Despite belt-tightening among consumers, retail subscriptions proved resilient in the first quarter and show no signs of weakening, offering proof points on the power of personalization and convenience when consumers decide where to spend.
Not that the retail subscription sector isn’t under pressure. For example, consumers who signed up for retail subscriptions offering free shipping and returns to see those features trimmed are dropping services at higher numbers. But even after nearly 18 months of inflationary battering, the appeal of subscription services is holding its own.
As we found in the Subscription Commerce Readiness Report: Bridging the Gap Between Subscription Conversion and Retention, a PYMNTS and sticky.io collaboration based on a survey of nearly 2,250 consumers, merchant performance surged in Q1, “as more consumers added subscriptions and merchants made progress in adopting sign-up and retention features.”
That study noted that merchant index scores averaged 55.5 in February 2023, up from 48.7 in September 2022, with retail product subscriptions rallying by 6.6 percentage points among millennials and 5.6 percentage points among high-income consumers, although the consumers are not adding new subscriptions at pandemic-era levels as they become far more selective.
As the study notes, “Retail subscriptions among high-income consumers — those earning more than $100,000 per year — jumped by 5.6 percentage points to 28%. The share of middle-income consumers — those earning $50,000 to $100,000 per year — also increased, albeit more modestly, growing 1.7 percentage points to reach 26% this quarter.”
Delving into the psychology of subscribing, the relative strength of retail subscriptions can be partly explained by the fact that consumers generally opt into these programs and services for enjoyment and convenience, not as a cost-saving measure, with Amazon Subscribe & Save being a standout exception to this general trend.
Per the latest Subscription Commerce Readiness Report, “the top reason consumers say they subscribe to retail services continues to be enjoyment,” as 39% of consumers with beauty product subscriptions, 40% with food and beverage subscriptions, and 40% with clothing and accessory subscriptions cited enjoyment, versus the 33% who said the same among those using Amazon’s service. “Convenience remains the second-most cited reason for using subscription services overall, at 23%, led by Amazon Subscribe & Save, at 25%.”
There’s a bit of youthful exuberance behind the continued strength of many retail subscriptions, as we found that younger consumers often subscribe for the pleasure of products and services.
The data shows that younger demographics “tend to subscribe for enjoyment, with 35% of Gen X consumers, 40% of millennials, and 36% of Gen Z consumers citing it as their main motivator. We note, however, that cost is also more of a standout motivator for Gen Z, at 17%, than it is for either millennials or Gen X, at 13%.”
To keep subscriptions up in the current cost-conscious environment, merchants are leaning more heavily into retention features than before as customer acquisition costs (CACs) continue spiking. Our breakdown of retention versus conversion features sheds light on this factor. The two are closely pacing each other as holding onto existing subscribers becomes the mission.
Per the study, “nearly all 30 top-performing subscription merchants included in our study offer flexible subscription experiences: 97% of these providers offer subscribers the ability to pause their subscriptions or modify the products included in their plans. By contrast, just 10% of the 30 bottom performers allow their subscribers to pause their subscriptions and none provide the option to modify the products included in their plans.”