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BizReport : Ecommerce : July 10, 2020

Study: Subscription brands booming, here's how to capitalize

Subscription boxes for food, clothing, makeup and more continue to be a booming part of the digital economy. But it isn't only physical subscriptions that are booming - more and more people are using streaming subscriptions for entertainment, especially during the first half of 2020.

by Kristina Knight

There is a new trend around the world and it's a trend toward 'usership' rather than 'ownership'; everything from tech and software to video are booming. According to data out from Zuora streaming grew 400% during the second quarter of 2020 and digital news and media streaming grew 110%. In addition, revenue per subscriber increased by nearly half (42%) even as membership growth rates slowed by about one-third (30%).

"The recent pandemic has only accelerated this shift as subscriptions are the foundation for valuable digital or contactless services - those of which are in heightened demand due to shelter in place orders. Think of a service like Zoom, facilitating face-to-face interactions and improving productivity for newly remote workforces. Or Fender, which offers a subscription to its Fender Play service helping those stuck at home learn to play a new instrument (with a free trial!)," said Amy Konary, VP of Customer Business Innovation and Chair of The Subscribed Institute, Zuora. "Additionally, subscriptions enable businesses that are short on capital to access valuable services that support their businesses via an operating expense. In addition, when products are a conduit for valuable services, providers can continue to deliver ongoing value and innovation to customers even when supply chains and product availability has been significantly disrupted."

According to the Zuora Subscription Impact Report fewer than 20% of subscription companies are contracting their growth, and 4 in 5 report growth; the important thing to note, however, is that while there is overall growth the revenue-per-subscriber number is not growing as fast as the overall growth in the sector.

"Overall subscriptions have remained resilient and have weathered the economic uncertainty," said Konary. "Overall, subscription companies did continue to grow their revenue-per-subscriber, it was just at a slower rate than before. This indicates a slowdown in upsells and expansions in favor of new customer growth. At the onset of the pandemic, many subscription businesses focused on acquiring new customers by providing access to services that were in high demand amid shelter-in-place regulations (think: Zoom offering free subscriptions so consumers could keep in touch with friends while social distancing, or Pluralsight, which offered free access to 7,000+ expert-led video courses in April)."

Another drawback is that subscription suspensions have increased 4x since the beginning of the pandemic, likely as consumers began to cut back on their expenses during lockdown. But Konary believes this contraction will ease as businesses return to normal and uses the example of gym memberships - many consumers let their gym memberships lapse when they couldn't actively go to the gym to workout. Now that businesses are reopening, she believes many of these will be picked back up.

"Subscriptions are all about a fundamental return to relationships. Instead of a one-time transaction, companies must provide ongoing value and maintain a two-way relationship with customers to support their business," said Konary. "For example, our research has found companies that allow customers the option to suspend a subscription have a 5% lower annual churn rate compared to peers. The flexibility - the ability to upgrade, downgrade, suspend, renew or even cancel - tailored to consumer needs and constantly changing life events is what makes subscriptions so convenient."

Tags: mobile marketing, subscription economy, subscription trends, Zuora

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