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How Might Inflation Affect the Subscription Economy?

1 min read · 480 views Bong-Geun Choi Nov 11, 2022

The U.S. inflation rate is still above 8%, as measured by the September Consumer Price Index reading.[1]  As the cost of living continues to increase, consumers are likely to rein in spending, particularly in areas that are considered non-essential.  How might this affect the subscription economy?

 

Consumers Selectively Cut Subscriptions

Kantar Profiles Audience Network surveyed consumers in April and August 2022 to determine their activity in the subscription economy.[2]  What did they find?

 

On average, there was no significant change in the overall number of subscriptions between April and August.  However, that belies that there were some significant changes to individual categories of subscriptions.  For example, three categories of subscriptions experienced increases, namely, pet services (+4%), cell phones (+3%), and entertainment services (+3%). Eight categories experienced declines, with the largest being food and meal kits (-16%), broadband (-11%), and print media (-10%).

 

Not All Subscriptions Are Created Equal

Many consumers indicated that they might cancel subscriptions if they could.  However, consumers were less likely to cancel subscriptions to products and services they deemed essential.

 

The categories with the highest number of subscribers who would cancel if they had the chance include gym memberships and clothing/cosmetics/personal care.  Categories where consumers were least likely to cancel include broadband. 

 

Subscription economy companies offering products and services deemed essential may be better positioned to withstand periods of high inflation and economic uncertainty.

 

Auto-Renew: An Effective Subscription Retention Strategy

Auto-renewal was found to be the most successful strategy for retaining subscriptions.  Categories with the highest auto-renewal rates included streaming services, pet services, and insurance. 

 

Companies concerned about losing subscribers can emphasize auto-renewal as a payment option.

 

Don’t Take Away My Streaming

Interestingly, a survey appearing in a GoBankingRates[3] study indicated that consumers were more likely to cut back on grocery purchases, dining out, or buying clothes than to cancel subscriptions to streaming services, such as Amazon Prime, Netflix, or Spotify Premium.  In fact, 2/3 of consumers would decrease overall spending due to inflation, but only 25% said they would consider canceling their streaming subscription.

 

For most consumers in the survey, more than half, streaming makes up a significant portion of their monthly spending.  On average, streaming consumes $135 per month, or 17.8% of their monthly budget.  However, that amount is likely higher as more than half underestimate their monthly subscription payments by at least $100 per month.

 

Subscription Cancelation Fears Likely Overblown

Consumers are rightly concerned about inflation and are likely to respond by reducing non-essential spending, including some subscriptions.  However, the reality of the situation is that some subscription companies are likely to do well despite inflation, particularly streaming services.  Additionally, there are relatively easy steps that companies can take to retain subscribers, including emphasizing auto-renewal and providing flexible payment options.[4]

 


[1] Guilford, Gwynn, Inflation Sits at 8.2% as Core Prices Hit Four-Decade High, Wall Street Journal, 10/13/22

[2] US Consumers Are Cancelling Subscriptions As the Cost-Of-Living Soars, Kantar Profiles Audience Network, 9/12/22

[3] Americans Would Rather Cut Back on Groceries Than Stop Their Netflix Subscription, New Study Finds, GoBankingRates, 10/7/22

[4] See our blog Are Payments the Key to Subscription Success?


 

Bong-Geun Choi

Chief Economist

bchoi@fountinvestment.com

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