Finishing Line

Subscriptions - Beware Consumer Burnout

By Robert Roman

10/01/20

According to an article in Forbes, the subscription e-commerce market has grown by more than 100 percent a year over the past several years.

Fifteen percent of online shoppers have signed up for one or more subscription programs to receive products on a recurring basis, frequently through monthly boxes.

A subscription box is a recurring delivery of niche products as part of a marketing strategy and method of product distribution.

Today, subscription boxes are available for wine, baby and child products, meal kits, pet foods, vitamins, fashion underwear, and replenishment services such as contact lenses, cosmetics, and men’s shaving products.

Despite this growth, some folks are concerned that consumers may have a hard time tolerating dozens of subscriptions and could get burnt out by this business model.

Reportedly, some people are spending as much as several hundred dollars a month on subscription boxes. For example, I came across a blog on Reddit where women were sharing their experiences with makeup addiction and burnout with beauty boxes.

Burnout is a condition such as exhaustion or feelings of negativism or cynicism caused by stress that has not been successfully managed. Burnout often leads to subscription churn, which is the number of subscribers or customers that stop paying for product or service in the given period of time.

According to Recurly Research, the churn rate for consumer services is about 7.5 percent. In the $10 to $25 price range, the churn rate by average revenue per customer is 6.5 percent.

A McKinsey survey found that nearly 40 percent of subscribers cancel out of their subscriptions with one-third cancelling after only three months and over half only sticking around for six months.

Researchers find awareness of subscription offerings is fairly high at 53 percent but conversion is pretty low with 13 percent saying they’ve subscribed at one time and only 8 percent currently subscribing.

Consequently, subscription app companies place a lot of emphasis on maintaining the value of their subscription box product or else customers will start fading out. In fact, some companies plow as much as 30 percent of sales back into marketing to manage churn and to generate new customers.

Car wash operators have also gotten into the subscription game (i.e., monthly unlimited) and it’s become a big business. For example, many express operators earn enough from their subscription programs to meet their monthly debt service obligation.

So popular is the subscription business model that second- and third-party companies have developed tools to assist subscription e-commerce businesses. As a result, these tools have lowered the barriers to entry and increased the potential for over-saturation in markets.

The subscription business may appear to be the ticket to grow a loyal customer base and steady stream of repeat business but it’s more difficult than it looks. For example, in the past, customers could be acquired with building and street signs, direct mail, newspaper inserts, and some radio ads.

Today, many channels are required including social media (e.g., Facebook and Twitter), website, text, etc. as well as the cloud apps and platforms supporting them.

The customer is also different. The typical subscription customer has higher-than-average income and little free time. Not surprisingly, researchers find the two principal demand drivers of subscriptions are saving time by reducing regular trips to the store and price savings.

Subscribers place a premium on convenience, a good value for the money, and a personalized experience.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



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