Why Brands and Customers Love the ‘Subscription Economy’

Once upon a time, the word “subscription” was only associated with magazines and newspapers. But things are different now.

Today, we can subscribe for razor blades, dinner ingredients, makeup, movies, neckties, software, music, and…well, the entire list would probably take up the rest of this post.

The numbers tell the tale about the increasing popularity of subscription services. According to Forbes, reporting on a study by McKinsey:

  • The subscription e-commerce market has grown by more than 100% percent a year over the past five years.
  • Subscription services from the largest retailers generated more than $2.6B in sales in 2016, up from $57.0M in 2011.
  • 15% of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis, frequently through monthly boxes.

(And, in case you were wondering, last year’s most popular subscription sites were Amazon Subscribe & Save, Dollar Shave Club, Ipsy, Blue Apron, and Birchbox.)

The rise of the “subscription economy” (a term coined by Tien Tzuo, co-founder and chief executive of Zuora, a company whose mission is to help companies get on the subscription bandwagon) is being driven as much by marketers who want to build and capitalize on long-term customer relationships as it is by customers who cherish its convenience.

In the beginning, there was Netflix

We now know Netflix as the premier streaming provider of TV shows and movies. But some of us are old enough to remember that Netflix began as DVD-subscription service (yup – back in the day, our movies came in the mail!).

“When Netflix began 20 years ago, it changed the value equation for consumers,” writes Patrick Seitz at Investor’s Business Daily. “Netflix paired recurring monthly payments with a personalized entertainment service built on an intimate knowledge of customers and their preferences. Its success spawned similar subscription services such as Spotify for music, GameFly for video games, Apple-owned Texture for digital magazines, Ancestry.com for genealogy, and other businesses.”

But it didn’t end there.

“Eventually, dinner took the subscription route with home-delivered meal kits from firms like Blue Apron and HelloFresh,” Seitz writes. “And instead of purchasing or leasing cars you can use a subscription service from the likes of Ford and Volvo.”

Different customers, different reasons for subscribing

While the appeal of subscription services for brands is rather obvious – subscriptions create long-term relationships that provide a consistent revenue stream – the reasons customers like them vary.

“McKinsey identified three types of subscription services: replenishment, curation, and access – all attracting users for different reasons,” writes Krista Garcia at eMarketer. “A financial incentive was most persuasive in signing up for automated delivery of diapers or cat food. Trusted recommendations or the desire to try something new drove interest in something like a beauty box. And all three of those criteria contributed to trying a members-only clothing and shoes site like JustFab.”

Room to grow

Although the subscription business is definitely booming, Garcia cites a 2018 study that shows that there is still plenty of potential customer engagement left for marketers to tap.

“Salsify asked U.S. digital shoppers where they planned to do more shopping,” he writes. “Subscription services were cited by only 8%.” That was far below retail websites (the most popular choice), physical stores, and search engines, but ahead of social media, voice-activated assistants, and smart speakers.

Subscription guru Tzuo thinks every business will eventually have to get on the subscription bandwagon. “If you’re not shifting to this business model now,” he writes, “chances are that in a few years you might not have any business left to shift.”