Monday, May 20, 2024

The US subscription economy is overstretched and may snap

It’s been more than a decade since the internet generation became accustomed to paid subscriptions with Amazon Prime, Hulu and Netflix. It made sense when Apple Music and Spotify joined in, charging for unlimited music streaming. Some people even got into box subscriptions through the likes of beauty and trinkets box FabFitFun or grooming products box DollarShaveClub. But the subscription economy has finally gone too far in the US. It has expanded to include free iced tea with a $11.99 monthly Panera subscription, free delivery of 7-Eleven snacks for $5.95 a month or Chinese-American food from PF Chang’s for a monthly $6.99. It doesn’t end there. Companies from Sweetgreen to Sephora now offer subscriptions for discounts on orders or free same-day delivery.

If it feels like you are drowning in subscriptions, you are not wrong. It’s hard to keep track and, even if you do, you may eat at Panera a lot less than you thought after the first few months of guzzling free tea. For some companies, that’s part of the calculation, plus there’s the bonus of scooping up data on consumers while having them pay for the privilege of free delivery.

For retailers, subscription programmes as opposed to free-reward schemes make business sense. But at a time when people are cutting back on spending, retailers have a higher bar to jump to convince stretched consumers to spend extra cash amid all the subscription noise.

So why are you suddenly seeing everyone offer some kind of subscription scheme? There are a few reasons. The cost of luring new customers has skyrocketed over the last couple of years as companies and states curb data tracking. Apple’s mobile-phone operating software allowed customers to opt out of tracking, limiting how much data marketers collect. Mozilla and Google started to phase out third-party cookies on their networks, further curtailing data collection. California passed a privacy law in 2018, which set a precedent that other states have followed.

Companies deprived of their old data pipes are looking for new ways to learn about us and sell us things. That means they need more data collected directly from us and with our consent. Turns out that subscription programmes not only allow them to get our consent to share our information, but we also agree to pay them for that data in return for free perks.

Amazon.com’s Prime membership has proven to the industry that subscription schemes are a great money maker. Amazon instantly added billions of dollars to its subscription revenues when it raised the cost of Prime last year from $119 to $139 for its US members. Companies new to the subscription game are seeing results too: Sweetgreen co-founder Nicolas Jammet told investors in December that Sweetpass subscribers made about five more transactions during their one-month pilot last year than they had previously.

The hope for companies is that hyper users are balanced by those who don’t quite use their subscription perks as much. So maybe a portion of shoppers rack up purchases at 7-Eleven and get the full bang for their buck; another chunk passively pays for the subscription and forgets to use it.

Retailers and restaurants have pretty decent odds that people will subscribe and forget. Market research firm C+R Research found last year that people pay an average of $219 a month in subscriptions, over $100 more than they estimated.

As people get back to office work and start seeing friends in person, the hope is that such subscription deals will drive routine purchases. But many of our pre-pandemic routines are gone. Most people have hybrid work schedules, where they’re in an office for part of the week and work from home for the rest of it. Maybe a Sweetgreen subscription worked well in the old days of a traditional workweek, but these days? Not so much when you can make a salad at home and you’ve just splurged on an upcoming summer trip.

Even for subscriptions that we absolutely want, the preponderance of choice can be quite bewildering. With Showtime’s show Yellowjackets; HBO Max’s Succession; and Apple TV+’s Ted Lasso all premiering at the same time, plus live sports and (of course) Netflix, people in America may find themselves shelling out more than $100 to enjoy favourites. And then, there are kids’ subscriptions. This is not the cheap unbundled future people were hoping for.

With a looming economic downturn in America and other parts of the world, people are looking to cut costs, opting for cheaper alternatives and dropping their little luxuries. Add to that a sense of subscription fatigue, and companies will need to think more creatively about how they can help consumers save either time or money. It’s time for the subscription economy to go into reverse. 

Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. 

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