Top 2023 subscription economy trends and insights according to 100+ senior executives
Businesses predict that changing consumer preferences and regulations will impact profitability
As the cost of living continues to impact consumer spending habits and behaviour and businesses seek to diversify recurring revenue strategies, Minna Technologies has launched a new subscriptions trends and performance benchmarking report in partnership with FT Strategies with analysis of a survey led by global research firm Savanta.
Subscription Economy: Business Barometer features data, trends and insights from a survey of over 100 senior UK and US subscription business executives representing a range of B2C verticals including financial services, software, subscription boxes, gaming, mobile, streaming media and publishing, and thought leaders from Aptitude Software, FT Strategies, ING Belgium, Innovate Finance and Minna.
This follows Minna’s previous report with FT Strategies and Savanta, Subscription Economy: a Transformed World, which explores the subscription economy in a post-pandemic world with data from over 2,000 consumers, 50 subscription businesses and more than 20 thought leaders.
The new survey’s respondents include board members, C-suite executives, managing directors, directors and owners of subscription-based businesses. The annual turnover of the businesses surveyed ranges from $10m to over $1bn in the US and £10m to over £1bn in the UK. The data was collected in relation to the last six months of 2022 and the first half of 2023.
The report examines five key themes and recommendations for subscription businesses to capitalise on opportunities and mitigate risk in the current economic climate.
“As subscription businesses face global macroeconomic challenges and evolving subscriber behaviour and expectations, it is critical for decision-makers to be equipped with relevant data, actionable insights and incisive analysis to inform effective strategies and tactics for retention, acquisition and growth,” Minna Technologies chair and CEO Amanda Mesler said.
Market outlook and performance metrics
Amid a backdrop of high inflation and the rising cost of living, the research finds that most companies’ subscriber base has had small to moderate growth in the last 12 months. Therefore retention presents a significant opportunity to improve lifetime value and revenue growth.
“The first key theme we identify is the ever-high importance of retention relative to acquisition, fuelled by current economic headwinds such as inflation and tamed consumer sentiment,” FT Strategies principal George Adelman said.
“A single-digit percentage change in retention can result in a double-digit percentage change in customer lifetime value, with the returns becoming exponentially better as customer tenure grows.”
Businesses predict that changing consumer preferences and regulations will impact profitability. This reflects recent developments and proposed regulatory changes driving enhanced subscription transparency, control and protection for consumers on both sides of the Atlantic, including the Federal Trade Commission’s proposed ‘Click-to-Cancel’ provision in the US and the UK’s proposed Digital Markets, Competition and Consumers Bill.
On average, companies have seen 25 per cent of their customers churn on a monthly basis. For just under half of the companies surveyed, up to ten per cent of their customers are considered inactive subscribers. The report recommends that subscription businesses should look to re-engage inactive subscribers to reduce churn. According to the research, seamless cancellation and resubscription are essential to meet consumer expectations. Over the last 12 months, a majority of companies have seen up to a fifth of their customers resubscribe after cancelling.
Most companies (60 per cent) observe that up to a fifth of their user base churns and returns within six months. As noted in the previous report, the churn and return phenomenon is especially prevalent among Gen-Z and millennial subscribers, who are often drawn by compelling content offerings and prefer a flexible approach to subscriptions.
Strategic investment in AI and leveraging data
With the impending demise of the cookie, executives consider investment in first-party data as a strategic priority. According to the survey, subscription businesses are also leveraging data and AI for enhanced personalisation.
“The fintech community is an excellent example of how companies can leverage the potential of artificial intelligence and open data. The industry has led the way in offering consumers personalised financial services, tailored to each and everyone’s needs,” Innovate Finance CEO Janine Hirt said.
“The adoption of AI and the use of data for personalisation in financial products can help consumers and businesses to manage their spending in a more transparent and efficient way.’’
“Subscription companies face challenging times in the next 12 to 24 months,” Savanta associate director Gurdev Potiwal said.
“However, it is also worth considering that tech advancements in the subscription sector present both an opportunity, such as through the use of AI to better model and understand customer demand patterns, and an increased risk of competition from tech disruptors looking to gain market share.”
Despite the challenging economic outlook, the research reveals that businesses prefer diversifying product and service offerings to cost-cutting. Media companies, in particular, are reinventing themselves and diversifying their revenue streams to remain relevant and competitive in a digital-first world.
“Although the death of the cookie may raise concerns, it actually presents an opportunity, particularly to those in media and entertainment, to transform subscription and advertising revenues, which are currently facing tough economic conditions and increased competition,” Aptitude Software VP publishing Ana Lobb said.
“First-party data paves the way for improved customer-centricity by enabling businesses to craft more personalised experiences and deliver highly targeted direct-to-consumer offerings.”
Emerging trends, tactics and recurring revenue strategies
The report recommends an omnichannel approach, which places the customer at the centre of all products, services and channels. The executives surveyed recommend enhancing multichannel consumption of content.
Businesses should aim to deliver a consistent brand experience across all channels and empower customers to interact with brands as seamlessly and flexibly as possible.
According to the data, payment optimisation is also a key growth driver. While traditional payment methods such as debit cards, credit cards, direct debits and standing orders remain prevalent (62 per cent of payments), digital wallets (11 per cent) and other alternative payment methods, such as buy-now-pay-later, are on the rise.
Offering frictionless payment journeys and flexible payment options are critical to meet consumer demands and expectations.
“Understanding the local intricacies that exist with payments in different countries is key for clients who wish to scale globally,” Aptitude Software head of payments Paul Roberts said.
“This includes being able to offer the payment methods that consumers expect in their relevant markets, and routing payments to leverage local relationships to maximise acceptance and minimise transaction costs.
“Additionally, optimising payments has always been a key driver both for acquisition and retention, but with the recent growth in local regulatory requirements around card on file and recurring transactions, this has grown in importance.”
Finally, businesses agree that engaging subscribers across direct and indirect channels creates long-term value. Subscription businesses rank app store and in-app purchases, up-sell and cross-sell (50 per cent), subscriptions in banking apps (46 per cent) and partnerships/bundling with other subscriptions (45 per cent) as the top three most effective acquisition channels.
Businesses can help empower consumers and enhance flexibility, control and transparency to drive engagement and loyalty.
“Our feature, developed with Minna and available in our ING Banking app, has been a particularly important one in the context of high inflation and people looking for solutions to be more in control of their personal finances,” ING Belgium product area lead Cédric Petre said.
“ING OneView allows our customers to have a better insight into their subscriptions and save up to 240 euros every year via fully automated subscription management services.”
Despite current challenges, subscription-based models remain resilient because they are aligned with consumers’ preferences for flexibility, convenience and control in a rapidly changing world with fragmented channels, touchpoints and journeys.
Businesses that provide a flawless, personalised and omnichannel customer experience — leveraging data, digital tools and both direct and indirect channels — will ultimately succeed, driving long-term engagement, value and loyalty.
For further information contact Mia Iwama Hastings at email@example.com