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Subscriptions and the COVID Effect

1 min read · 469 views Bong-Geun Choi Mar 02, 2023

The COVID-19 pandemic and its associated lockdowns created an upheaval in consumer behavior and spending patterns.  Unable to move about freely, spending patterns shifted to industries enabling “at-home” lifestyles such as delivery and e-commerce.  As economies began opening up, much of these spending patterns reverted closer to their pre-pandemic norms.  One exception was spending on subscriptions, according to a recent study written about in the Wall Street Journal.[1]

 

Why have subscriptions bucked the trend?

 

COVID-19 Drives Substitution Spending

Unable to leave their homes, individuals appeared to have substituted spending that occurred in physical locations for their online or delivery counterparts.  This shift in spending was more pronounced among consumption patterns involving impulsive or discretionary purchases, such as apparel and restaurant dining, compared to categories involving more routine items, such as meal kits.

 

Subscription Spending Was the Exception

However, the study found that subscription spending did not experience the decline that other categories did.  It did not revert to its pre-pandemic spending.

 

What may explain the stickiness of subscription spending?

 

Explaining the Stickiness of Subscription Spending

One reason that may explain why subscription spending did not decline with the lifting of lockdown restrictions is that many subscriptions renew automatically. This “autopilot” feature of many subscriptions helps companies retain subscriptions in several ways:

  • People forget to cancel their subscriptions
  • Some continued with their subscription because they found it too difficult to cancel
  • Others continued their subscription because they thought they might need the product or service again in the future
  • The longer individuals maintain their subscription, the more likely they are to feel that the product or service is necessary rather than a “nice-to-have”

 

Another potential reason is that people consistently underestimate what they spend on subscriptions.  The study showed that nearly 100% of subscribers were unaware of what they actually spend on subscriptions.  Many were spending 3.4 times more on subscriptions than they thought they were.

 

Given the commitment involved in signing up for a subscription, consumers may be more thoughtful before subscribing to a product or service.  Thus, they may be less likely to cancel the subscription.

 

Consumers may be satisfied with their subscription experience and, therefore, likely to continue the service.

 

Subscriptions May Lead to Longer-Term Sales Gains

The COVID pandemic resulted in a boost to subscription revenue that appears to be long-term.  It also demonstrates the power of subscriptions to lead to longer-term financial benefits.

 


[1] Forman, Laura, Your Wallet Is Being Drained by Subscriptions.  Wall Street Thanks You, The Wall Street Journal, 12/9/22; Oblander, Shin & McCarthy, Daniel Minh, Estimating the Long-Term Impact of Major Events on Consumption Patters: Evidence from COVID-19, 11/29/22


 

Bong-Geun Choi

Chief Economist

bchoi@fountinvestment.com

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Risk Disclosure:

 

Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated objectives. In addition to the normal risks associated with investing, international investments may involve the risk of capital loss from unfavorable fluctuation in currency values, differences in generally accepted accounting principles, or social, economic, or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume. 

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