Subscription economy growth: The new company-consumer relationship business model

• Author:
• Author name

  Quantumrun Foresight
• December 13, 2022

Insight summary

Subscriptions are reshaping how people engage with brands, offering flexibility and a sense of loyalty but also presenting challenges in financial management and market saturation. This model's growth reflects a shift in consumer behavior and business strategies, expanding beyond traditional sectors to industries like travel and fitness. Companies and governments are adapting to these changes, focusing on customer experience and considering regulatory aspects of consumer protection.

Subscription economy growth context

Subscriptions were already popular long before the COVID-19 pandemic, but the lockdowns propelled its growth as people relied on e-services to provide for their basic needs and entertainment. Americans have an average of 21 subscriptions, based on a study conducted by the budgeting app Truebill. These subscriptions ranged from entertainment to home workouts to meal services.

The financial institution UBS forecasts significant growth in the global subscription market, anticipating it to surge to USD $1.5 trillion by 2025, which marks a substantial increase of approximately 50 percent from the USD $650 billion recorded in 2021. This expansion reflects the adoption and growth of subscription models in various other industries. These trends also underscore a broader shift in consumer preferences and business strategies.

Hotels, car washes, and restaurants started offering monthly package tiers that curate different levels of experiences and freebies. The travel industry, in particular, is attempting to take advantage of post-pandemic “revenge travels” by offering subscriptions that offer exclusive deals, insurance, and customer service. Most companies acknowledge that the subscription business model gives customers more options on how and when they want to consume products and services.

Disruptive impact

Customers subscribing to services on an annual or monthly basis develop a stronger sense of loyalty and connection with brands. This model not only offers a continuous relationship but also creates anticipation for scheduled deliveries or updates. However, the subscription management company Zuora highlights a crucial aspect of this model: usership over ownership. This approach means access to services aligns closely with changing needs and preferences of users, allowing them flexibility to discontinue services as their lifestyle evolves.

The subscription model, while beneficial, also brings challenges in financial management for consumers. Subscribers might still find themselves surprised by the cumulative cost of multiple subscriptions. From the business perspective, companies like Netflix, Disney Plus, and HBO Max saw a surge in subscribers during the pandemic, but this growth has slowed down. This trend suggests that while subscriptions can provide temporary boosts, they are not immune to market saturation and changes in consumer behavior.

For companies, understanding and adapting to these dynamics is crucial. They need to balance the allure of immediate growth with the need for sustainable, long-term strategies. For instance, diversifying content or services and prioritizing customer experience can help maintain subscriber interest in a competitive market. Governments and regulatory bodies may need to consider the implications of this model on consumer protection, especially in terms of transparent billing practices and easy opt-out options.

Implications for subscription economy growth

Wider implications for the growth of the subscription economy may include:

• Groups of industries collaborating to create subscription partnerships, such as hotels and airline services being bundled together.
• More customizable subscription packages providing control to customers on how they want products and services to be delivered.
• E-commerce platforms increasingly integrating subscription-facilitation services that their individual marketplace sellers can use to offer subscription services to their loyal customers.
• The delivery industry experiencing rapid growth as more customers subscribe to the on-demand economy.
• Select countries in developing regions may institute legislation to protect new internet users from predatory behavior from subscription services.
• More people sharing their subscription accounts amongst their friends and family members. This trend may lead to companies tracing or restricting account use to reduce sharing subscription access.  

Questions to consider

• What other ways can companies ensure that the subscription model benefits the customer and the company?
• How else can the subscription model change the customers’ relationship with companies?