>>What Amazon’s second Pri...
By Malinda Sanna
In a bid to dramatically turn around its declining sales, the e-commerce titan Amazon was forced to announce a second day of sales in a year for the first time in its history. While shoppers scramble to get their hands on brand new phones, vinyl records and coffee tables, it is easy to overlook the significance of this.
This second Prime Day stands as an epitaph to the subscription model, which is quickly losing favor. This is because they have become sales-driven, instead of being client-centric. The solution to this, rather than introducing more discounts or slashing prices, is for firms to instead embrace the pay-as-you-go model.
Over the past decade, subscription services have risen emphatically to become the preferred model for many of the largest multinational companies. Streaming giants Netflix became the poster child for this, while the huge success of the likes of Spotify and Apple Music epitomized the consumer openness to subscription tiers, to make life easier. Then, it seemed, everyone wanted in on the action. Pret A Manger brought in a monthly coffee-subscription option, while Wanderlift even tried to compress airline travel into a subscription service. Brokers Charles Schwab soon followed suit, as did car rental firm Enterprise. VC and private equity firms applauded any business model that built subscription into its bankable future.
The subscription economy grew more than 435% in the past nine years. 92% of young Americans reported that they regularly use at least one subscription service, while 78% of international adults do the same.
However, change is in the air. Amazon tried to frame its unprecedented second Prime Day in a year as a celebratory act of generosity. In reality, it is a desperate response to falling sales in 2022.
Some might argue that this is just a temporary blip along the path towards Bezos’ continued global market domination, particularly after the firm’s 220% profit boost in 2021. However, this spike was a direct result of the pandemic, where virtually every e-commerce or digitally-based firm seemed to enjoy immense growth.
There is a wider trend at play, and we are hearing it in our research. Netflix, despite boasting a shimmering repertoire of successful shows, such as the ethereal smash hit Stranger Things, is also losing subscribers. It has even decided to introduce a cheaper subscription tier with ads to counteract this.
People are tired of being locked into long-term contracts under the guise of saving money with one purchase, only to then end up having unwanted Amazon products pile up faster than their credit card charges. When you see that monthly outgoing on your bank statement, it forces you to wonder whether you actually use that service enough to warrant keeping up the subscription.
Subscription models have mutated into ugly, sales-driven machines, and they have forgotten that the customer relationship - particularly trust - is what matters most. Some Amazon subscribers saw their membership fee inexplicably increase by 40% this year, so is it any wonder that customers are looking for alternatives?
This is encapsulated in the field of market research. Subscription services that require a subscription in order to access services are losing favor because there is a lack of high-touch service and expertise. The subscription model often causes a company to turn its primary service into a blanket offering, which means it loses the personalization that the modern consumer is looking for. 80% of people now report being more likely to use a brand that offers a tailored, personalized experience.
The solution is loud and clear - companies need to embrace pay-as-you-go models. Consumers want the freedom to choose the services that are customized to their needs. When it comes to the agile insights industry, personalization and expertise are the currency with which companies need to trade. Too often, subscription models lose this through their obsession with achieving sales instead of focussing on what their clients want.
Pay-as-you-go models give consumers more control, as well as providing a more enhanced insight into which specific products or services are most popular. They also ensure there is a low barrier to entry, with the customer not being forced to commit to a year’s worth of future payments.
Firms might complain that the revenue is less predictable without subscription services, and that it takes more effort to gain repeat purchases. Yet such a response only serves to further emphasize the fact that overleveraged startups have become too laser-focused on growth in lieu of providing a great, satisfying service. If the product or service is strong, then there is no need to anxiously tie consumers down to long-term contracts, in fear of them leaving.
The conventional model has become a tiered subscription system, and this has enjoyed great success in the past decade. But the sales-obsessed mentality that it has cultivated is unsustainable, and the worrying noises coming out of Amazon and Netflix are just the tip of the iceberg. Companies that disdain more flexible pricing options will find loyalty eroding quickly, with revenue at risk.
About the author
Malinda Sanna is Founder of LookLook, a New York-based consumer insights platform that harnesses insights through proprietary software & human expertise.