The ubiquity of subscription models has allowed us unparalleled entertainment and service options, but all come with a subliminal cost.
A study found that subscription businesses can expect around 30-80% boost because of absentmindedness, with the range sometimes going up to 200%.
According to a working paper submitted by Stanford and Texas A&M researchers, retailers are increasingly changing their business models to include goods and services that aren’t a one-time buy (spot markets).
From Netflix, Spotify, Talabat, Vodafone, and Uber to gym memberships, access to software, news, entertainment, wardrobe, and dinner services subscription has become incredibly widespread, making it possible to live without actually owning anything.
Because of inattention and fading out of initial interest, the study concludes that customers would continue paying for a service even after their perceived benefit is below the price of the service.
Companies can make more money selling something repeatedly than selling it just once, especially if, like would-be gym-goers, their repeat buyers forget they ever signed up, leaving sellers to collect a hefty monthly payment.
The problem of forgotten subscriptions is so significant that there are many ads of a robust ecosystem of startups, such as Trim and Rocket Money, that promise to save users money by ferreting out and canceling the subscriptions they forgot about.
“I knew that people forgot to cancel,” said coauthor Neale Mahoney, an economics professor at Stanford, to Fortune magazine. “The magnitude, the pervasiveness of this issue was surprising.”
Leveraging an extensive dataset obtained from an undisclosed payment system provider, the researchers initially identified ten common subscription services. They then examined the frequency of renewals during regular periods and when subscribers updated their card information, necessitating payment details renewal for each service.
Renewal rates notably declined following these instances of card replacement.
Interestingly, regular shopping patterns like grocery and gas purchases remained unaffected. This led the researchers to a significant conclusion: when individuals were required to actively decide to re-subscribe and input new payment details, many chose not to proceed.
By extrapolating from these findings, the researchers estimated that “lack of attention increases company revenues anywhere from 14% to over 200%, depending on the specific service.”
It should be noted that the 200% figure represents the upper limit—most companies typically experience a revenue increase of around 30% to 80% due to customer oversight. Nevertheless, for an average consumer, this translates to several hundred dollars spent on undesired subscriptions.”
It’s difficult to say bye
Around the world, new rules are being pushed that make the process of unsubscribing easier.
Governments are cracking down against subscription models that are too long and needlessly complicated. Additionally, there is a push for recurring subscription products that actively force customers to re-enroll at periodic intervals.
If customers were required to re-up every six months, it would cut the revenue benefits of inattention by half, the Stanford and Texas A&M researchers found.
In the meantime, consumers could benefit from scrutinising their credit card statement every month, or follow the example of Mahoney, who told Fortune of setting up calendar reminders for himself to cancel recurring subscriptions when they stop being useful.