Subscription Commerce

Deep Dive: How Subscription Services Retain Customers By Hitting Pause

The ongoing COVID-19 pandemic has had a plethora of effects in addition to its devastating impact on public health, including setting in motion an economic free fall. Government-mandated social distancing and stay-at-home orders have slowed in-person retail sales in many regions and mass layoffs have hindered consumers’ purchasing power. Experts predict that 25,000 retail stores could shut down by the end of this year — up from 9,832 closures in 2019 — and unemployment rates hovered between 10 percent and 15 percent through June. 

Even the subscription commerce industry has not been immune to these economic ramifications. Many subscription services are digital and have not been affected by social distancing and stay-at-home orders to the same extent as brick-and-mortar retail, but they still face difficulties stemming from reduced consumer purchasing power. The following Deep Dive explores the pandemic’s effects on the subscription industry as well as how subscription-based companies have introduced pause features to reduce churn and retain subscribers during the unprecedented economic downturn. 

How The Health Crisis Is Affecting Subscription Commerce 

Brick-and-mortar retail stores may be suffering from lack of business, but the subscription commerce industry’s revenue remains strong thus far. A recent study found 53.3 percent of companies have not witnessed measurable impacts on their subscription rates as a result of the pandemic. It showed that 22.5 percent are experiencing accelerated subscription growth rates while 12.8 percent are saying their new subscriber rates have slowed but are still rising. Only 11.4 percent have seen more cancellations than new subscribers, resulting in falling revenues. 

Certain subscription types have seen more success than others. The same study found that news media subscriptions have been particularly fruitful, with a growth rate of 110 percent between March and May compared to the same period in 2019. Americans seem eager for news regarding the pandemic, the upcoming presidential election and other current events, and this combined with more individuals staying home means consumers are reading more news than ever and are willing to pay for it. Bloomberg Media saw an 86 percent jump in new subscriptions in March, for example, with the last week in the month providing its single biggest increase in subscribers since the publication introduced its paywall in 2018. 

Over-the-top streaming services like Netflix and Hulu as well as eLearning software and communication subscription services like Zoom or Skype — all of which can help or entertain consumers who are stuck at home — have also seen rising subscriptions rates. Social distancing and stay-at-home orders have greatly hampered travel and hospitality and sports-related subscription services while internet of things (IoT) subscriptions have seen their growth rates — but not their overall subscriber counts — slow. 

The overall subscription market is expected to continue growing at a CAGR of 68 percent through 2025, according to PYMNTS’ recent Subscription Commerce Conversion Index. This does not mean subscription companies are growing complacent due to their strong market presence. Many are quite aware of their customers’ economic hardships and are introducing pause features to allow them to temporarily cease their subscriptions without canceling them entirely. 

Subscriptions Hit Pause 

Subscription services continually face the issue of churn, which occurs when customer cancellations outpace new signups. This problem could become especially acute during the pandemic as economic hardships set in and individuals look to cut back on their spending. There are currently 167.1 million subscription customers for streaming, education and training, digital media or consumer retail services, of whom 27.4 million report being at least somewhat likely to cancel. This churn rate of 16.4 percent is much higher than the typical 7.7 percent rate of most consumer-facing subscription services, and though not all of these wavering customers will cancel, the number is high enough to give subscription companies pause. 

Many subscription businesses are therefore introducing subscription pause features to reduce the likelihood that customers will cancel outright and never return. Such features enable customers to temporarily stop receiving companies’ goods or services in exchange for temporarily halting their payment requirements. PYMNTS estimates that up to 8.5 percent of wavering customers could be convinced to stay if they were offered the option to pause their subscriptions. No company is eager to see its revenues reduced, but suffering temporary dips would be far more palatable than losing customers entirely. 

The subscription commerce industry may be doing better than most during the pandemic, but subscription services must examine every option available to avoid precarious financial situations. Pressing pause may provide only temporary relief, but it could buy companies time until the pandemic recedes and business resumes as usual.

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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