According to Juniper Research, the subscription economy will grow rapidly: From $224 billion in 2021 to $275 billion in 2022 – a growth of 23%. In the field of music and video streaming, hundreds of millions of consumers have made the switch from buying a product (CD, DVD) to monthly subscription fees. According to Juniper’s study the physical world is now catching up. Generation Y and Z are the target groups that are making subscriptions a megatrend.
High customer retention and a growing convenience
The software sector is certainly a pioneer in the subscription trend. Instead of buying programs, there are countless companies that operate very successfully Software-as-a-Service (SaaS) models. After conquering digital entertainment, the wave is now spilling over into many other areas.
“Why buy when you can rent? Our analyzes show that Generation Y and Z rely heavily on subscription models. What they get from Netflix and Spotify, they now expect from all other services and products as well,” says Daniel Strieder, CEO and co-founder of Viennese fintech Credi2. The fintech is successfully implementing subscription models with leading Apple retailers. “Subscription models are very attractive for retailers and OEMs (Orignal Equipment Manufacturers, ed.) because they allow you to achieve a higher shopping cart value and very high customer retention. Once a customer has subscribed to a smartwatch, he/she will almost certainly rent the next model from the same provider.”
Subscription models are generally conceivable for all higher-value products that have a high resale value. There is currently a strong trend towards e-bike subscriptions. “That makes perfect sense. E-bikes are a very attractive alternative to cars and help make cities more livable. Not everyone can afford an e-bike but subscription models make the market much more accessible to a much broader range of consumers,” says Strieder.
Subscription models definitely pay off for retailers: As Credi2 analyzes show, subscription models result in up to 20% higher shopping baskets, a three times higher re-purchasing rate, and increase sales for notebooks and smartphones by an average of 6% to 8% – also because new Gen Y & Z target groups are gained. For retailers who offer subscription models, it’s already one of the top 3 payment methods.
From pay-per-product to pay-per-use
Credi2 is one of the leading “Buy Now Pay Later” (BNPL) white-label players for banks and PSPs in Europe. The new digital financing models, such as installment payment, are now partly being supplemented by subscription models. From the retailer’s point of view, there is an important distinction to be made: instead of selling a product (pay-per-product), the subscription offers the option of switching to pay-per-use. From the consumer’s point of view, this means significantly increased flexibility. An e-bike, for example, can be rented from spring to autumn and returned to the dealer in the cold winter months. The providers can then prepare the e-bikes for the next season.
Subscription models can be perfectly coupled with other services which are included in the monthly price. Whether it’s an e-bike or a smartwatch: When making a purchase, customers used to carry the responsibility of taking care of important things such as insurance, for instance, by themselves. But such additional services can be combined with the subscription to create an attractive offer that differs significantly from those of the competition. Customer convenience is higher and the provider can present the “true cost of ownership” better than its competitors.
A contribution to circular economy
Today, the climate crisis and how to combat it are extremely important for business models that should continue to function sustainably for many years to come. In the EU, the Green Deal ensures that the circular economy is on the rise in all social and economic areas – from reusable packaging to the refurbishing of smartphones. “If you look closely, the subscription economy is an important contribution to circular economy,” says Strieder. “Because subscription models enable companies to extend the life cycle of products with the help of reuse, refurbishing or remanufacturing concepts.”
Here are some examples: If consumers rent a new iPhone for a certain period of time and return it after the subscription expires, the device can be overhauled and put back on the market. New e-bike subscriptions show that consumers don’t necessarily have to rent a brand new bike, but can also get one that others have used before them.
Credi2 is positioning itself as a professional fintech partner and pioneer for smart subscription models. “Rental models require that products are pre-financed in order to then be able to issue them to consumers – this requires appropriate pre-financing,” says Strieder. “Subscription models are very attractive for companies, because they enable them to build Monthly Recurring Revenue (MRR) and thus very stable new business models.”