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  • Writer's pictureDhruv Syam

Is the subscription economy really the way forward?

The main goal of businesses for the last 10 years was to gain more customers and sell the product for a one-time profit. However, the shift of consumer behaviour towards instant gratification and the expectation of very cheap prices means firms increasingly have a subscription-based model. For an average consumer, a subscription-based model often makes the user feel that they are paying less as they see a £5 subscription every month instead of £60 a year. Subscription-based models also give people to pick and choose what products they wish to use every month (Netflix for January and Disney+ for February). It also said to be better for businesses as it guarantees a constant stream of reliable revenue.

As a result of this behaviour, firms are responding with more and more subscription-based services. People can stream, read books, order food, listen to music and even purchase washing machines through monthly or weekly payments. These businesses are growing exponentially and play a vital role in our daily lives.

These are the main advantages of subscription-style services:

  1. Firms have access to constant revenue: Having a monthly customer base will guarantee at least some revenue instead of firms constantly having a product that sells well all the time. For example, Netflix is a company that has over $20 billion in revenue every year that it uses to fund more shows and content. If Netflix was a one-time service they would not have access to this high amount of monthly capital.

  2. Less intimidating than a large one-off payment: To purchase a collection of Adobe products, could cost several hundred pounds. This high price could put off many consumers. On the other hand, an annual or monthly subscription that is under £20 could have the psychological effect of appearing affordable. This leads to:

  3. An increase in consumption: Evidence suggests that if people make monthly subscriptions it can actually encourage them to consume more as they feel they are getting their money’s worth. By boosting consumption, it encourages brand loyalty and makes consumers more likely to re-order.

  4. The laziness effect: We have all noticed how hard it is to cancel your subscription and how it is buried deep in some settings menu and they'll never remind you when your next payment will take place. This means people often keep cheap subscriptions for the sheer laziness to cancel it.

However, there are some disadvantages for consumers and producers alike:

  1. A decrease in consumption: Maintaining so many subscriptions and direct debits has meant people are getting fed up and want the simplicity of a one-time subscription.

  2. Firms have to keep releasing a different/improved product: With a subscription, firms are forced to constantly innovate or lose subscribers very easily. With a traditional purchase, the consumer is forced to use one consistent product for as long as possible.

  3. There are higher administrative costs: Firms have to manage very costly online presences that can monitor and collect regular payments. Often selling a product once means the firm handles less traffic online.

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