Do Shoppers Benefit From Buying With Subscriptions?
Subscriptions are very popular but have many downsides for shoppers
Posted August 19, 2015
Not too long ago, it used to be that magazines were the only things you could purchase with a subscription. Within the past few years, however, this has changed dramatically. Shoppers can now subscribe to pretty much any product or service they want, from clothes and groceries, to shaving supplies, pet food, and on-demand entertainment. These subscriptions usually come in two forms. They are either access-based or bundle-based, and they work as follows. Shoppers agree to pay a flat price periodically, say each month, which is automatically charged to a credit or debit card. If the subscription is access-based, you receive access to services the seller offers and can consume them at your discretion. Think Netflix or a gym. For a bundle-based subscription, in contrast, the seller selects an assortment each month, whether it is casual clothing, pet food, vegan snacks, beauty products, and so on, and delivers it to the shopper.
Subscriptions have their uses. The biggest advantage of buying through subscription is its convenience. Instead of going out and having to purchase an item each time it is needed, or sifting foggily through countless choices, a preselected assortment magically shows up at your doorstep like clockwork. Both access-based and bundle-based subscriptions provide shoppers with variety they would otherwise not get. After signing up for Birchbox, for example, shoppers get a new box of different travel-sized beauty and grooming products each month. There are no repeats. Similarly, Netflix gives access to an assortment of thousands of movies and TV shows and gyms offer a wide variety of exercise equipment, classes, and workout options. Another benefit of subscriptions is that because many items are bundled together, they cost less as a whole than they would if purchased separately by the shopper. Finally, in the case of access-based subscriptions shoppers simply like the idea of paying a single flat rate for access to potentially unlimited amount of use – called the “flat rate bias”.
It is not surprising that subscriptions have become extremely popular among shoppers and are widely used by companies. According to some estimates, there are tens of thousands of companies that now sell subscription-based products and services, and this number is growing every day.
But shoppers should be careful. The benefits and popularity notwithstanding, shoppers should be cautious about signing on for subscriptions. Marketing and consumer psychology researchers have discovered at least three compelling reasons why the benefits of subscriptions may be illusory for many shoppers, and there may be more downside than upside from signing on to a subscription.
- Subscription automates buying and increases amount purchased. Whether it is watching a movie through Netflix or buying a box of beauty and grooming products, subscriptions convert shoppers from making purchases once in a while or infrequently into regular buyers that sign on to purchase the product or service predictably month after month. Subscriptions automate the buying process from start to finish and so it recedes into the background of the customer’s life. In business-speak, subscription is called a “recurring revenue” business model and companies love it! It results not only in increased revenues earned from each shopper, but also in more predictable revenues. For shoppers however, the downsides are obvious. They lose control over the process of buying and paying for items. Things that were purchased once-in-a-while (say, a movie or a chew-toy for a pet) are now purchased regularly and way more frequently than before. Inertia keeps many shoppers subscribed (and paying the monthly fee) long after they have lost interest. The end result of all this: greater spending and less saving.
- Subscription-induced consumption has downsides. Many consumers sign on for subscriptions with the idea that they will enjoy the variety they receive each month. But such a prediction is flawed. Many miss the fact that variety will also bring unwelcome abundance. New supplies of beauty products, shaving razors or pet chew-toys just keep coming month after month after month, regardless of whether the existing stocks are used up or worn out. At the same time, consuming something all the time, whether it is eclectic chocolates or blockbuster movies, that was a rare treat before, makes the experience less enjoyable, and reduces savoring. For access-based subscriptions, the story is slightly different but no less sad. A majority of shoppers consume less of the accessed service then they think they will yet pay the same fixed price every month for it. How many of us sign a gym membership resolving to go every day, yet weeks go by without a single visit? So instead of being thrifty shoppers, they end up spending far more for the service than they would if they had purchased the service if and when they wanted to consume it.
- Subscriptions encourage waste. After subscribing to a particular bundle service, in most cases, the shopper has little control over the actual items received. The company decides what items to send each month depending on availability, economics, and the motivation to constantly send new things. The shopper’s preferences or momentary requirements are given little consideration. One subscription enthusiast talks about the case of her husband subscribing to men’s lifestyle products who then kept receiving hair products each month even though he was bald. Not surprisingly, there is a lot of waste because many of the items in the bundle are of little value or use to the shopper. Business writer Caroline Winter described her experience: “This month’s $19 Goodebox—offering “healthy beauty products”—includes 1 oz. samples of body scrub and shea butter, nail polish tester, eye shadow tester, and an eco-friendly notepad. A recent $19.99 Nerd Block box contained a T-shirt, a Batman figurine, a mug, a plastic watch, and a Star Wars sticker. Now imagine all that junk arriving each month.” In addition to receiving unwanted things, the cyclical shipping of subscription companies encourages them to manufacture products that are designed and made with planned obsolescence in mind. Short-lived, flimsy products are the life-blood of subscription services. Unless clothes, electronic gadgets, or pet toys wear out quickly and have to be replaced, shoppers will no longer keep their subscription.
So what does all this mean? For shoppers, the trade-off is clear. The convenience and variety that subscriptions promise are often far outweighed by greater spending, over-paying and under-consuming, enjoying less, getting unwanted products, and saving less money. So unless you are a super-heavy user, it might make sense to resist the temptation of signing up for a subscription and buy the item as and when it is needed (even if it costs more per unit) and then consume it mindfully for maximum enjoyment and financial comfort.
More About Me
I teach core marketing and pricing to MBA students at Rice University. My forthcoming book is titled How to Price Effectively: A Guide for Managers and Entrepreneurs. You can connect with me on LinkedIn or Facebook, or you can send me an email. All questions, comments, thoughts, and ideas for future blog pieces or academic research projects are welcome.