Subscription economy trends to watch for 2023: demand for value, flexibility and operational efficiency
According to research by Minna Technologies, offering subscribers flexible options beyond cancellation has a direct impact on churn reduction.
Against the backdrop of shifting market dynamics, evolving consumer behaviour and macro forces such as the rise of Gen Z and millennials and digital transformation accelerated by the pandemic, Minna Technologies recently released a report in partnership with FT Strategies with analysis of surveys led by global research firm Savanta.
Subscription Economy: a Transformed World examines data, trends and insights from surveys with over 2,000 consumers in the UK and the US, 50 subscription business executives and more than 20 thought leaders in financial services, fintech, media, e-commerce and beyond.
Demand for value
According to analysis from FT Strategies, the subscription economy has entered the retention phase. The survey reveals that retention is the top strategic priority for 68 per cent of subscription businesses. The cost of living crisis is driving increased awareness of subscription spend among consumers. 93 per cent of consumers are more aware of their spend compared to 86 per cent 12 months ago. Businesses need to demonstrate tangible value to retain subscribers.
George Adelman, Principal at FT Strategies, explains: “The retention phase will likely be one in which consumers will be more reserved about their spending and will be more likely to jump from one subscription to another to find the best fit for their needs. Businesses will therefore need to think even more actively and strategically about how to retain acquired subscribers with customer-centric payment and pricing strategies, more transparent and intuitive UX experiences, and increased personalisation of product offerings.”
The pandemic rapidly accelerated the adoption of subscriptions and shifted consumer behaviour. The research shows that the subscription mindset has now become firmly embedded. 50 per cent of consumers say that subscriptions enable them to access products, services and a lifestyle that they otherwise would not have. 63 per cent of consumers would rather pay more per month than a lower annual fee for subscriptions.
Gabrielle Hase, Non-Executive Director of Planks Clothing, Tate Enterprises, K3 Business Technologies and UltraCommerce, observes: “Whereas during COVID the value proposition revolved around convenience and access, during the cost of living crisis the proposition has to demonstrate value for money.”
Demand for flexibility
Flexibility in managing subscription spending and services is a key concern across all age and income demographics. Consumers are using subscriptions to manage their recurring spend flexibly month-to-month and want the ability to adjust product preferences instantly based on personal circumstances.
According to additional research by Minna Technologies, offering subscribers flexible options beyond cancellation has a direct impact on churn reduction. 86 per cent of consumers would consider accepting an offer rather than cancelling. 80 per cent would rather upgrade or downgrade their subscription plan than cancel. 72 per cent would rather pause their subscription than cancel.
With increased subscription volumes and recurring spend, there is rising demand for consolidation. Three out of four subscribers are interested in having one app to manage all their subscriptions. Gen Z and millennials are particularly interested in managing subscriptions in their banking app. One in two consumers aged 18 to 44 – and one in three consumers across all age groups – would consider switching bank accounts to have access to in-app subscription management.
Gen Z and millennials are driving a seismic shift in how consumers engage with brands and retail financial services. They expect greater levels of control, flexibility and self-serve, enhanced user experience, personalisation, value and transparency from brands. They consume subscriptions flexibly, often returning to brands within months of cancelling. 25 to 35 year olds have the most subscriptions, with 22 per cent having seven or more.
Matt Williamson, banking futurist and industry advisor, notes: “Gen Z and millennials are no longer bound by brand loyalty, which has protected incumbent banks for decades. It used to be more hassle for the consumer to switch providers than accept poor service. Today it is feasible to download an app, onboard and begin using its services within five minutes or less. The opportunity lies in understanding your customer and their data, creating and leveraging ecosystems that offer the best possible services of value to them, at the right moment in time.”
Demand for operational efficiency
Financial services firms, fintechs and subscription businesses are enhancing operational efficiency by leveraging data and automation for hyper-personalisation and self-serve options, reducing the cost to serve and gaining data-driven insights to inform retention and acquisition strategies and tactics.
Tasha Chouhan, UK & IE Banking Director at Tink, comments, “With subscription revenue models, companies have access to more information about the end user, versus product-based models where it’s a one-off interaction, and will need help making sense of and ensuring they can get value from the data available.”
Subscription businesses are focused on removing payments friction, with 58 per cent citing this as a strategic priority. Payment issues – from onboarding friction to difficulty updating payment details, payment blocks leading to failed payments when subscribers churn and return, and payment disputes – have a detrimental impact on the perception of brands, customer experience and churn rates. This places an increased operational burden on both banks and subscription businesses, with high back-office costs to handle disputes and queries.
Joakim Sjöblom, Co-founder of Minna Technologies, observes: “The wave of subscription adoption, accelerated by COVID, has had a derivative effect on the banks’ balance sheets, has interrupted the digital self-service experience customers demand and has increased banks’ risk profile. UK and US banks are allocating budgets to correct the trend, implementing solutions simultaneously to serve their customers while streamlining end-to-end services and reducing operational costs to support the subscription economy.”
The report recommends that banks and subscription businesses should consider partnering with fintechs to extend their capabilities and provide the seamless, omnichannel customer experience that consumers expect. By leveraging fintech tools, automation and self-serve, businesses can provide an enhanced customer experience, reduce the operational costs of handling subscription-related payment enquiries and disputes and help support consumers during the cost of living crisis.
For further information contact Mia Iwama Hastings at firstname.lastname@example.org