by Johnny Munro 12th April, 2018
3 min read

Subscription services: delivering value or threatening consumers’ rights?

The way we consume is changing.  Markets are seeing a shift away from ownership to rental or subscription ‘on-demand’ services such as streaming or fitness services. This market in the UK increased 11% on last year and 25% of UK adults now predict that they will be subscribing to more services in the next five years.

While the commercial benefits have already been mapped out, the political and regulatory agenda for the subscription economy has yet to be developed. For investors, this lack of political awareness could damage the growth of the model if certain persistent issues are not tackled, and are later clamped down on by politicians.

Firstly, this model requires a deeper analysis of the pricing strategies and the customer service models used by firms offering subscriptions. Consumer rights groups have begun to raise awareness – highlighting that often consumer loyalty is rewarded only with higher monthly costs.

Consumer gripes also concern the complexity of the monthly agreements, unclear T&Cs, the difficulty of cancellation, bad customer service and poor value for money.

As a recent Citizens Advice report has highlighted, many consumers believe that monthly subscriptions help them to budget and use money wisely, when in fact the annual cost of these subscriptions could be pushing people further into debt.

Arguably a more urgent concern is pricing strategies, which are ethically murky and rely heavily on consumer data. The more data firms collect in fields such as income, online habits and health records, the more they can market effectively; developing pricing and service offerings tailor-made for each customer. This is on uncertain legal grounds, with data protection concerns and suspicions about consumers paying different prices for the same product.

With subscription-based services exploding, policymakers have so far buried their heads in the sand and run from the need to investigate firm’s subscription offerings to consumers.

Recent statistics also highlight a willingness among 16-24 year olds to subscribe to critical utilities services ranging from smart heating, cooling, lighting, and home security. Most of this cohort will subscribe to personal services such as health monitoring in the future.

Given these products and services are so critical to modern life, basic issues under this model need to urgently be looked at. For example, what would consumers’ rights be if an energy supplier were to go bust with no long-term contract agreed?

To capture the recurring revenue streams, firms offering these services must generate strong loyalty to the brand and work harder to retain customers by finding new ways of delivering continuing value.

But in their eagerness to provide hyper tailored services to consumers, firms and investors should pay careful attention to pricing differentiation strategies and common consumer grumbles, ensuring they do not overstep the line to price discrimination or taking the monthly fee for granted, under the guise of being ‘flexible’.

For more information on how GK can help you navigate evolving regulation and policy, contact Johnny@gkstrategy.com

See more articles by Johnny Munro