Magazines & newspapers, video (TV) streaming, online shopping, water containers (mineral) or filters, shaving razors, and so on — almost anywhere companies are ready to offer consumers subscription programmes for their goods or services. The monthly or annual subscriptions may be offered by manufacturers (selling directly to consumers), service providers and retailers. The scheme is straightforward: sign-in, pay a fee in advance, and receive in return consistency of stable supply and peace of mind, together with some additional material ‘bonuses’. Consumers are drawn to accumulate memberships in these subscription schemes.
Elie Ofek, Professor of Marketing at Harvard Business School, claims, however, that after joining a number of subscription programmes consumers get tired of the commitment and monthly payments, and reach a saturation point, a state he calls ‘subscription fatigue’. He warns that companies should be worried of alienating their customers because of this persistent pressure [1].
Subscription plans usually provide a combination of discounts (e.g., on products purchased), and free and fast delivery (may be subject to minimum order, alternately delivering at reduced rates). Companies are likely to offer additional benefits such as exclusivity on some of their products or services, gifts and other bonuses [2]. Consumers are required to commit to pay a periodic fee, monthly or annual (note: sometimes a monthly fee is quoted but the payment is charged in advance for 12 months). Companies often offer a free trial period to gain customer confidence and draw customers into their ecosystems. These practices require customers to note carefully the cancellation policies of companies.
In on-going services where the provision of service is technically contingent on connection to a platform or network (e.g., mobile telecom, cable TV, video streaming, Internet, cloud storage), a subscription model seems almost natural, and its application is not new in those fields. Yet, in recent years subscription programmes have proliferated into a widening range of product and service categories (the trend just accelerated during the Corona shutdowns). Especially remarkable is the growing variety of goods to which consumers are offered to subscribe (e.g., food, toys, beauty / cosmetics, razors, toothbrushes, print cartridges). Other sectors in which subscription is now available include media & entertainment (e.g., print publications, digital media, theatres), retailing (e.g., Amazon Prime scheme). and travel (e.g., airlines, hotels). The more sophisticated companies use technologies (AI-based) that can learn the patterns of purchase and use by customers, and hence can provide them alerts and even automatic orders to ensure that they are not left out-of-supply at home.
A problem with the proliferation of subscription programmes is that too frequently they seem to be offered for goods where it is not truly essential or useful. They may give consumers an illusion of convenience and certainty, while consumers could do better by controlling the frequency and timing of their purchase orders without feeling constrained by pre-commitment (i.e., consumers become trapped by the sunk cost fallacy). The attraction of the programme may be enhanced by the depth of discounts offered, but customers need to consider that the degree to which discounts are worthwhile depends on the frequency of product usage and thereby re-ordering (vis-à-vis the subscription fee).
As subscriptions become widespread, Ofek cautions that consumers are starting to feel overwhelmed by this ubiquity of subscription (which some call ‘subscriptionitis’); customers themselves complain that subscriptions are not appropriate for every product or service [1]. The consulting team of Growth, Marketing & Sales at McKinsey & Co is similarly critical about applying subscription plans where it does not fit the product or service, specifically recommending companies to avoid offering subscription as an add-on out-of-hand. It is suggested that a subscription plan should be offered as an option following customer research, in order to find out that it fits the way a product is being used, and whether it can answer an unmet need [3].
- Elie Ofek together with Amy Konary (Subscribed Institute at Zuora), co-authors of a background note on the topic, bring an example of an offering that irritated customers of BMW: The car maker announced in 2022 that they would charge $18 monthly for heated seats, $12 a month for heated steering wheels, and subscription-like payments for other optional features in some countries. The car buyers who felt irked by this announcement argued that they had already paid for these add-on installments when buying the car, therefore they did not expect to pay further for being allowed to enjoy them. Ofek and Konary relate to the unease of customers in feeling that ‘everything today is a subscription’. [1]
A subscription programme should not be treated as something that is ‘nice-to-have’ — it should have a real, practical purpose, offering a substantive proposition of value to customers. At McKinsey & Co they put special emphasis on creating a credible and strong value proposition to win new customers (with benefits, such as high quality, not only via the price-side), and to retain customers (with a variety of great experiences, including high quality, a varied assortment, and originality of services). Another key benefit that customers seek for joining and staying in these programmes is convenience and ease of access [3].
There are different subscription models that companies can choose from, varying in levels of scope and flexibility. Ofek [1] describes three popular types. The simplest one is based on a single flat price, where the customer should pay a fixed rate at regular intervals no matter how much he or she uses the product or service. Another model, which has become more popular in recent years (e.g., news media) entails a ‘freemium’ option. In this model the customer is allowed to use the base tier free of charge, but for using expanded and more advanced tiers (e.g., in level of use, variety of features) he or she is then required to pay escalating charges. It may be added that the marketing of this type of plan often combines the freemium tier and a repeating invitation for a free trial period of the next tier (customers who accept should opt-out later if not interested, otherwise they are likely to be automatically charged, and thus pulled into the company’s ecosystem).
