Subscriptions

Why Pushing Pause Will Help Subscription Commerce Surge

Recurly

Consumers are treating spending very differently today than they were even eight weeks ago. That fact is increasingly underlined in a variety of data streams: recent PYMNTS consumer surveys, the earnings reports of the card networks, early information on how stimulus funds are being spent – they all tell the same story of consumers tightening their belts and shifting away from discretionary spending and toward necessities.

As Recurly Senior Vice President Emma Clark told PYMNTS in a recent conversation, that means the landscape for subscription retail players has radically shifted in recent weeks. Companies whose core offerings have always been digital services – such as gaming, entertainment streaming and e-publishing – have unsurprisingly soared of late, as consumers have been stuck at home and are looking for things to do.

 

Conversely, she noted, firms with subscriptions to things that are entirely dependent on physical presence — zoos, movie theaters, amusement parks, or any other kind of service premised on “the idea that the user is going to visit a few times a year” — have suffered. And in many cases, they are concerned more about their overall survival than how they can perfect their subscription model.

But between those extremes is the really interesting group to watch — firms that have pivoted toward digital and expanded their service menus, said Clark. Many gyms have taken a page from Peloton’s book and started offering online classes, numerous restaurants have transformed themselves into meal kit businesses practically overnight, and sellers of physical goods have started shipping items directly to consumers’ doors, bypassing the physical stores altogether.

“Some of those are pivoting really quickly,” Clark noted. “And we're watching all of these categories really closely right now to get a better understanding of how they're doing in the immediate COVID-19 world, and about what will happen when we re-emerge from it. I'm interested to see some of these subscription businesses pivot to serve their customers' needs and really dig into what their customer values in their product or service.”

In the subscription business, said Clark, continuing to serve a customer’s need — as opposed to satisfying a transient want — is what retains customers over the long haul and substantiates higher acquisition costs.

Why Need Is Subscription Commerce’s New North Star

There is a whole host of tactics that subscription retailers should make to adjust to the immediate reality of a COVID-19 world. Those include offering an easy onboarding process, a variety of subscription levels and payment options, extensive discounts, free trial periods, and the ability to easily pause a subscription for a period of time and to restart it later, with just a click of a button.

These are all important things, as their absence could drive customers away. Among the things consumers like about subscription relationships is the gateway to an easier, more direct and more flexible relationship with sellers. But, noted Clark, that alone won’t be enough to prevent subscriber churn going forward.

Before COVID-19, she said, millennials and high-income earners were the ones with the highest churn rates, because these are the groups most likely to develop “subscription fatigue” in response to the inundation of options. In the COVID-19 world, the desire to pare down subscription services is likely to affect everyone as consumers across all demographics refocus on value and ask themselves two questions:

  1. How much do I need this?
  2. If I don’t need it, how much do I really want it?

“We're flooded with so many different options and different ways to spend our money that to mitigate overall cancellations and prevent churn, subscription services need to make sure the answer is either a ‘yes’ to the first question or a very enthusiastic ‘yes’ to the second one — especially in the next few months when folks will be tightening their belts on discretionary spend,” said Clark.

The pivoting process, well underway today, isn’t likely to stop anytime soon for subscription retailers. Quite to the contrary, Clark noted, it will be an ongoing evolution as the new economic normal takes shape.

Innovating To Capture The New Customer

It’s a fact that the recovery process will happen, she pointed out. Some of the spikes Recurly has seen over the last few weeks — like the massive jump in gaming subscription services — will likely level off and recede a bit when consumers have more options for entertainment outside their living rooms.

However, said Clark, subscription levels are not likely to revert back to their exact former levels. The subscription landscape is a rapidly evolving one and Recurly has seen a shift in behaviors already underway before COVID-19, particularly among millennials and Generation Z consumers. The pandemic environment has only accelerated those trends.

Consumers have learned new ways of doing things — and they’ve realized they prefer some of them. Their definitions of what they want and need are changing, which means providers looking to capture and keep those consumers will have to evolve along with them.

“This is definitely a time of transition and shift,” said Clark. “I think what that shift will look like depends on our new consumption patterns — whether people are at home, or going to the gym, or looking at education mechanisms or tools for work. It will be really interesting to see how the market moves to meet those demands.”

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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