A New Opportunity for Subscription Businesses

This article was written by Des Hang, cofounder and CEO of car subscription service Carbar. The article was originally published on The Australian.

 

For the first time in a long time in Australia, consumer spending is in free fall. If the latest transaction data release by CBA is any indication, panic buying has given way to a hoarding mentality where the average Australian is saving their cash for a rainy day.

Spending in New South Wales and Victoria account for almost half of all consumer spending in Australia. According to CBA, that’s down by almost 15 percent. That’s been reinforced by Westpac’s Consumer Confidence survey last month recording the largest drop on record.

But what would be interesting to know, and what was excluded from studies on consumer spend, was whether any consumers shredded any of their subscriptions in response to COVID-19. I have a hunch that they didn’t, and furthermore that this period could serve to further validate this business model.

That suspicion is backed up by global data from subscription technology business Zuora. They found that over half of the subscription businesses surveyed as part of their global subscription index reported a limited impact from COVID-19. A quarter of them are even growing in this environment.

The subscriptions that are growing the most are digital services and digital media. This includes your TV streaming services, but also e-learning, communication tools and news media subscriptions.

No surprise that the subscriptions that are consolidating revolve around travel and sports services. Why hold onto a gym membership when you can’t go to the gym?

There isn’t any firm data on how this is playing out in Australia. But given the logic behind these numbers, I would expect these trends to be holding true here too. This means that despite the economic decline, there are a number of subscription businesses either holding numbers or growing despite adversity.

This has been the experience for Carbar. We’ve had growth in our subscription business across all three states that we operate in, with Queensland — our newest — seeing the highest growth. The main reason for this, we feel, is that there’s been an uptick in demand for private transport during the pandemic. Consumers also don’t want the overhead of debt or upfront registration fees and prefer to hold onto their cash during uncertain times.

But, admittedly, it has been accompanied by some churn. A small number of customers have ended their subscription, largely because they weren’t using their car. However, if it’s for the right reasons, I’d argue that churn isn’t a bad thing as your customers will come back. Many of ours leaving our service have told us they’ll resign when normality returns, and do they need regular access to a car again.

This does, however, make me wonder whether the services who have seen an uptick now — such as streaming platforms — will struggle to hold their customers when we’re allowed out of our houses again.

If anything, these musings and the apparent stability of most subscription-based businesses during this really dire period should give the broader business community some pause. While not all companies can operate on a subscription model, are there ways that some businesses can build it into their operations to give it more resilience?

Retail, for instance, is a classic example. Can they roll out a subscription model for their goods, and provide enough value that it’s a genuine alternative to ad hoc shopping?

This may sound out of the question. But a few years back, the idea of having a car on subscription was a pipedream. We’re still educating the market on the benefits of it, and it is a long term play. However, we’re still seeing some growth in a period where the entire auto industry is rapidly consolidating.

If I had to put money on it, I’d wager that in a post-COVID-19 world more services will become subscription-based. Things that we never imagined would be a subscription too. The model is being stress-tested by COVID-19 and so far, the results are promising.

+++

Learn more about the Subscription Economy and how subscription businesses are faring amid COVID-19

Recommended for you

Strategic Insights from Zuora’s Subscribed Institute Executive Breakfast in London
How to create personalized subscriptions using Zephr
Unlocking the Power of First-Party Data: Agility in a Changing Digital World