The growth of the Subscription Economy

The subscription economy has grown more than 435% over the last decade and subscription businesses are growing faster than traditional businesses. A phrase coined alongside the growth of the subscription economy is the ‘end of ownership’.

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Josh Wright
Influence
January 2, 2022 9:30 am

In the UK, one of our major coffee chains Pret introduced a subscription plan. For £20 a month you can get 5 drinks a day. These include coffees, frappes, teas and hot chocolates. It’s a great deal if you’re a regular coffee drinker. You can more than make up the cost of the subscription fee within a few days. Of course there is a 1 month free trial 😉

The subscription has been a major part of Pret’s transformation that has grown its staff by 28% since the beginning of 2021 and plans to double the size of its business within the next 5 years. I regularly see new staff being trained whenever I go to Pret. From my observation the subscription plan has made a lot of business sense.

With a Pret subscription, you’re essentially locked in to one coffee chain. Why would you go anywhere else if you can get your ‘free’ drink from Pret? With hundreds of Pret stores in London alone, there’s a good chance there will be one nearby. When you have your drink, you will probably want to eat something too. That’s where the subscription really comes into play. The objective of the subscription is to get people into a Pret store. Without the subscription, a customer could have gone anywhere to get food. Now they’re in a Pret store, taking away sales from other businesses.

From my experience the more I go to Pret, the more familiar I’m becoming with its menu. I buy food with my drink more often than before. Many people could be spending more on Pret food than they were spending on coffees without the subscription. I also barely go to any other coffee chain, compared to before when my purchases were split between them. The only other chain I’ve been to recently is Costa and that’s because the Pret store I went to first was closed.

When meeting friends I suggest meeting at Pret so I can get my free drink. Pret benefits in that I also buy food when I’m there, but then there are people who don’t have the subscription buying drinks and food there. There’s a social domino effect whereby Pret gets sales beyond the person who has the subscription.

I’m waiting to see if other coffee chains will follow suit. Costa, Starbucks, Caffe Nero are no doubt keeping an eye on Pret’s performance and may join the subscription economy sooner than we think. Until then, happy new year! Time for me to finish the Pret coffee I was drinking while writing this ☕

Pret coffee.jpg
Amin Rashad
Influence
January 1, 2022 9:16 pm

Two words. Free trial. Free trials are the magic sauce that’s propelled the subscription economy to new heights. As a user, you feel as if you’re getting a great deal. For the business, it gets your details and the product gets exposure. Win-win! 

The free trial concept has been around for decades. I’d like to share how it was used to introduce tea in a rural village in India in the 1940s. Back then tea was a rare drink reserved only for the upper and middle classes. In other words, people who could afford it. Tea sellers wanted to change this. They had witnessed enormous sales growth in the later years of the 19th century and saw the potential of sales to the common person in even the remotest villages.

In this village, a truck would make a morning visit to dispense ready-made, boiling hot tea. Villagers would hold out their cups and flasks as the truck attendant poured out this wondrous concoction of tea leaves, milk and sugar. The drink tasted great. But better yet, it was free!

The villagers would eagerly anticipate the arrival of the truck every morning so they could savour another taste of what was quickly becoming their favorite drink. Before this, the villagers’ morning drink was plain milk. The truck continued to visit the village for 2 years. Then one day it stopped.

The business owners of the tea company knew it was time. And how right they were. Morning tea had become a habit. It was a routine. People were addicted. A few people grumbled about not getting their free tea anymore but it didn’t matter. If you can’t continue without your morning tea, you’ll pay for it.

The free trial was a major success. The tea company had great sales in the village and elsewhere where they executed the same strategy. By providing free tea over a 2 year period, they had formed a population of lifetime customers. Till this day, free trials are widely used to acquire customers. Just remember the next time you sign up for a free trial to a subscription service, it’s a business strategy that has been paying off for years 🙂

India village.jpg
Cristina Pellini
Potential
January 4, 2022 9:41 am

The ‘end of ownership’ doesn’t work for everyone and prices out many otherwise interested customers. The best example that I can think of is Adobe Photoshop. For years Photoshop was sold as a one time purchase software package, just like Microsoft Office, which coincidentally has also moved to a subscription model as Microsoft 365. Photoshop was an expensive product but when you bought it, it was yours to keep. 

Adobe now charges $20.99/month for Photoshop or you can pay $52.99/month for all Creative Cloud apps that includes video editing as well. The argument from Adobe and Photoshop fans is that you actually save money. If you’re a student you get a discount, the apps are always updated and you have the latest features. By the time the subscription costs match what you would have paid for the standalone package, the product would have evolved considerably. For a perpetual license Photoshop used to cost around $700 and $200 to upgrade. This means it would take three and a half years of a Photoshop subscription at $20.99 to match the cost of an up-to-date perpetual license.

Not everyone agrees with this line of reasoning. Many Photoshop users didn’t need the most up-to-date features, so a perpetual license could last them for 5 years or more, making it more cost effective than a monthly subscription. In 2011 when Adobe announced its plans to move to a subscription service, there were many disgruntled users who were upset by Adobe’s “draconian” plans. Many in the Photoshop community talked about using their existing Photoshop software for as long as they could and then move to competing products.

Some users have taken the illegal route by searching for cracked or pirated software. An inevitable consequence that I’m sure Adobe would have foreseen by introducing their subscription service. Others, not knowing any better, have bought cracked software from online stores claiming to be official Adobe resellers. But most users who were disgruntled by Adobe’s entry into the subscription economy simply moved to competitors, of which there are many. As with Microsoft Office, there are open-source alternatives to Photoshop such as GIMP and Darktable, applications that would have found many new users since Adobe changed its pricing structure.

Adobe Photoshop.PNG
Jason Ng
Impact
January 3, 2022 4:14 pm

The subscription economy is changing business models the world over. Although it helps the bottom line of many businesses, the question we should be asking is at what cost? Like I’m also a customer of the Pret subscription service. Beforehand I was spending approximately double the cost of the subscription charge on coffees every month, so that’s a saving I’m happy about.

What about the impact on staff? From a customer perspective, the impact on staff is frequently neglected. As rational customers, we just want the cheapest cost and highest quality. But if staff can’t keep up, then the quality we’re used to won’t keep up either.

Pret’s subscription service has resulted in an influx of customers that staff have to serve. During rush hour and lunch times, coffee shops have always been bustling with customers and staff are working flat out to serve them. Now because of the subscription there are even more customers who add to the influx. Take a moment to consider staff in this high pressure environment. They are overworked. Some drinks take a longer time to make than regular coffees. Now customers can come in 5 times a day and ask for these drinks. I’ve heard a rumour that some staff pretend a drink has run out because they’re too tired to make them. The day after Xmas, I went to Pret to get a hot chocolate and I was told by the barista that they had run out. They were probably telling the truth, but knowing how much pressure they are under since the subscription started, a part of me felt a bit sus about it all. Chalk that down to my pessimism 🤔

Having to serve more customers means staff won’t always get it right. If anything, my image of Pret is that it’s chaotic behind the counter. Quite a few times I’ve gone to Pret, asked for a drink, and am left waiting by the counter as customers who came after me get their drink. From what I can see, the cashier shouts back to the barista what drink to make. But in the chaos of it all, there’s no way to tell if the barista hears it. I’ve seen this happen a lot. Was Pret always this chaotic or has this been happening since the subscription was introduced? The point is the subscription might be harming the Pret brand instead of helping it.