Over the past two years, retail product subscriptions have experienced a gradual decline, moving from the peak during the pandemic to levels comparable to those in 2019.
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GLOOver the past two years, retail product subscriptions have experienced a gradual decline, moving from the peak during the pandemic to levels comparable to those in 2019. This decline, observed across all retail categories, is attributed to persistent inflation and the return of consumers to normal life. In response to this trend, companies are actively addressing cancellations by improving customer service quality, introducing enhanced features, and implementing technological advancements. Merchants are now allocating more resources to tools, systems, and retention initiatives to gain deeper insights into consumer behaviors and make more informed business decisions.
The Downturn Trend in retail subscription products is evident in the decrease in subscribers over the last year across various demographics and subscription modalities. According to data from PYMNTS Intelligence, the average number of retail product subscriptions per consumer has dropped to 2.2, the lowest level recorded in two years, with a 10% decline in the share of consumers holding such subscriptions this year. To counter this decline, retailers are adopting more aggressive strategies, including price discounts, free shipping, and differentiated services to win back customers and attract those with the highest lifetime values (LTV).
Customer Churn is identified as the primary reason for subscription cancellations, with 6 out of 10 respondents citing cost as a factor. Surveys indicate that discontinuing certain benefits in loyalty programs, such as free shipping or diverse payment options, negatively impacts the customer experience and directly leads to subscription cancellations. For example, research from PYMNTS Intelligence reveals that 17% of subscribers would terminate their subscriptions if a merchant couldn’t refund an unsatisfactory item.
Smooth shopping experiences are crucial for retaining subscribers, as evidenced by a PYMNTS Intelligence study showing that 27% of users are likely to cancel subscriptions in the event of service interruptions due to failed payments. Merchants experience an average revenue decrease of 9% due to payment failures, which can be even more impactful when affecting the most profitable customer groups. In 4 out of 5 cases, payment failures are attributed to system frictions rather than customer actions. Addressing technical issues, such as false declines or problems with payment processing software, can significantly contribute to customer retention.
Loyalty plays a pivotal role in retail subscription commerce, with loyal customers constituting 30% of consumers and contributing 80% of market revenue, according to a joint study by PYMNTS and sticky.io. Loyalists exhibit high LTV, spending an average of $65 per month on subscriptions and maintaining them for an average of 30 months, resulting in a projected LTV exceeding $2,500.
The study also reveals that nearly half of loyalists are predominantly multi-model, meaning they have multiple subscriptions with no single category comprising a majority. This group boasts an LTV exceeding $3,000. Following multi-model subscribers, the second most lucrative retail subscription customers are VIP subscribers attracted to special membership tiers. Although they make up fewer than 1 in 10 subscribers, VIPs have an exceptionally high average LTV of over $2,800. The top three features valued most by loyalists include guarantees or refunds, the ability to change product selections, and the ability to pause services. This preference for familiar models is also prevalent across other subscription personas.
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In addition to promotional efforts and endeavors to minimize payment challenges, merchants have introduced novel service approaches to boost demand. For instance, Amazon is currently experimenting with a new feature on its app called “Buy Again,” aimed at facilitating regular repeat purchases. Other merchants are concentrating on providing increased flexibility to customers, offering refund guarantees and allowing subscribers to adjust their shipping frequencies. In contrast, some initiatives are centered on elevating the consumer experience and incorporating key features that influence conversion and retention rates, such as the ability to place orders through social media. According to another market research study, investing in these features and consistently delivering strong performance across them contributes to a 68% customer retention rate across various sectors.
Certain strategies, however, warrant greater utilization, including the provision of more free trials or buy now, pay later (BNPL) options to simplify customer payments. Approximately one in 10 consumers intends to cancel their current subscription program upon expiration. For those customers still deliberating whether to continue, offering increased payment flexibility and an enhanced product experience can be persuasive in retaining their subscription.
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The peak of retail subscriptions witnessed during the pandemic seems to be a thing of the past. Presently, consumers are seeking enhanced services, a smooth shopping process, and increased flexibility in their subscription plans. To capture and keep these emerging customers, merchants must adapt to these changing preferences and prioritize offering crucial features that hold significance for customers. This evolving landscape marks a departure from the pre-pandemic mindset of “growth at all costs,” where retention was not as emphasized, to a new era demanding a more customer-centric approach from merchants.
