The subscription business model has been one of the big success stories of the Internet era. From Netflix to Microsoft 365, more and more companies are moving towards recurring revenue streams by having customers pay for access rather than product ownership.
The subscription economy cuts across many industries -- such as streaming services, software, media, consumer products, and even transportation with the rise of mobility-as-a-service.
A new market study by Juniper Research highlights the central challenge facing subscription businesses -- reducing customer churn to build a loyal subscriber installed base.
Subscription Model Market Development
The Juniper market study provides an in-depth analysis of the subscription business model market landscape and associated customer retention strategies.
A key finding is that impending government regulations will make it easier for customers to cancel subscriptions, likely leading to increased voluntary churn rates.
The study report cites the FTC's proposed "Click to Cancel" rule in the U.S. requires sellers to make a cancellation as easy as signing up. Meanwhile, France is going even further with a "3-clicks to cancel" provision.
Regulations like these stem from concerns about deceptive tactics such as difficult-to-find cancellation flows or service providers automatically renewing free trials into paid subscriptions.
Battling higher churn rates due to compulsory government regulatory changes means subscription companies will need to invest more in customer retention strategies.
Juniper analysts recommend working with subscription management vendors that offer churn reduction technologies like smart payment retries using automation to optimize retry timing based on error codes.
Another major opportunity is leveraging hyper-personalization through artificial intelligence (AI) and machine learning. The research predicts the digital video and music streaming industries will reach $370 billion by 2028, facilitated by personalized recommendations.
The meal kit company HelloFresh is cited as using machine learning to tailor menu options based on past choices. Effective use of customer data for customized experiences can increase satisfaction and reduce churn.
The report also examines trends in payment methods. It highlights how open banking initiatives like variable recurring payments (VRPs) give customers more transparency and flexibility around subscription mandates compared to traditional options like direct debit.
While increasing customer control could drive churn, it may also inspire more willingness to try new subscriptions. Alternative payment methods like digital wallets are also becoming a bigger part of the subscription ecosystem.
The convenience of stored payment details optimizes checkout completion. Buy now, pay later (BNPL) services could grow in usage for larger, less frequent subscription bills as well.
Overall, Juniper Research forecasts the global subscription economy revenue will surge 68 percent from $593 billion in 2024 to $996 billion by 2028 as more companies adopt recurring business models across a diverse range of sectors.
Outlook for Subscription Model Applications Growth
Reducing churn through tactics like hyper-personalization, AI-powered retention tools, flexible payment options, and regulatory compliance could be crucial for sustained new growth.
The subscription economy has been disrupting traditional business processes across industries, but now those service provider strategies themselves may need disruption.
That said, I believe companies must prioritize customer relationships and invest in capabilities that build long-term loyalty. Those providers who fail to evolve their customer retention approaches to mitigate churn risk may find themselves being consistently unsubscribed.