Subscriptions Aren’t the Only Way to Retain Customers

With customers looking to scale back among the glut of subscription services available, businesses should consider other loyalty tactics, such as Lifecycle Marketing, to keep customers around and win a larger share of their wallet.

Just a few years ago, it seemed like every company was experimenting with a subscription service model. And consumers were eager to subscribe–especially while in lockdown during the pandemic–which wrote the recipe for rampant growth in the subscription economy.

At some point, however, the industry had to peak–and now it’s coming back down.

In 2023, more consumers seem to have reached a breaking point when it comes to the number of subscriptions they pay for. As subscription fatigue continues to grow among users who may not even be aware of how much they’re spending on monthly payments, unessential subscriptions are the first to go. Even the services users consider “essential” are not safe from high churn rates, especially among younger generations.

Rather than fighting to create a subscription service with value in an already saturated market, it’s better to consider other customer retention strategies based on data and Lifecycle Marketing–the true key to loyalty and returning customers.

Origins of the subscription model

The subscription service model has been around for centuries now. While the first may have been King Charles of England’s scheme to sell fire insurance in 1638–a poorly understood model at the time and therefore, one that failed to take off–since then, many other services quickly made the most of subscriptions. Publishers, literary journals, and newspapers used a subscription model in the 1700s, and in the 1860s, milkmen made deliveries daily to homes. The 1880s saw the introduction of subscriptions to telephone connectivity, pioneered by AT&T. Many more companies and services created subscription services–including car companies, cable and internet providers, and software businesses.

Netflix pioneered the subscription model that we know today in 1999 (the same year Salesforce launched its SaaS model for customer relationship management, if you’re curious about subscriptions on the B2B side of things) with its idea to charge customers one fee a month in exchange for unlimited access to its DVD library, up to four DVDs at a time. Now, it’s the most subscribed-to streaming service in the world.

Other companies specializing in retail subscriptions began to pop up in the mid-2010s as well. Birchbox, Dollar Shave Club, and HelloFresh are among the names now familiar to many consumers. 

Subscriptions boomed during the pandemic as consumers looked to online shopping, streaming, and home deliveries to feed and entertain themselves. The shutdown-era boost to the subscription economy solidified the model’s place in almost every industry, and projections put the impact of subscription businesses on the economy at $599 billion by 2026. Yet, without loyalty strategies and a focus on retaining and gathering more high-value customers, high churn rates and subscription-cutting have a chance to dampen the industry.

The Subscription Economy

For companies, subscriptions are a way to not only ensure stable recurring revenue, but also to build a detailed stack of first-party customer data, as well as deepen relationships with customers and increase loyalty. But is that really the case?

By one estimate, nearly 75% of B2C companies have attempted some sort of subscription service. Increasingly, platforms that previously succeeded without a monthly fee are testing out subscription services–like Meta, which is trying out a paid verification subscription for Facebook and Instagram.

One analysis found that subscription companies have grown 3.7 times faster than the S&P 500 over the past ten years. These include cloud storage, retail-box services, subscription video on demand (SVOD) services like Netflix, and now, paid verifications on social media platforms like X (formerly Twitter) and Meta’s Facebook and Instagram. The subscription economy is expected to reach $1.5 trillion by 2025.

Some companies have benefited tremendously from shifting from a one-time purchase option to a subscription. Take Adobe, which managed to move over 50% of its business to subscription when it made the switch in the early 2010s, quickly surpassing its licensing profits and ensuring the highest quarterly revenue in its history just this year.

However, the subscription model doesn’t work for every company. Forbes Advisor found that the most popular type of subscription is streaming services, followed by delivery apps and music services. Other types of subscriptions–like to wellness and dating apps–are the least popular as well as the most likely to get cut by users this year.

For some companies, it’s a bust from the beginning. While some car companies have experimented with programs allowing drivers to drive multiple models of a car, like Cadillac, others have tried and failed to employ a subscription model–like BMW, which attempted to charge a monthly subscription for heated seats and steering wheels in a model that rapidly alienated customers. For many companies (even the ones that employ subscription models), it’s better to engage in Lifecycle Marketing and build high-value customers that are resistant to churn.

2023: The Era of Subscription Fatigue

With consumers tightening their budgets in the face of inflation and deliberate attempts at more conscious spending, many are cutting their least used subscription services and, in some cases, opting for one-time purchases and ownership rather than service models. 

At the end of 2021, the average US consumer had around five retail subscriptions, up from two before the pandemic. By one estimate, 45 percent of users struggle to keep track of what they’ve signed up for. 34% admit they pay for a service they rarely if ever use.

Now, the glut of subscriptions available, consumers’ lack of awareness around just how much they’re spending on these services, and preferences for brick-and-mortar experiences instead of delivery boxes are sending us into the era of subscription fatigue. Not only that, but the subscription industry is already plagued with high churn rates–with many consumers not sticking around for longer than a few months.

A McKinsey study from 2018 found that one of three consumers canceled their SVOD subscription in less than three months, while over half canceled within six.

Even subscription video services are going the no-fee route: consider FAST options, which are increasingly getting a bigger piece of the streaming market.

Couple that with churn-and-return practices, in which consumers subscribe to a service (particularly SVODs), leave after a couple of months, and subscribe again when a new show catches their interest or they want to try a new glitzy retail service, and the veneer of ensured customer loyalty disappears. 

Consumers are only likely to adopt a new subscription by getting rid of another. Services that choose to go with the subscription route must show their value to get chosen. 

Using customer retention strategies and Lifecycle Marketing

So if the subscription model doesn’t work for you–what does? How else can a company ensure loyalty and stable return from customers?

Well, by focusing on Lifecycle Marketing strategies as well as customer retention. 

Lifecycle Marketing is a term used to describe the process of moving a customer through the different stages of the buying journey. That means turning a visitor to your website into a lead, through to a customer, and then a repeat customer, and then an active, loyal customer–engaged in your brand and campaigns for a long time.

Customer retention strategies rely on first party data and high-level analysis to keep customers coming back–it’s the flipside to acquisition, in which you gather customers.

Acquisition is an important practice for both subscription-based companies and non-subscription based ones–and yet, so is retention. Subscriptions are not protective gear against high churn–only retention strategies can do that. Strategies that apply to any company, monthly fee or not.