by GK Strategy 12th January, 2018
3 min read

The subscription economy needs a sustainability agenda

The subscription economy is growing fast- with the average monthly spend three times higher than in 2016 – as it colonises new goods and services, from food and drink and music to clothes and cars. A political agenda is only just emerging, following a recent Green Paper, which touches on some pertinent issues across a few sectors. However, there is no sustainability agenda, either to address some key risks within the subscription economy or to promote its huge opportunities.

This is bizarre. The sharing economy and the gig economy both failed to address key sustainability risks and have consequently suffered from heightened regulation political scrutiny, consumer concern, and indeed bans. The subscription economy could suffer a similar fate.

The subscription economy has incredible potential to address two big problems: sustainable consumption and sustainable finances. But it could be undermined by a failure to address issues around transparency, flexibility and customer redress.

How subscription services promote sustainable consumption

Subscription services can promote more sustainable consumption by allowing consumers to try more sustainable products that might not be available in mainstream retailers. A good example is the growth of subscription services for organic food and drink.

Subscription models could make a much bigger impact in the worlds of sustainable energy and transport. Why spend a lot of money up front to buy the latest electric vehicle (and home charging facilities) or combined solar panel and battery storage combination when the dramatic speed of innovation could well render your purchase technologically obsolete and subject it to massive depreciation? You could instead let a subscription provider manage the depreciation risk and allow you to swap out to better items as the technology improves, just as mobile network providers do for phones.

The subscription economy can also promote a much more varied cultural life, by removing the need for consumers to make relatively expensive decisions to try new items: the likes of Spotify and Netflix, for example, have introduced consumers to new film and music in a convenient and inexpensive way.

Another sustainability benefit is that they have removed the need for a lot of home entertainment in the home, which has lowered the production and disposal impacts of this equipment, whether it’s hi-fi boxes or CDs and DVDs.

How subscription services can promote more sustainable finance

Subscription services can help consumers manage their finances more effectively, removing the need for one-off expensive outright purchases that can result in expensive credit card interest and impaired cash flow. According to a recent Citizens Advice Bureau report, many consumers believe that monthly subscriptions can help them to budget and use money wisely.

At a macroeconomic level, the subscription economy could help reduce the risk of personal credit bubbles and thus the exposure of financial institutions and the economy to debt defaulting.

What sustainability risks need to be addressed?

But the growth of the subscription economy could be undermined if consumer trust is weakened in the light of common problems affecting it, along with heightened political, media and regulatory scrutiny as the subscription economy grows.

The first risk is that providers fail to address issues of transparency. Unlike outright purchases, where it is easy to see the total costs of goods on price comparison or retailer websites, it is much more difficult for consumers to understand the total costs across the duration of a subscription, especially when there are initial charges or additional fees to the basic subscription.

The second risk is that while consumers might look to help manage their finances more effectively, the reality can be very different, with many providers making it very difficult to cancel or reconfigure services to meet changing needs or budgets. This may even be to the extent that sometimes it is impossible to cancel online or in-store, or it is difficult to find a number to call to cancel.

This is particularly important as more people face unpredictability in their income and face rising living costs and increasing debt levels. In addition, as the subscription economy and the size of subscriptions gets bigger (especially once car subscribing becomes established) proper affordability checks will become more important. Subscription services could soon be seen to be contributing to the debt problem, not solving it.

The third risk is how subscription companies use consumer data and what rights consumers have to do it. As the recent Green Paper, Modernising Consumer Markets, succinctly put it: “Companies hold large amounts of data about consumers and their use of particular products and services. Too often this data works against consumers rather than for them, for example when companies identify loyal customers and put them on expensive deals. We want to end this information asymmetry so that consumers can use their own data to get the best deals and drive competition.” (p.21)

How to promote and safeguard the subscription economy and make it more sustainable economy

The key risks affecting the subscription economy are not sector-specific and there is otherwise little obvious common cause between Abel & Cole, Netflix and Volvo (one of the first car manufacturers to embrace subscription car services).

It would make sense then for some of the major sustainability business forums to develop and promote an agenda for the subscription economy.

The investment community – perhaps through the PRI or Invest Europe – could also develop criteria that could be incorporated into ESG due diligence.

Ideally, several major companies and sector forums, perhaps with the involvement of consumer groups like Which and Citizen Advice Bureau, would come to develop a cross-sector code of conduct or principles-based charter that would allow subscription economy companies to recognise and sign up to best practice in terms of transparency, pricing, termination, flexibility , data usage, and consumer redress.

Finally, the sustainability agenda could be assisted by a more coherent political focus on the complete range of positive and negative aspects of the subscription economy, rather than just a few customer service issues in a handful of sub-sectors. An All Party Parliamentary Group (APPG) would be a good start.

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.

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