Merchants Buck Discretionary Spending Pressures by Making Subscriptions ‘Essential’

Subscription firms face pressures they wouldn’t have expected just a few months ago.

Brian Bogosian, CEO of sticky.io, told Karen Webster in an interview that the success of recurring subscriptions — where goods and services are delivered like clockwork or on demand — has proven that convenience matters to consumers.

But it is value — and a personalized bundling of offerings — that will ultimately decide whether individuals and households will deem those subscriptions as essential or not as they continue to tighten their collective belts.

“There’s a lot that’s out of the merchants’ hands right now,” said Bogosian, who added, “we’re entering a very uncertain economic time.”

As PYMNTS research has shown, the resumption of student loan payments as early as this fall means that consumers, especially those belonging to the millennial and Generation Z cohorts, could see their discretionary income cut by around 10%.

Bogosian noted that against that backdrop — and in an inflationary environment — no matter if student loans are part of the monthly obligations or not, “they’ve got rent, they’ve got cars and food … and they’re going to be looking at their discretionary spending much more closely.

In the background, some things can be done to combat the impact of subscription fatigue and cut down on churn, he said. Payments orchestration and advanced technologies can smooth the pain points of failed card payments and can cut down on costs tied to transactions.

In the months ahead, the pressures on discretionary spending will arguably be most keenly felt by Gen Z consumers. As the data shows, these are the consumers that have led the decline in subscription renewals, and it must be noted that they’re the demographic tied to roughly half of retail subscriptions. Elsewhere, retailers like Target have sounded the alarm about student loan payments’ negative impact on spending power.

And yet there are some firms — Disney among them — that are raising prices, even if subscriber rosters might dip a bit.

More Than Just Automatic Payments

Bogosian observed that some key underpinnings might help buck the conventional wisdom that subscription firms and retailers are going to see outsized declines in membership rosters amid “subscription fatigue” — and thus their top lines will suffer.

That’s because subscriptions are less about automatic billing or delivery and now are fast becoming about experiences and flexibility, he said.

“Being able to swap out products or add products and bundles — or putting things on pause — all relate to what’s generated in terms of customer lifetime value,” said Bogosian.

As for the essentials and convenience, consider the example of a pet food subscriber mulling whether to cut back or cancel the monthly deliveries of dog food. Pet food is a necessity for man’s best friend, and walking into a brick-and-mortar retailer takes time and effort (and there’s no telling if the shelves will be stocked with the right brand).

“You’re left wondering if just going with a couple of clicks online is a better way to go even if you spend a little bit more,” he said. “Many of these services are becoming essential.”

In the case of Disney, he added, content is king, as they say, and the executives at the Mouse House have calculated churn and determined that their content is a lure enough and profitability will be on the upswing along with the price hikes.

For other subscription services, loyalty points or discounts provide convenience and pleasure to end users. There’s the potential to take any item (say, an herbal sleep aid) and turn it into a replenishment opportunity, he said. A cheese-of-the-month club membership can suddenly add value, in a customer’s estimation, if it can be “gifted” at a discount to friends or family.

As Bogosian noted to Webster, with the aid of personalization, “there are ways for merchants to take some of those discretionary products and make them more essential over time.”