Subscription services are increasingly common – this article explores some common examples in software, entertainment, deliveries, meal kit services, and subscription boxes.
Software is now one of the most common forms of subscription services. From the perspective of the company providing the software, subscription services help generate sustained revenue – particularly important as software development has over time become more incremental in nature, without the leaps in features offered that used to convince users to upgrade on an annual basis as a new version was released.
Another attractive element of subscription service from the perspective of the customer is the ability to gain access to the product or service without a high upfront expenditure. Historically, Adobe used to sell access to its suite of design products with a one-off purchase – over $1,000 for the full software suite. While it is possible for professional design firms to justify this cost as necessary, for more casual users, affording and justifying the initial expense is difficult. Now the full suite is available at $52.99 per month. While subscription will cover the initial expense within a few years, it is much easier to justify the smaller recurring payment.
Another popular example of subscription services is in entertainment, be it streaming services (such as Netflix, Hulu, and Disney+), traditional satellite TV subscriptions, or music (such as Spotify, Apple Music, and Tidal).
Part of the reason why these services have taken off is the value that they provide customers. While back in time, $10 a month would have bought only a single CD, now you can gain access to all the music that you would want for that price. A DVD boxset costs substantially more than a subscription to Netflix, where you can binge on all the TV that you want. While some users inherently are paying less than they would otherwise be spending on entertaining were they buying the content in more traditional purchases, many are spending more than they otherwise would, albeit are getting substantially greater value.
Another subscription service that has taken off has been for free or preferential delivery of products. Amazon Prime is one Walmart Plus are both examples of retailers offering an annual fee (currently $119 and $98 respectively), which then provides quick delivery of their goods with no minimums (as well as additional perks from the retailers).
These models are effective because they help offset the costs of shipping, while also adding a form of switching costs for users. Due to the flat annual fee that users are paying, once a customer has subscribed to a particular retailer, they become more likely to use that retail for all their online shopping needs.
Meal kit services
A relatively recent example of a subscription service is the meal kit service. Blue Apron and Hello Fresh are two prominent examples – delivering meals to subscribers on a weekly basis.
One of the key advantages of subscription food services is the convenience that they offer. Quantities match the recipe requirements, and deliveries include the unusual ingredients that you are unlikely to have on hand.
The approach also has the potential to bring additional value to you as consumers – while it is often expensive to buy ingredients in small quantities (making it difficult for consumers to use certain foods where only a small amount is required), the meal kit companies are able to take advantage of their large purchasing power, and include small amounts of the ingredients in the kits.
Another example of subscriptions are subscription boxes – often monthly or bimonthly deliveries of products including clothes, beauty products, or confectionary.
Subscription boxes have proved successful because of the excitement of receiving deliveries (making them great gifts), coupled with the ability to offer good value to consumers. Some boxes for example include goods with a value higher than the subscription price, able to offer the goods at a discount to customers because they are buying in bulk, or the products are seen as a way for manufactures to introduce their offerings to a large selection of customers.