Researchers explore the impact of subscription-based business

Does this sounds familiar: "I have no idea what Lucy wants for Christmas…maybe I could get them a wine box/snack/movie/magazine/music/fitness/etc. subscription?"

Right now, there is a boom in subscription-based businesses. Everything from digital streaming services to weekly groceries can be delivered on a predetermined, convenient cadence. But what is fueling this spike in subscription-based businesses and what does it mean for the economy and consumers?

Two researchers at Boise State-economics professor Samia Islam and psychology professor Mary Pritchard-offer their unique perspectives to answer these questions and tackle the most important question: how can consumers stay afloat and be savvy decision makers in a sea of subscription services?

The Subscription-based Business Spike

If you had to guess, how many subscriptions do you pay for right now? How many did you pay for 20 years ago?

Subscription-based services definitely aren't new, says economics professor Samia Islam. They've been around since at least the 17th century.

"But with the advances in technology, e-commerce and digital marketing in the last two decades, it is on hyperdrive in today's platform-based economy," she says.

"Businesses get 'automatic customers' when they use the subscription model so it can ensure both consistent revenue and customer retention," Islam said. "Some customers may find this attractive for the convenience it offers - not having to keep track of essentials, like Amazon Prime or Chewy."

Social media and the age of influencers has been a major catalyst for the adoption of this business format.

For example, you can get a perfectly formulated product for your hair from a brand that one of your favorite Instagram influencers uses and everyone on the site raves about. And, it's delivered every month, so you never have to go shopping for it. In fact, it gives you something to look forward to.

Win-win, right?

Not necessarily; this whole exchange is more complicated than it may seem on the surface, and it has social, cultural, psychological and economic impacts beyond a simple purchase. And as Islam points out, the subscription-based business relying on social media are easily able to tip the scale.

"These days, consumer manipulation through framing and choice-bracketing is not only possible but also relatively inexpensive. And as we all know, positive reviews for newly-launched products can be bought and sold on social media thanks to influencer marketing. Someone with one million followers on TikTok uploads a video raving about the must-have product or service and loss aversion will ensure a steady stream of business - perhaps short-lived - but you never know. We must not underestimate the bandwagon effect in the social media era," she said.

It's not surprising why businesses would prefer this structure, and clearly consumers are eagerly buying in. But when consumers stop to add up the subscription services and tally their recurring monthly expenditures, suddenly the relationship becomes less rosy. For Islam, this shift in business strategy is one that merits concern.

"I worry about the rise of a new kind of feudalism that is based on this mass clientelism. Profits are now driven by how much "rent" (i.e., the subscription charge) vendors can extract - not from labor and capital - as was generally the case with one-and-done businesses. Eventually, as customers get pushed against the wall, they will resist. But my fear is that some of the firms driving the subscription-based model are way too large and that they will be way too embedded in our economic lives for us to cut the ties. This is another reason to be concerned about this 'techno-feudalism'."

Subscribing to Psychology

Perhaps one of the most important facets of this business style is its use of, and impact on, consumer psychology.

For example, beyond the convenience of 'set and forget' payments and easy deliveries, many subscription-based businesses are leaning into product or service customization (think StitchFix, a curated monthly clothing subscription) that rings all the right bells in the human brain: personalization, exclusivity and anticipation.

And though we may not think about it as consumers, our purchase of a subscription is a way of connecting to the world.

"[That's] not trivial in our device-connected but increasingly lonely and isolated lives," Islam points out.

Another concern that pops up in relation to subscription based businesses and social media is the addictive qualities they share.

"Social media itself is an addiction, right? It feeds into that opioid addiction of that pleasure, and so we're constantly having to go back for a hit to get that mechanism activated in our brains," Pritchard said. "So the subscription services becomes that. Every month when the box comes, whether it's clothes or wine or shoes, it's like a kid in a candy store. It's just this euphoria of knowing that it's coming and that can-like social media- be addictive."

In the midst of a Loneliness Epidemic highlighted by the Surgeon General, humans may seek to fill voids in their life with purchases, and delight in the monthly 'presents' and sense of connection that some subscriptions feed.

But what happens when the costs add up and the time comes to cancel your "Jelly of the Month" club subscription?

"There's never an undo button that's as easy as it was to sign up," said Pritchard. "Then it's becomes a psychological pain to have to go through the steps, and we tend to avoid things that hurt us. Even though it's a financial cost that's associated with that, it's sometimes easy for us to be like, 'Oh, I'll cancel it next month.' And then again, next month comes around and we've forgotten that we were going to cancel it because we just don't want to deal with it."

Being a Sophisticated Subscriber

Subscription-based businesses thrive on this fascinating-and troubling-dynamic of reward and punishment that can make a consumer feel like a lab rodent in a maze.

Fortunately, Pritchard and Islam have guidance for navigating this maze with ease.

• Ask: Do You Really Need it? If you are not completely certain you need a subscription to X service, write a reminder to yourself to revisit the subject in a month or two. Does the idea still hold value then? How will this product demonstrably improve some aspect of my life?
• Ask: Do I have the budget for it? Islam says "Some 'naïve' buyers will make the choice of subscribing to multiple services without fully considering the true life-time cost. Costs and benefits in subscription models are intertemporal and this is a well-documented weak point in decision-making. More 'sophisticated' buyers who decide to purchase the product would do so after doing the necessary benefit-cost assessment."
• Do the research yourself, and don't trust the reviews on the business's site: Positive reviews are easily bought. Search for honest reviews elsewhere. Did other users find the service useful? Were they able to cancel easily if they no longer wanted to subscribe?
• If needed, make an escape plan: If you are conflict averse, subscribe with a debit/credit card that will expire soon or a gift card with limited funds so that you may passively exit the subscription. Or, enlist a friend who enjoys making blunt phone calls to assist you. So long, farewell!

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