Many consumers face subscription fatigue, but model likely to increase
Twitter announced recently that two-factor authentication by text would be available only to paying subscribers. Shortly after, Meta said it would begin testing a paid verification service for Facebook and Instagram in select countries, starting at $11.99 a month.
It’s not just social media giants who are starting to limit certain services to paying subscribers only. Food delivery companies, the fitness industry and even car manufacturers have been leaning into the subscription service model in recent years.
The growing list of monthly fees can be frustrating for consumers, but experts don’t expect companies to back off any time soon. The global subscription billing services market is set to more than double in size between 2020 and 2026, from $5.1 billion to $12.5 billion, according to a report from IBM.
“There’s a lot of subscription fatigue,” said Robbie Kellman Baxter, subscription model expert and author. “There’s so much pressure on organizations to get some subscription revenue, but they’re actually just, in some cases, throwing a subscription price on a feature and calling it a subscription. And that is not great for consumers or for businesses.”
Why are companies switching to subscriptions?
Subscription companies saw a surge in business after the start of the pandemic,
with more shoppers turning to companies like Amazon Prime and Instacart as they kept cooped up indoors.
In 2020, ReCharge, a subscription payment platform, saw the number of retail subscribers surge by 90% from the previous year. Nearly 3,000 merchants added subscriptions via the platform that year.
Subscription growth continued in 2022, with merchants’ average monthly recurring revenue increasing by 7% from the previous year.
The shift is a boon for companies since subscribers drive predictable recurring revenue, open doors to better customer data and allow certain industries to insulate themselves against diminishing
ad revenue.
“Companies like Facebook are getting less revenue from the advertisers, and it doesn’t look like that’s going to change in any meaningful way. So pivoting to generating the revenue from users, that would be a very natural alternative,” said Daniel McCarthy, assistant professor of marketing at Emory University.
‘I spend that much money?’
If done right, subscription models can help build loyalty and allow shoppers to only pay only for the parts of the
service they want.
“Companies are realizing that not all consumers are looking for all the features at the same time. This is an opportunity for them to segment the market,” said Raghuram Iyengar, marketing professor at The Wharton School at The University of Pennsylvania.
But certain services aren’t a great fit for the subscription model, warned Anne Janzer, author of “Subscription Marketing.” It can be hard to win customers over if they’re used to receiving the product for free, or if they believe it should be included in the base price.
“The fatigue comes from ill-fitting subscriptions,” she said. “Especially, (from) companies that don’t think carefully about their subscription model, and they’re just going to try to monetize you in a different way. That doesn’t feel good.”
A 2022 survey from the Kearney Consumer Institute found 40% of consumers think they have too many subscriptions, and more than half want to spend less than $50 a month on subscriptions. But subscriptions are costing more than many consumers realize. The average monthly spending was $219, more than 2.5 times what consumers thought they were paying, according to a 2022 survey commissioned by market research firm C+R Research.
“You accumulate more subscriptions than you think over time,” McCarthy said. “Once (consumers) have that moment of recognition, which can be triggered by something like economic uncertainty ... then they’re going to look through their credit card statement and realize, holy crap. I spend that much money?”
Will the trend continue?
While some consumers are getting fed up, experts don’t see the shift to subscriptions slowing down. “I think it will continue to rise in multiple industries,” Janzer said. “We’re now, as consumers, more and more used to it.”
And while an economic slowdown could push consumers to drop some subscriptions, it could also mean more companies turn toward a recurring payment model to drive revenue.
“Subscriptions are about keeping the customers that you have. And so in a downturn, in a time of uncertainty, having customers that are predictable is even more valuable,” Kellman Baxter said.