attracted to the subscription model because it offers short-term payments: a commitment that appears more manageable and digestible in the short-term, as opposed to a lump sum.

Similar to the idea of buying a car, and paying it off in monthly increments as opposed to paying in cash, customers are more likely and willing to sign up to your specific product or service if the monthly instalments are palatable, manageable, and something they can commit to with such short notice.

4. Flexibility of the Model

Business owners and consumers alike lean towards the convenience of subscription service provision and reception due to its flexibility.

‘Flexibility in subscription plans is essential for retaining customers and fostering loyalty. As more businesses [and customers] seek solutions tailored to their specific needs, offering customisable and adjustable subscription options becomes a significant change’.

By allowing customers to sign up whenever they would like, cancel on a whim, and not incur additional or unnecessary charges, businesses make their product or service plan all the more appealing. The fact that there is no concrete commitment binding the business or the consumers makes it much easier for them to want to sign up, make a purchase, or, most importantly, subscribe.

Examples of Different Subscription Models

The model is presented as appealing to us, too, as it is appealing to business owners in various industries:

1. Retail Industry

Includes monthly deliveries from retailers in various fields. A popular example is Boxful in South Africa, and BoxyCharm overseas. Each concept promotes paying a monthly fee for products valued above and beyond that specific price. Consumers feel as if they are receiving a bargain, which they most certainly are, whilst businesses maintain security with a constant and consistent stream of revenue.

2. Media and Entertainment

This is the most commonly used subscription, and this sector is most definitely a market leader for the business model. Many streaming services such as Amazon Prime Video, Netflix, and Disney+ operate according to monthly instalments, where customers can sign up and pay regularly, and cancel whenever they please without incurring additional costs.

Apple is another conglomerate that not only generates revenue through the hardware they sell, but the software programmes that are built into their operating systems. Apple Music, Apple Books, Podcasts (to some extent), the App Store, Apple TV+, and iCloud all function and thrive on monthly payments in exchange for providing users with access to these platforms.

Similar structures are put in place with Google and Android systems, ensuring that customers continue to spend money long after they have made the purchase. What is so appealing to the customer is that everything ends up existing in one place, and no additional sign-ups need to take place via third-party applications or software.

Digital magazines and newspapers have also adapted, where people are no longer buying hard copies of these materials. In order to gain access to the news, users now need to subscribe or sign up in order to read full articles. This is the case on many platforms such as News24, The New York Times, and The Financial Times.

3. Technology and Software

Almost falling into the same vein as the media and entertainment sphere, the technology that we use and rely on operate using a subscription mode. For example, using Canva or Photoshop, amongst many other applications for our productivity and functioning in the workplace.

As mentioned earlier, Microsoft Office and Google Workspace also operate on this mode, where business owners and entrepreneurs pay monthly fees to enable their employees to work, communicate and complete tasks online.

4. Food

A phenomenon that is not as common in South Africa. Not yet, at least, but this model is based on the preferences and unique desires of consumers, where meal packages or kits are put together based on their dietary requirements and preferences. Whether it be ingredients, or a pre-selection of specific meals every month, these packages are delivered to their doorsteps each month for optimal convenience and time-saving. Examples include Hello Fresh and a smaller start-up in South Africa, DinnerBox, and UCook.

Other food subscriptions include coffee subscriptions, again, a phenomenon not as common in South Africa as yet– definitely a niche that entrepreneurs and investors can exploit and maximise on. These different examples and case studies showcase how the subscription model can be flexible, and can be applied to varied business types with segmented markets. In all cases, they work to suit the flexibility, needs, and unique customer demands that exist within each niche sphere. They also work to suit the financial security and prosperity of the related business.

Challenges and Drawbacks

1. Fatigue

After a while, the production and delivery of goods and services, and its reception from consumers can become tedious for businesses and consumers alike. Whilst it is part of the business’s operations and livelihood, it is the customers interest and buy-in that needs to be continually developed and refreshed. It is therefore crucial that businesses become aware of the fact that they need to consistently be mindful of the consumer, and whether their interest, investment, and loyalty in the company are maintained.

Renewed marketing efforts are key, here. How are long-term, loyal customers being rewarded? Are their investments being recognised? Whilst this may pose as an expense initially, it is all part of retaining customers, and ensuring their satisfaction, ensuring maximum ROIs in the long-term. Rebranding efforts, packaging, and product development are some possible solutions should the business be operating long-term, with long-term customers.

2. Increased competition

Another major drawback for businesses utilising the subscription model is their tight competition. There are many businesses using the same model, offering the same products and services, and often, at the same, if not, better prices.

The competition in products, services and pricing keeps businesses in check, and on their toes to deliver quality and memorable experiences to their customers. Businesses need to continually reflect on their brand identity, unique selling points, and utilise these to effectively set themselves apart from their competitors.

Competitive research is also key, as this ensures that your business is not slacking or falling behind on market or industry trends. By staying up to date, you are maintaining customer retention, even though it may require more effort than usual.

3. Environmental impact

The environmental repercussions the subscription model poses are highly detrimental, and in actuality, blurs and distorts the longevity and profitability of the model itself. Is the long-term profitability and success of the business worth the impact it has on the surrounding environment? It has come to the fore that carbon emissions that are continually delivering products are increasing pollution. Product packaging and materials assisting with delivery are also non-renewable, nor are they biodegradable, increasing the physical waste accumulating on earth.

There is an ever increasing, ‘overconsumption and excessive returns’ which exacerbate the waste and physical deterioration of our planet. Sustainability experts also argue that, ‘products are designed for the consumer instead of the human’, meaning that businesses need to step up, and reflect on how they can cater and appeal to the humane, emotional needs of a customer, rather than feeding their capitalist desires.

Some companies may employ e-scooters or bicycles to deliver products to customers that are in close proximity from one another. Biodegradable packing peanuts, and packaging that can be re-used or recycled are some alternatives, although their impact may not be as extensive. Unfortunately, the cons supersede the minimal benefits and efforts made by businesses and corporations to improve. This is something businesses can maximise on as their unique selling point, and give them an effective competitive advantage.

Other Challenges or Issues this Model May Face

There are other challenges that accompany the subscription model, and should be considered before adopting it for your product or service:

Effective pricing strategies
Consistency in administration
Ensuring a smooth-sailing and seamless operation of technological platforms
Containing and organisation of data
Subscription plan upgrade procedures

Subscribe for More?

Ultimately, the subscription model is a phenomenon that has now been in existence, and has permitted businesses to thrive for over one hundred years. The benefits it offers for both parties are extensive, making for a convenient business operation, and pleasant customer experience.

Furthermore, the model offers flexibility. It can be tailored and adapted to suit the needs of many different business industries, and their related customers. The challenges and drawbacks are areas where businesses can truly maximise and innovate on, and present options that are meaningful and valuable to consumers.