by GK Strategy 14th November, 2018
3 min read

Subscription Economy

The UK subscription economy is booming but is it sustainable? Will regulators follow the US lead in protecting captive consumers – and how should UK subscription businesses respond?

The subscription economy in the UK is thriving, with new survey data showing that 82% of the population subscribes to at least one subscription service.

Interest in new types of subscription service is high: over 40% of 16-24-year olds are interested in subscriptions for lighting, smart heating, home security and smart health care/monitoring.

And almost a quarter of Britons are interested in car subscription services – as Uber have just launched their subscription offer in the US.

But consumer interest in new services is being undercut by concerns about how much flexibility and control they will have. And UK regulators have started to look at whether companies are taking advantage of loyal customers.

GK can help companies and investors map and mitigate the political, regulatory and ESG risks related to subscription businesses.

We can also recommend how to build demonstrably responsible subscription offers that empower consumers and deliver the promise of much greater flexibility than ownership models, rather than just a different way to pay.

Regulators and NGOs have started to address subscriber concerns
The recent Citizens Advice super-complaint to the Competition and Markets Authority claims that loyal consumers pay higher rates than those offered to tempt new customers. It echoes similar concerns expressed by Which.

Citizens Advice claim that consumers lose £4.1 billion a year to the ‘loyalty penalty’, with 8 in 10 people paying a significantly higher price for remaining with their existing supplier in the mobile, broadband, home insurance, mortgages and savings markets. Similar issues can also be observed in many other subscription markets (for gyms, music and video on demand services, food boxes, etc).

But there are other, related concerns identified in the Zuora survey: 32% of subscribers are worried about difficulties in unsubscribing and 25% about price increases.

In reality, the ‘loyal customer’ is not necessarily someone who views their current provider favourably; they may instead be ‘loyal’ simply because of difficulties in extracting themselves from their existing arrangements.

Might the UK follow California?

California passed a landmark law this summer so that people who subscribe on-line are also entitled to cancel it online. Californians no longer have to call a customer service phone number to stop the service – typically a much, much harder task than signing up.

The California law also addresses concerns about tempting promotional offers and requires a “clear and conspicuous explanation” as to how much customers will be charged once the trial ends or if the pricing will change.

What should UK subscription providers do?

The CMA (and FCA) response to the Citizens Advice super complaint could prompt a much-needed review of the rules concerning the subscription economy.

Companies operating subscription models have a choice. They can simply wait for new legislation or sector-specific rules (applied by sector regulators) or they could consider a more proactive, cross-sector approach.

While there is no cross-sector trade association for the subscription economy in the UK (there is SUBTA in the US), there is no reason why some of the larger cross-sector business associations (CBI, ICC, etc) could not develop legislative and voluntary proposals (such as codes of conduct) to empower and reassure consumers.

There is nothing to stop some individual subscriber brands from establishing charters and codes of conduct that help create competitive advantage by addressing the problems identified here.

GK can help companies protect and enhance the reputation and consumer appeal of subscription brands by drawing on best practice in voluntary and regulatory measures, to empower consumers and ensure they make well-informed decisions and understand their rights and obligations as subscribers.

We can advise on policies and processes to do this, along with communication and engagement strategies to help establish market leadership positions and help responsible companies stand apart from questionable subscription practices.

The subscription economy has incredible potential to transform our lives for the better, promoting innovation, choice and sustainability. But its future could be threatened if it fails to tackle some of its key risks. The Citizens Advice super-complaint could be the first real wake up call to the UK subscription economy but it won’t be the last.

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