The great subscription shift: Is this the end of ownership?

With the rise in demand for subscription models, the days of consumers “having it all” may soon be over. But where does this leave retailers? The Retail Gazette looks into the growing trend for access over ownership, and how retailers can adapt.

We’re now a nation of subscribers. According to research conducted by YouGov and subscription economy creators Zuora, almost nine in ten people across the UK now have at least one subscription service.

While it may not be the first major trend in retail to come to mind in the past ten years, the subscription economy has been making steady gains in a comparatively short space of time, with the UK adult population spending three times more per month on subscription services than the previous year (from £18.49 in 2016 up to £56 in 2017).

Not only are more UK consumers choosing to subscribe rather than buy one-off products, they’re also spending a lot more on subscriptions.

This offers a huge opportunity for businesses to grow their existing subscription operations or to shift to a subscription model to ensure they stay relevant in the future.

In the UK today, there are more than 58 million people now using subscription services, with utility providers, entertainment (such as Netflix) and Amazon Prime which leads the way.

There’s also a clear rise for the retail sector: five per cent of those subscribers are signed up to online retail subscriptions, equating to 2.9 million, a number that’s only likely to rise with the continuing uptake of part-ownership models.

According to Zuora, 25 per cent of UK adults believe they’ll be subscribing to more services over the next five years.

Seeing the potential growth in subscription economy, Zuora founder Tien Tzuo built a new finance platform for subscription businesses (and traditional enterprises seeking to transform into one).

According to Tien, shifting towards a subscription model is a fundamental transformation in the nature of customer engagement.

It changes a company’s focus pushing products to customers (where the central unit of business is the transaction) to servicing customer needs in an ongoing, dynamic relationship (where the central unit is customer happiness).

As we say in retail, the customer is always right – which is why subscription retail is such an easy fit.

“Subscriptions make life easier. They give customers the freedom to pay a fee for access to personalized services that wouldn’t be available otherwise,” Zuora vice president managing director John Phillips told Retail Gazette.

“Think about Spotify – a library of artists instead of a CD with one song. Or Box – unlimited cloud storage versus on premise files. And Uber – pay-per-ride instead of buying the car.

Subscriptions are improving the customer experience by letting consumers access services from wherever they are.”

“For example, mobility as a service alleviates the need for insurance and parking, as these are typically included in the cost of the subscription.”

Phillips added, “the Subscription Economy is not limited to consumer industries. Subscriptions have moved beyond entertainment and transportation and have expanded to include diverse sectors such as retail, manufacturing and healthcare services.”

“This offers a huge opportunity for businesses to grow their existing subscription businesses or to shift to a subscription model to ensure they stay relevant in the future,” said Phillips.

Certainly, it’s clear to see from the rise of companies such as Spotify, that subscription services can totally rejuvenate a previously struggling commodity.

When the music subscription service launched in 2008 it was on the heels of Napster, when record labels had all but given up persuading shoppers to pay for their music.

While the business models may be wildly different now, consumers are back to paying for the tracks they listen to, and there in it for the long term: 10 million pay Spotify for its Premium service, and the Swedish platform registered 70 million active users across the globe in January (up from 15 million year-on-year).

In the UK alone, Pact Coffee, Dollar Shave Club razors, Fabletics athletic wear and Glossybox and Birchbox cosmetics have all begun what’s set to be a totally revolutionising route to consumer for retailers.

By running subscription models, retailers have much tighter control on revenues thanks to (often guaranteed) repeat payments – that means margins can be much tighter and the end price for the consumer much lower.

We asked Tom Willoughby, managing partner at behavioural-led marketing experts KHWS, why subscriptions appeal to the consumer:

“Subscription-retailing isn’t a new trend, it just enjoying a spirited revival. All that has happened is we’ve simply swapped our love of subscriptions to the new staples of modern life such as content streaming services and boxes of organic snacks. What interests KHWS is the shopping behaviour that lies behind the resurgence of subscription-retailing.

“Working with Durham University Business School, we’ve reframed over 128 heuristics – the mental shortcuts we use to make purchase decisions – into nine sales triggers (as we call them).

“Using our proprietary planning model, we leverage these sales triggers to inform marketing that increases sales. Interestingly the Value of Ownership sales trigger explains why subscription models continue to be so effective in driving sales growth.

“The Value of Ownership gets people to feel like they ‘own’ your brand without paying for it, as once they have it they value it more. So, if your brand is running a subscription-retail model, simply offer a 30-day free trial and let people ingrain your product or service into their lives. Soon they feel like they can’t live without it.

“The Value of Ownership dramatically increases the chances of someone signing-up for a subscription, key to customer retention. It’s a purchase behaviour that has been leveraged to huge success by the likes of Amazon Prime, Spotify and Netflix.

“The irony of the world’s uber-sharp tech giants using such a tried and tested approach that’s been around for decades is testament to its effectiveness. Couple this with another sales trigger Social Proof, where similar satisfied customers are shown and encouraging peers to share positive experiences and you can soon understand why subscription-retailing is becoming so attractive for brands. It’s a cost-effective, proven way to influence people’s purchase behaviour,” Willoughby added.

Add these purchase behaviours together with the convenience of providing a service that is sent straight to customers cuts out the expectation for a brick and mortar presence, and it’s no wonder customers are spending – even on items they previously could acquire for free, such as music.

Plus, it’s a concept that naturally appeals to niche items or unusual products (such as craft coffee): customers will pay a supplier to curate and then deliver something they can’t easily source on the high street or online.

To survive in an economy actually moving away from ownership, will retailers need to build in subscriptions to future-proof their business? Quite possibly.

As Phillips explains: “The overwhelming imperative of every business should be to create a valuable experience. For retailers, moving to a subscription-based business model helps them understand their customers better and change their recommendations based on data coming from customer shopping preferences ensuring they stay relevant as consumer preferences change.

“Ultimately, the subscription model not only helps brands understand their customer, but it also provides regular, repeatable transactions and income to the business.”

With owner-occupation rates falling, actually owning a car, phone or home isn’t top of a consumer’s tick-list: they can simply borrow it – and it’s time retailers followed suit.

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