What is... | April 4, 2018

What is the subscription economy?

The market is now worth €350bn in Europe


Not too long ago, if you wanted to watch a movie at home, you went to the store and picked up a DVD.  Or if you wanted to listen to your favourite band’s new album, you bought the CD (and then tried to find room for it among the hundreds already squeezed onto your shelf).

Now, if you want to see that blockbuster you’re more likely to stream it through Amazon Prime or Netflix. And new music comes (clutter-free) courtesy of Spotify or Deezer. All for a flat monthly fee.

These kinds of services are part of what is known as the “subscription economy”. And according to new analysis by ING, European consumers now spend €350 billion per year on subscriptions.

From washing machines to make-up
ING defines a subscription as a contract that facilitates regular delivery or long-term use of a service or product. The contract settles what the product or service is, the frequency of usage or delivery, at what cost, and within what timeframe.

ING estimates that €240bn is spent on service subscriptions, such as internet, mobile phone, and cable TV contracts, while €30bn is spent on digitised goods, such as video-on-demand.

Around €30bn is spent on consumables like food boxes and make-up, while €50bn is paid out for durable goods such as washing machines and private lease cars.

While it may not be the primary attraction to consumers, subscriptions to durables can benefit the circular economy. This is where society and businesses change their production and consumption values from a “take, make and waste” approach to a “reduce, reuse and recycle” perspective. A washing machine, for example, can be refurbished and reused by the next subscriber after the initial customer stops using it.

It works out that the average European household now spends €130 a month on subscriptions – five percent of total household consumption.

Of course, some subscription services like newspapers and magazines, have been around for years. 

But the internet has created seemingly endless possibilities for new types of subscriptions – and households made up of tech-savvy 18-24 year olds are the biggest users of durable/consumable subscriptions, ING found. 

Freedom and convenience
ING research suggests convenience is key. Many people in Europe are willing and able to pay a premium for the convenience of having, say, razors delivered every month, ensuring they never run out. For younger people without the money to buy what they want, such as cars or smartphones, subscription options can make these goods accessible.

For durable goods, 28% of the Europeans surveyed said they liked that there were no repair or maintenance costs, while 25% said it meant they always had an up-to-date model.

Goods like wine boxes, meanwhile, offer variety and less “choice stress”, while cosmetics packs and flower deliveries might provide an element of surprise, introducing the customer to something they may not ordinarily have considered.

Set and forget?
Businesses operating through subscriptions can take advantage of access to the customer data on their files – they can monitor use patterns and spot trends – to modify what they offer accordingly. 

But subscriptions can have their drawbacks, too. Some companies might use “bait-and-switch” schemes where a person signs up at one rate, only to find the rate increases later on, warned Haroon Mokhtarzada, co-founder of subscription service provider Truebill in an interview with Inc.com.

And many forget they’ve even signed up to a service and end up shelling out money each month for something they’re not actually using. A different survey has found that people in the UK, for example, waste an average of £18.62 on unused subscriptions per month. 

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eZonomics team
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