Subscriptions are a growing part of the global economy, affecting everything from newspapers to razors to the heated seats in a vehicle.
Key Details
- By 2026, the global subscription e-commerce market is expected to reach $905 billion. In 2021 it was around $72.91 billion, Forbes reports.
- While consumers have long been used to paying subscriptions for magazines and newspapers, retail brands are now expanding—trying to use the subscription model to bring in extra revenue.
- Subscription services work well for recurring purchases. Customers who partake in these services do not even have to remember to add items to their grocery lists. They just appear on their doorstep.
- After Amazon successfully introduced its subscription boxes, other businesses like BarkBox, Birchbox, and FabFitFun launched their subscription services, unleashing a flood of retailers from every sector trying to get in on the subscription model.
Why it’s news
Subscribing to a company like Dollar Shave Club can bring razors straight to a customer’s door every month. A Chewy Goody Box sends new toys to the consumer’s pet right on schedule. Food can even appear on the customer’s doorstep monthly with a Good Ranchers subscription.
Subscriptions offer convenience, taking the thinking and planning part out of running errands to the local grocery store. But these services can often cost the customer more than he may think. If a subscription is poorly timed, the customer may end up with an excess of goods that may go to waste.
Canceling a subscription service can sometimes be harder than the shopper may think. Remembering to cancel before the product arrives can be a hassle. And some retailers might make canceling a little more difficult than the customer would expect.
One of the benefits of subscriptions is that a customer always knows what will be spent that month, but now that nearly every good or service comes with a subscription, some customers are getting worn out.
Amazon, streaming services, groceries, pharmaceuticals, and now verified accounts on social media all have subscription services. It can be challenging to track what the consumer is spending and where.
Subscriptions can also cost consumers more money than they may realize. When a shopper is not spending the money immediately, he can forget that in addition to the new subscription he just signed up for, he has four more due that month. A 2022 survey found that the average monthly spending on subscriptions was $219, more than two and half times what the survey respondents estimated they were paying, USA Today reported.
Despite the cost, subscriptions can be helpful and convenient, but adding subscription services to items customers used to own outright is a newer concept. Last year, automaker BMW announced an $18 monthly subscription for its heated seat. Toyota announced in 2021 that it would charge a monthly subscription for its remote start key fobs, The Verge reported.
A 2022 Cox Automotive survey found that of the 217 respondents who plan to buy a car in the next two years, only 25% said they would be willing to pay a subscription fee to access certain vehicle features.
Despite this hesitancy, General Motors says in 2021 that it brought in around $2 billion in vehicle subscription services revenue. The company expects that number to expand to nearly $25 billion by 2030, The Verge reports.
“Our research indicates that with the right mix of compelling offerings, customers are willing to spend $135 per month on average for products and services,” says GM head of innovation and growth Alan Wexler.
Companies have to strike a delicate balance when adding subscription services. If done right, a business can bring in a consistent flow of revenue in industries that may have otherwise been inconsistent while adding convenience and value to a customer. If done incorrectly, the company can drive away a buyer.
