By Magdalena Pudelko of Comarch
From Prime and Tesco+ to brands like HP – subscription is booming. The most visible are ever-present ads of subscription boxes: from Hello Fresh to Oddbox…If you are a London commuter, you have probably seen these ads at some point or another. There is an Oddbox ad on the bus stop right outside my window right now. (And no, I am not moaning – I love ads so much that, at the beginning of the pandemic, my visual sense suffered when there were no new billboards around.)
The subscriptions are here to stay. Free versus paid options have become an integral offering of most large loyalty programs. The rule here is simple: we have no tiers; forget blue, silver or gold for qualifying spend. Subscribe and unlock. And benefit as a result.
There are many reasons why it works: from adding value (to both the program provider and a customer), habit building and, finally, because of the ease of payment.
Why is that I hear you say?
It has to do with a behavioural bias -The Cashless Effect, a human tendency of undervaluing the spend done without a tangible payment method -the good ol’ cash. This is why it’s so much easier to pay for that morning coffee by contactless, rather than breaking the tenner. You don’t part with it physically – you don’t feel the loss aka the “pain of payment”.
The other important player in the success of the subscription story is our tendency to overestimate our future preferences (“The Projection Bias” if anyone asks). We assume that our future selves will have the same needs as our present selves. This makes us take decisions that might not necessarily be the most beneficial to our future selves. Let me ask you, that take-away subscription – have you joined it while ordering your food when particularly hungry? If yes, it might be that you have overestimated its benefits to your future self…
…and now you don’t want to cancel, because you have already invested in it, the fees are insignificant, your future present self predicts you will use the benefits… And because it’s so conveniently built into your routine, you have a feeling that you cannot do without it and realise that using it just turned into a new habit.
Do I need Prime? My rational self knows that I don’t, but the convenience of one-day delivery, something to watch besides Netflix, the app that is optimised for faster browsing…and the no-friction payments…are so appealing that my future self overestimates its benefits compared to the pain of cancellation of service and parting not only with the subscription but almost having to admit to myself that I lost 7.99*xx months…No, I stick to my Prime and other subscription services I have already “heavily” invested in.
Subscriptions are easy to get into, easy to spend on and difficult to cancel. How can a subscription programme hook customers?
- It has to help to develop routines – no matter if it is using the app to compare the goods available, old habits replacing convenience, surprising with package contents, etc.
- Offer zero friction payments.
That will keep them in. But what will bring them in?
A smoothie lover will not pay £20 per month for unlimited coffee, just like a beauty lover will feel entitled to free samples rather than paying £10 each month for a box. A one-day delivery in a remote area might not be possible, but streaming is. Same as the possibility to buy benefits reserved for the highest spenders will be more appealing to a casual customer than earning them with spend.
The value offered by the subscription service exploits the transactional relationship. The mechanisms which harness our behavioural tendencies make them much more powerful than a simple earn on repeat transaction. Depending on the frequency of interaction they lock users either emotionally or habitually. Either bond is extremely difficult to break. No wonder the subscription economy in the UK is worth an estimated £323 million annually and growing.