The Growing Prominence of Subscriptions

In the United States, subscription-based models are making waves in the business world. Currently, there are 225 million subscription services nationwide. The average person who uses subscriptions has about 3.7 to fulfill their needs. Younger generations, such as millennials and Gen Z, are especially drawn towards these types of models. They are more likely to use the technology that a lot of these subscription models use, such as smartphone apps, and have been exposed to subscription-based pricing from a young age. This trend in generational usage has shown that subscription models will only continue to grow in popularity; right now they’re growing 3.7x faster than companies in the S&P 500. 

A large draw of subscription based pricing is the fact that it is possible to set up usage based pricing, meaning a customer can be charged only for what they consume. Some especially savvy customers may put their payments on autopilot, which can lessen their monthly worries. Subscriptions are also typically very cost effective and convenient. Some of the services, such as Amazon Prime offer deliveries right to a customer’s home, which was especially appreciated during the COVID-19 lockdowns. Therefore, during the pandemic, subscription based businesses grew by 11.6%, compared to normal brick and mortar businesses shrinking by 1.6%. 

The two main categories of these subscription services are business-to-business (B2B) and direct-to-consumer (DTC). There are 27,000 DTC services available, demonstrating the enormous demand of these subscriptions that remove the need for middlemen that often are the cause of higher prices. Three primary subscription models have emerged as the most popular ones, namely membership/access, curated content, and replenishment services. At 55% of the market, curated subscriptions rule the market and cover a wide range of products. Fabfitfun and Birchbox are two examples of curated subscriptions.