Despite the popularity of subscription commerce, it can be a volatile market. In any given week, some companies fizzle out while others forge ahead.
Last week, MoviePass announced the curtains would be closing on the subscription service. MoviePass had millions of subscribers and a much-beloved service, but it still struggled to make money and alienated users by reducing its service offerings.
Ford is also selling off its monthly vehicle subscription services, Canvas, to vehicle subscription startup Fair. While Ford couldn’t make the model work, clearly not all have given up on vehicle subscriptions.
At the same time, Walmart is now offering a subscription grocery delivery service. For an annual $98 fee, subscribers gain access to unlimited same-day delivery.
The latest Global Recurring Payments Tracker examines emerging trends in subscription commerce and focuses on why and how companies are increasingly turning their attention to international markets for growth.
Why Businesses Embrace Subscription Commerce
No surprise, it’s about sales.
According to a study of retailers, the top subscription service-driven benefit is greater revenue (67 percent), followed by greater profitability (61 percent). Roughly half also cited increased customer loyalty (55 percent) and greater revenue predictability (50 percent).
Even so, the average customer spends 60 percent more in the six months following enrollment into a recurring program. This is why retention is so top of mind. Another study found that nearly all (97 percent) of organizations view customer retention as a leading priority.
A majority (57 percent) of B2C subscription retailers report a churn rate of 2.9 percent or less. Yet only one in four subscription companies across B2C, B2B and hybrid businesses experience a year-over-year revenue growth rate of more than 30 percent.
This is in line with PYMNTS’ Subscription Commerce Conversion Index, which found 71 percent of consumers who were one month or less into their digital media subscriptions planned to cancel them within a year.
Consumers Like Auto-Renewal
Consumers are increasingly interested in automatically renewing their subscriptions. A global survey found that the share of consumers who favored auto-renewal grew from 21 percent to 39 percent between 2018 and 2019. The rise is likely due to the increase in the number of subscription providers offering these options.
In this survey, entertainment streaming services are the leading subscription category, purchased by 36 percent of consumers, followed by subscription-based software at 33 percent. Subscription-based retail products such as food delivery or wardrobe services were used by 12 percent of respondents.
This follows trends discovered in the PYMNTS Subscription Commerce Conversion Index, where streaming services were the most popular among consumers (70 percent). Around one-quarter (24.5 percent) had subscriptions for consumer retail products.
Localization Can Make or Break a Business
Entering a new market isn’t as simple as just making products or services available in other countries via eCommerce. Service providers also need to manage foreign transaction fees and interchange rates that can be complex even though these hurdles are invisible to customers. This is the case for subscription-based products like cars or clothing, as well as streaming services and software.
Logistics aside, global providers must tailor their payment methods to match those that are widely available and popular when making subscription payments. “In a world where you’re transacting with users in different markets, you need to make sure that the payment mechanisms that you’re offering meet what they expect and that you’re tailoring to [their] preferences,” said Pravav Sood, vice president of international expansion at GoCardless.
In an interview with PYMNTS, Mike Schramm, director of global eCommerce for California-based software as a service (SaaS) video conferencing provider BlueJeans, explained how the company sought to expand its customer offerings worldwide and create more convenient payments experiences in disparate markets.
He gave examples of German shoppers’ preference for direct debit and that to enter Brazil, subscription companies and other merchants need to understand the regional preferences for installment payments and push payment system Boleto Bancário.
A Spotlight on SCA
This week, the strong customer authentication (SCA) deadline came and went. The regulation designed to protect consumer data also has ramifications for subscription commerce in that businesses that fail to properly prepare for SCA will likely experience a rise in recurring card payment failures.
Exemptions have been made, though. SCA rules will apply to the first recurring payment, assuming it’s for the same amount from the same business. And the Payments Service Directive (PSD2) and its SCA rules are applicable to the European Union, U.S.-based subscription operations that don’t have both a card issuer and merchant acquirer based in the European Economic Area will also get SCA exemptions.
Ethan Teng, head of growth for PSP Recurly, noted in a recent interview with PYMNTS that subscription providers will need to strategize to retain customers who could be turned off when their automated card payments are declined.