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GUEST COMMENT The subscription economy has been turbo-charged by lockdowns, but it’s really about long-term value

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GUEST COMMENT The subscription economy has been turbo-charged by lockdowns, but it’s really about long-term value

Dan Ziv, CEO of TouchNote
Dan Ziv, CEO of TouchNote

Consumer behaviour during the pandemic has been characterised by two themes - convenience and joy. Over the last year, we’ve seen huge restrictions in physical stores opening, consumer’s ability to visit them and their ability to feel safe when doing so. Consumers have shifted to alternatives to in-person shopping. This has led to a huge boost for online retailers, but also, a huge boom for the subscription economy.

 

Subscription services such as Disney+, Hello Fresh and of course Amazon Prime have enjoyed great success in the pandemic as consumers take comfort in regularity. In 2020, total retail sales fell by record amounts, whilst in comparison, subscription services jumped 50% in lockdown.

 

A survey from Deloitte found that 16% of 25–34-year-olds have at least three subscriptions, with a boost in those numbers coming towards the end of 2020. On top of this, each year it’s predicted that Brit’s will spend £2billion each year on subscription services.

 

But as of the 12th of April, physical retailers in the UK have been permitted to reopen, and many predict this resurgence of physical shopping will spell the end of the subscription economy’s rise. But those of us who have been looking closely at the subscription economy know that this rise wasn’t just about convenience and joy, but about value and loyalty over time.

 

Playing the Long Game

 

Back in 2018, TouchNote became one of the first movers to the subscription model in our sector. Since then, it’s been a learning experience for us as we continually look to meet our members’ needs. Our key learning from this is that although lockdowns produced a specific and unique need for services that are prone to subscription models, the behaviour and utility of these models extends beyond the pandemic.

 

Customers are beginning to demand more from companies and are expecting to get more for their loyalty. They’re looking to see whether companies can provide a consistent, valuable service that is worth the commitment and brings something meaningful to their life. In the context of the pandemic, this has meant providing a sense of convenience and joy through accessible and readily available products. In our case, we were able to provide a meaningful method to maintain communication and connections with loved ones.

 

This fundamental need for more value is reflected across the subscription economy. Video streaming services have provided an endlessly accessible library of entertainment, right in time as consumers have had more time to binge than ever. Food boxes and deliveries have replaced meals out, craft boxes provided new creative outlets, and card services have allowed people to keep in touch and nurture relationships even as face to face meetings have become scarce.

 

The challenge for those within the subscription economy going forward will be simple; can companies continue to provide convenience and joy after lockdown?

 

How can businesses keep their lockdown customers?

 

As lockdown measures are lifted in the UK, there’s a lot of talk about whether people will abandon their pandemic-induced behaviours, and subsequently relinquish the subscriptions that have facilitated these new behaviours. Will consumers still have the time to spend on Netflix? Will we all rush back to eating out at the expense of the home meal? And will we see consumer behaviour gravitate back towards the pre-pandemic behaviour? The answer to this is simple - the companies that continue to provide exceptional value to their customers, will be rewarded with loyalty, and will win the prized subscription renewal - pandemic or no pandemic.

 

Lockdown has provided online businesses and the subscription economy at large with a golden opportunity to win over customers and change their predispositions. For those who have used this new opportunity to demonstrate lasting value and build a real relationship with their customer base, they will no doubt keep this relationship after lockdown.

 

When we look at our own subscription at TouchNote, the membership model has allowed us to provide our service consistently and create a recurring mindset - namely that kindness can be shared regularly and any day. We have seen over this past year that customers who joined our membership and have subscribed to this way of behaving, have continuously sent cards during and after lockdowns. In fact, their behaviour was consistent throughout the period as they continued sending a card to a loved one when they felt it was appropriate to do so. We see in our customer cohort analysis and adoption metrics that sending cards on a regular basis to nurture relationships is not a pandemic phenomenon only. The pandemic merely introduced more people than ever to this new proposition.

 

What’s next for the subscription economy?

 

A fundamental part of business is to anticipate and adapt to consumer behaviours. This is easier said than done, but we’re already beginning to see companies put it into practice. In late 2020, Apple launched ‘Apple One’, a one-stop-shop for all their subscription services under one roof.

 

With consumers currently juggling multiple subscription services at once, Apple One attempts to provide an easy solution to this problem. With this bundling solution, combined with the potential $25 saving per month, Apple is looking to boost their subscriber base by making it simpler, more transparent and cheaper to use their services.

 

Bundling as a source of value creation and convenience is an interesting development in the subscription economy, but it isn’t the only one. Netflix have taken a different approach over the last year by raising the prices of their subscription service. This decision indicates a differing potential direction for the subscription economy, whereby companies that are perceived as ‘winners’ within their space, extract more value as the value of their service improves as well, creating a win-win value cycle for both companies and consumers.

 

Both of these options aim to capitalise on brand loyalty in separate ways. As companies continue to provide more value to their customer base, we will begin to see even more innovations in the subscription economy. The customer/ company relationship that began for many in lockdown will need to adapt to keep up with demand.

 

The lockdown legacy

 

For many consumers, the legacy of lockdown will be slowing down, keeping safe and staying in. For many companies, it will be exactly the opposite memory - rapid acceleration, moving fast and reaching far and wide.

 

New customer relationships have been formed as consumers found value in services they didn’t necessarily know they needed before 2020.

 

While lockdown saw a boom in subscription services, for many pandemic life put a strain on finances and turned the focus on consuming less or getting more mileage out of what they and others already have.

 

Perhaps a clue to what happens next can be found in Grover, a Berlin-based start-up that runs a subscription model where people can rent out consumer electronics like computers, smart phones, games consoles and scooters for set fees. They just picked up €60 million ($71 million) in funding. This would certainly tie in with consumer desires for value, convenience and flexibility.

 

The big questions still remain for subscription businesses though; have they cracked the economics, understood their customers needs and how best to continuously prove their worth? For those that have, they will find loyal customers on the other side of lockdown and for the foreseeable future.

Author:

 

Dan Ziv, CEO of TouchNote

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