There once was a time when recurring charges for a regular retail purchase were only copacetic in consumers' eyes as a way to pay down a big-ticket item over time or the accepted retainer for high-priced fashion and design consultants. Now, however, the subscription model for retail is as normal as the one-off transaction.
And like most things normal, once subscription retail became a regular hammer in merchants' toolboxes, it was only a matter of time before it became an all-purpose cudgel.
The story starts, as usual, with some good news from Amazon. Last week, a Consumer Intelligence Research Partners study found that retention rates for the retailer's Prime subscription program weren't just good — or even great — but may have bordered on exceptional. After just one year of membership, Prime users re-upped their annual subscriptions 91 percent of the time. A year after that, retention rates rose again to 96 percent.
The year after that, presumably, consumers begin begging Amazon on hands and knees to let them stay on with Prime.
It's part of the subscription method's steady march from the purview of only the super-loyal to a transaction so mundane nowadays that retailers can employ it for everything from home-delivered cosmetics to online media platform access. In fact, John Fetto, senior analyst at Hitwise, told Internet Retailer that the sheer novelty of how subscriptions tweak the consumer-merchant relationship has the potential to revitalize a few stagnant brands as well.
“Consumers who came of age in the digital era are accustomed to subscriptions models for online media [Netflix], music [Spotify] and news [New York Times online], but ironically for them, subscribing to something in the physical world is exciting and new,” Fetto said.
For all the ground that subscription retail as a payment method has covered in the last few years, there's one critical area where consumers have been resistant to the idea — if only because most brands think they have something better already in place: mobile apps. Despite often draconian revenue-sharing policies on the two major mobile platforms, most merchants can do fairly well by sticking with in-app purchases and the occasional premium upgrade. However, a recent shift in Apple policy could open the door for something new.
That something new is a mobile app economy that functions off of paid subscriptions rather than intermittent in-app purchases. Apple recently announced that, instead of its normal 30 percent cut of an app's revenues during its first year of operation, it would only take 15 percent from apps that boast subscription models as their primary monetization strategy. It didn't take long for Google to follow suit, and just like that, there was a new way to do business on mobile.
Of course, there will be some time to work out the kinks, Tobias Dengel, CEO of WillowTree, told Mobile Marketer, but that should still leave most merchants in a similar or better position than before.
"This is an attempt to make the economics attractive enough that the paid content brands — e.g., Hulu and HBO — allow users to manage their subscriptions through the app stores. The math will essentially be what is the potential lift in buyers versus the 15 percent cost," Dengel said. “We believe there will be lots of testing and experimentation but not sure it's enough to move the needle.”
On the other hand, Adam Fingerman, chief experience officer and cofounder of ArcTouch, believes that the marketing boost from a more managed pool of app users is too big to ignore.
“Would you be better off selling a one-off download for $10 or charging your user $1 a month to subscribe?” Fingerman said. "The answer, of course, depends on what it costs to maintain your app, along with what it costs to acquire that customer. But we expect a lot more apps will eventually convert to a subscription model."