As the Subscription Bubble Bursts, Experts Advise Fast Pivot to Retention Strategies

The subscription bubble that formed during the pandemic is bursting in slow motion as consumers continue trimming their streaming entertainment and retail subscriptions one by one, as is also true with other memberships in the face of ongoing economic pressures.

This has been building, as was analyzed in “The Subscription Commerce Conversion Index: Subscribers Seek Affordability and Convenience,” a PYMNTS and sticky.io collaboration, which found two-thirds of retail shoppers spending less on “nice-to-have” products toward the end of 2022 than they did when inflation spiked early last year.

Accordingly, just one-quarter of retail subscribers said they would prioritize subscription payments over essentials like mobile phones and credit cards if they had to choose which payment to make, as did 59% of grocery shoppers.

When that study was released, 22% of subscribers said it is very likely they would drop one or more subscriptions in the next year, with 21% more feeling somewhat likely to do so. That’s already happening, as soon-to-be-published PYMNTS data found that consumers have roughly halved the number of subscriptions they have compared to pandemic highs.

Not all subscriptions are in trouble. As Petco Senior Vice President of Omnichannel Experience Jenny Wolski told PYMNTS’ Karen Webster, the retailer’s Vital Care memberships are going strong, with Wolski saying: “Depending on what type of pet you have, you save hundreds of dollars every year by having the plan, even though you’re paying a monthly fee.”

That’s the value proposition more subscriptions need to embrace if they want to avoid the cut.

A Measured Response

Petco’s experience is becoming less common across the subscription spectrum, however.

With cancellations outpacing new signups since the fourth quarter of 2022, subscription providers need to have systems and processes in place to prevent churn and the loss of subscribers from fixable problems like failed payments or myopic attention to subscriber growth, rather than a renewed focus on retention strategies.

The March study “Tracking Failed Payments,” a PYMNTS and FlexPay collaboration, found that “The impact of failed payments on revenue in the subscription industry is substantial and underappreciated,” adding that subscription merchants lose an estimated 9% of revenue to failed payments, with health and fitness hardest hit, and gaming faring better than most.

That comes down to prioritizing the metrics tracked by subscription providers, particularly failed payments that are often the result of a temporary payment glitch and not an actual cancelation.

Failed payments aren’t the only telling metric being largely ignored by subscription merchants. In “The State of Subscription Business: Best Practices and Business Performance Drivers,” also a FlexPay collaboration, we found that 91% of subscription merchants are not tracking customer lifetime value (LTV).

FlexPay CEO Darryl Hicks said in a subsequent interview: “I was a little bit shocked to see that it was as high as 91%. There are probably a couple of reasons for that. It’s never just one thing. But for me, we’re coming out of a protracted bull cycle where money was free, and we could grow our way out of just about any problem.”

That’s another way of saying that customer acquisition costs (CAC) have risen to alarming levels, which should trigger a retention response among subscription firms. But they’ve been slow off the mark in that department. The failure to pivot with changing market conditions is risky.

Giving his view, sticky.io CEO Brian Bogosian told Webster, “The bar continues to get higher. People’s budgets are getting squeezed. People aren’t spending money frivolously. If they don’t get value, if they don’t get flexibility, if they don’t get incentives to continue, they’ll drop off.”