COVID-19 and Subscription Businesses
COVID-19 has had an impact on subscription businesses, but different industries experience the effect in different ways. Complete details about what subscription services are doing to ensure success, new subscription service trends inspired by the pandemic, and predictions about how the virus response will impact subscription businesses in the future are presented below.
PRACTICES ENSURING BUSINESS SUCCESS
Practice #1: Offer Alternatives to Cancellation
- Subscription service companies looking to retain customers during the COVID-19 pandemic response crisis are offering alternatives to cancellation. These alternatives can include putting a pause on the account to allow the customer to stop using the service but come back when things improve. Other options include applying credits to customer accounts, suspending payments, or expanding customer service to allow agents to work with customers on other viable solutions.
- Before the pandemic, 42.6% of subscribers expressed interest in features that allowed a temporary suspension of services; now that the crisis has affected much of the world, "the most popular features that subscription vendors are leveraging to counter the pandemic-induced wave of cancellations is the humble 'pause.'"
- Companies that have proactively (March 2020) paused memberships--likely to forego major cancellations--were the NFL Game Pass and NBA League Pass streaming services. Peleton extended its free trial period to 90 days to remain agile during this period and "retain more customers because of it." Subsequently, its stock had initially improved.
Practice #2: Use Updated Analytics Understand Churn
- So that subscription-based companies can better understand why customers might drop off of their rolls, some experts suggest that they start to "measure the impact [of COVID-19] on their customer base."
- This is a solid practice because it allows subscription-based companies to track customer losses and gains as a result of the virus. This detailed review of the reasons why a customer might cancel, especially if they are related to the coronavirus, will help companies separate losses from "potential product or experience reasons" which will better inform their practices during and after the crisis.
- One company that started tracking cancellation reasons was Unbounce, a Canadian software company dealing in subscription-based landing page services. The company added "global events" to begin tracking customers that canceled due to COVID-19 issues.
Practice #3: Appeal to the Kindness of Members
- Some subscription-based news services are being completely transparent with their members regarding financial woes due to the crisis. This practice has seen some services increase fees due to losses and others instill a "pay-what-you-want" model. Some others have requested donations.
- This practice might be especially beneficial for subscription-services that have a truly loyal customer base, like that of El Diario is Spain, which saw a growth in membership from 36,000 in March 2020 to 45,000 by the end of the month. In addition to increasing membership dues, the service waived the increase for those who could not afford it, and in the same vein asked for donations from those that could. The transparent and empathetic approach appealed to the company's customer base.
TRENDS DURING THE COVID-19 CRISIS
Trend #1: Subscription Services See Boom After Pre-Pandemic Losses
- Some subscription services, before the coronavirus pandemic, had reported sales losses (e.g., Blue Apron) as the subscription services industry--which was initially successful--began to see declines across several industries as some "were questioning the longevity of the business model."
- According to experts at Retail Week, "with more people stuck indoors during the coronavirus lockdown, the appetite for new ways to get groceries, skincare products, crafting materials and more has risen and these businesses are seeing a boom."
- One subscription services company that saw losses before the pandemic and then gains afterward was Birchbox. Before the pandemic, Birchbox had laid off 25% of its employees globally. However, a pivot by the company to donate 45,000 beauty boxes to healthcare workers might prove beneficial. Several industries in the subscription services market have seen increased demand (e.g., education, meal delivery).
Trend #2: Consumers Spending More Time on Entertainment
- Because so many people are laid off, unemployed, working reduced hours, and simply spending more time at home during the coronavirus pandemic, many are turning more and more to subscription-based streaming services for entertainment and information. With the increase in the number of users and the time users spend on streaming platforms, content is now more important than ever.
- The positive aspects of this trend for consumers to need more content might be observed by the popularity of Tiger King and Netflix's subsequent boom in positive user perception. For instance, in April, there were 111,000 positive mentions about the video service provider.
- According to Nielsen, the stay-at-home orders increased TV viewership by 60% during the first week of lockdown orders. And "now that everyone is stuck inside, brands like Amazon, Disney, and even newcomers like Quibi and Peacock (NBCUniversal)" are focused on entertaining consumers under these new conditions.
- Nielsen also found that remote workers watched an average of three more hours of TV after stay-at-home orders were in place than they did prior to the crisis. The company also found that viewers were watching more feature films, news, and general entertainment with 61% more time spent on streaming services.
Trend #3: Innovation & New Avenues
- With the changes that the coronavirus pandemic brought about, many consumers began to rethink whether certain subscription-based services were needed while at the same time wishing others were available. Companies at the helm of these innovations or new needs fared well--and are faring well--during the outbreak.
- According to the National Retail Federation, consumer motivation to "try new things" is high given the newness of staying home with children all day or not being able to physically interact with loved ones.
- One company that has benefited from this trend is Facebook. In November 2019, the company started selling its Portal TV device "which lets users video chat using their own TV as the screen." The device was dismissed by reviewers and privacy experts. However, the coronavirus shifted consumers' concerns regarding Facebook and privacy, and now the device is sold out everywhere (i.e., Facebook, Best Buy, and Amazon).
PREDICTIONS FOR AFTER THE CRISIS ENDS
Prediction #1: Isolation-Friendly Subscriptions Will Thrive
- According to Brightback, the subscription-based industry will see a surge in customers signing up for subscription services that align with self-isolating for health reasons and other forms of social distancing.
- This surge is expected to continue throughout the coronavirus crisis (i.e., for the next few months "and possibly through the end of the year").
- The meal delivery portion of subscription-based services is expected to be especially impacted by increased signups. Entertainment and home fitness are also sectors that are expected to thrive.
- Blue Apron is a recent example of a meal delivery subscription service that was losing money prior to the virus; however, after the start of the pandemic and the enacting of government lock-down protocols, Blue Apron saw a net revenue increase of 8% and customers increased by 7% (compared to its last quarter). Still, these gains are expected to run concurrently with the virus and end when social health concerns cease.
Prediction #2: Brick-And-Mortar Retailers Will Fully Integrate Tech
- Some brick-and-mortar retailers have been slower than others to offer fully-integrated retail experiences, even as online shopping continues to trend upwards. However, the coronavirus pandemic and its social-distancing aspects have sped up the clock for retailers needing to branch out into offering more online commerce.
- Retailers scrambled to offer customers online options in order to survive the initial waves of COVID-19-related shutdowns. Experts predict that it is only the tech-savvy retailers that will survive the pandemic and its after-effects because "shoppers are likely to be skittish about staying long in any store" even after the pandemic subsides. Some of the online options offered included subscription services.
- A few companies that quickly ramped up their online options include Nike and Lululemon Athletica. "Nike kept its China business from stalling, thanks to a fitness app that helped homebound consumers do quarantine workouts. And Lululemon Athletica has even reopened a few North American stores, not to serve walk-in customers, but to use inventory to fill online orders more quickly."
Prediction #3: Remote Work Might Tank Work-Related Services
- The pandemic forced some consumers to reassess whether they needed certain work-related subscription services.
- Subscription services that rely on interacting with others, regardless of the economy, may no longer make sense ("cents") and might decline since typical first impressions for many workers are via video conference, are not full-body, and sometimes not face-to-face. This practice requires less clothing and fewer clothing options.
- A common tip among sources that refer to the clothing remote workers are wearing during this time is encouragement to "wear pants" (i.e., get dressed and not work in underwear or pajamas). For example, remote workers may no longer benefit from successful clothing services like StitchFix or Rent the Runaway Unlimited. The latter was one of the retailers that laid off "large swaths" of workers due to the impact of COVID-19.