Yet, there is a third and more flexible model of subscription. In the model of multiple tiered options customers can be charged a variety of prices for different combinations of usage levels, product features, and number of users (e.g., software for business customers, video games). Plans that follow this model are more complex but due to their flexibility are considered more advantageous and attractive to customers. For instance, customers have more room to maneuver and find their favourite combination for the right price. Ofek summarises: “Subscription models that have been successful are ones that build tiers that align well with the needs and preferences of different customer segments” [1]. According to McKinsey & Co, greater flexibility in pricing, that goes with variety in feature options, together with possibilities for new experiences and fun, help to maintain stronger relationships; otherwise, customers are more likely to cancel their subscription [3].
| Benefits for Companies | Benefits for Consumers |
| More stable and predictable revenue streams | Help spread costly payments over time |
| Improved inventory management | Allow subscribers choose flexible usage and product-feature options at different price levels |
| “Stickier” customer loyalty (consumers are more reluctant to change vendors) | Being able to rely on stable delivery of products or services at regular intervals |
| Ability to sell more products to this ‘captive’ group | Automatically enjoy any upgrades |
(Source: Working Knowledge at HBS [1])
As for companies, Ofek cautions that their managers should be careful to avoid falling into complacency, by assuming that subscription schemes would secure them “a guaranteed revenue stream just by charging customers monthly”. First, as suggested above, it takes much more than setting the pricing model to run a successful subscription programme. Second, by pressing too hard or pushing the ‘wrong buttons’, companies may find that “they can just as easily lose great customers in the process”. [1]
Consumers also need to take care about details when deciding if to join a subscription programme, and in choosing a suitable tier of usage and scope of features, where flexibility of the programme allows them. They should particularly consider if their expected level of usage (e.g., frequency, scope) justifies the advance fee they are required to commit paying vis-à-vis the benefits they are about to receive. Ulaga (INSEAD) and Mansard (The Subscribed Institute)[2] suggest five types of benefits that retailers may include to differentiate their subscription programmes and make them more attractive to consumers: (1) In-store shopping experience (e.g., exclusive check-out posts); (2) Out-of-store shopping perks (e.g., online, at home – delivery straight to your fridge); (3) Lifestyle benefits (e.g., gifts, especially when based on knowledge of the shoppers’ interests); (4) Benefits beyond free loyalty programmes (i.e., when paying an advance periodic fee); (5) Financial services (e.g., credit card benefits).
Membership in loyalty clubs and subscriptions have some shared elements (e.g., discounts, bonuses, association with a credit card), but their focus and approach differ. Loyalty clubs revolve around the ‘credit points’ members gain as they purchase more of the company’s products or services; subscriptions are based on the formal (paid) commitment to purchase and use the company’s products or services, and the benefits (rewards) the subscribed customer can receive respectively. These schemes are not so far apart with respect to developing customer relationships. Therefore, accumulating subscriptions may be not so different perhaps from accumulating credit cards and cards of loyalty clubs (nowadays the ‘cards’ are more likely to be digital and virtual). If so, customer attachment to, and later fatigue from, these schemes may be a more general phenomenon, and hence fatigue with subscription programmes should not be too surprising.
Subscription programmes can be truly good-to-have, resolving different concerns and being helpful to consumers in different situations. A subscription programme that is thoughtfully built and well-managed can indeed be worthwhile to both companies and consumers. Yet, the subscription offering should be conceived and implemented to a good measure, sensibly, and where it is suitable for the product or service and the needs of the consumers.
Notes:
[1] “With Subscription Fatigue Setting In, Companies Need to Think Hard About Fees“, Working Knowledge at Harvard Business School (HBS), HBS Case (Jay Fitzgerald), 17 October 2023, regards the research work and co-authored paper (‘industry and background note’) of Professor Elie Ofek (HBS) with Amy Konary (VP Subscribed Institute & Marketing Strategy, Zuora).
[2] “Five Ways to Optimise Your Subscription Model“, Knowledge @INSEAD, Wolfgang Ulaga (INSEAD) and Michael Mansard (The Subscribed Institute, Zuora), 1 March 2023.
[3] “Sign Up Now: Creating Consumer — and Business — Value with Subscriptions“, McKinsey & Co: Growth, Marketing & Sales, 26 May 2021
Consumer / Shopper / Customer Behaviour 