The subscription economy, which saw huge growth during the pandemic, has started to slow, falling victim to the impact on consumer spending habits of the cost of living crisis.
Research by Barclaycard Payments finds that, on average, businesses offering subscriptions estimate nearly two fifths (36%) of their revenue has been generated from these sales over the past 12 months, an 11% year-on-year uplift.
However, with footfall on high streets returning to pre-pandemic levels as consumers’ lives get back to ‘normal’, the growth of the subscription economy has begun to decline, with Barclaycard proprietary data showing a 5.7% fall in subscription spending in May 2022 when compared to May 2021.
Alongside this, concerns around the rising cost-of-living have also prompted seven in 10 Brits to be more selective about the subscription services they use. More than a third (36%) of consumers say they’ve cancelled at least one subscription because their disposable income has fallen as interest rates and inflation increase, with 31% citing higher prices as a reason why.
On average, UK consumers have cancelled two agreements each, with entertainment platforms (17%) and beauty and grooming kits (nine%) among the categories most likely to have been cut back on. The number of households signed up to subscriptions has dipped by 14% points in a year, from 81% to 67%.
The Barclaycard Payments’ research does show, however, that the appeal of sign-up products and services remains strong, despite economic uncertainty. Almost four in 10 (38%) believe subscriptions offer good value for money and 34% say they help them manage their finances at a time of rising costs. Convenience (42%), reassurance that key products will be regularly delivered (42%), and the ability to try new items, which they may not normally purchase (55%), were also cited as key benefits.
Businesses remain bullish about the future of subscriptions
Many businesses made sizeable investments during the pandemic to increase their subscription offering, and despite inflationary pressures, the majority remain confident in the returns they expect to see. Seven in 10 (69%) forecast the subscription economy will continue to grow and nearly two thirds (64%) will offer sign-up products and services for the foreseeable future. Of those planning to launch a subscription offering, a quarter (25%) expect to do so in the next six months and 42% in the next year.
Subscriptions remain high on the business agenda
While more than half (51%) of subscription providers are planning to cut prices on their subscription products, almost as many (47%) intend to increase prices due to soaring inflation and supplier costs. Three in five (61%) plan to launch lower cost subscription products and services to give customers more choice, and two thirds (65%) will do this in time for key retail moments, such as Black Friday.
To encourage more customers to sign up to subscription services, over half of businesses (54%) stated they provide free delivery on products, while almost seven in 10 (67%) offer discounts. Some retailers (18%) also have plans to offer subscription customers a bespoke loyalty programme, in a bid to increase value for money.
Subscribers value convenience despite cost concerns
The Barclaycard Payments report also shows many Brits continue to prioritise the products and services they obtain digitally or direct to their front door. Three fifths (59%) say they use subscriptions because they provide exclusive access to content and over half (54%) believe they save them time. Meanwhile, two in five (45%) believe subscriptions offer a personalised experience and almost two fifths (37%) state subscriptions help them to organise their life.
When asked what would make them more likely to sign up to subscriptions in the future, Brits chose good value (38% – up from 33% in 2021), a free trial (32% – up from 29%), free delivery (27% – consistent with 2021) and flexible contracts (21% – up from 18%) as the most appealing features retailers can offer. Over four in 10 (42%) also believe subscriptions make great gifts, with 38% expressing an intent to purchase a subscription for their friends or family.
Changing consumer preferences
While many consumers report seeing value from their subscriptions, others are cutting back on the number they are signed-up to. This is primarily due to the rising cost-of-living, but also reflects that Brits are spending less time at home, streaming their favourite boxsets and movies on demand, as the country has opened up again.
Kirsty Morris, Managing Director, Barclaycard Payments, said: “Subscriptions saw huge growth during the pandemic as Brits spent most of their time at home, so it was inevitable this would steady as the economy opened back up. Yet, as the rising cost of living continues to squeeze finances, many consumers are re-evaluating their discretionary spending and cutting back on some products and services they no longer deem essential.
“It remains clear however, that consumers still value the ease, convenience and often additional extras they can access through subscriptions; whether that be through digital services, or products delivered regularly to their door. Many retailers adapted quickly during the pandemic to meet changing demands, and those which continue to evolve their subscription offering to respond to this new set of challenges will be best placed to benefit from increased consumer loyalty and satisfaction.”