Oversubscribed

Subscription services can provide real benefits in the form of lower transaction costs and great product differentiation, but a lot of people may be irrationally subscribed to too many services.

Subscription programs seem to be everywhere and have become so common that we often forget how many things we’ve signed up for and don’t use. You can subscribe to everything from books to complete outfits, razors, and even soccer jerseys. There is likely a subscription service for anything you could want and plenty of things you don’t. New survey data, however, suggests we may have taken things a bit too far: 38% of respondents to one survey noted that subscription services “actually add stress to their life, rather than relieve it” and 54% of respondents to a different survey underestimated their monthly subscription costs by at least $100.

Let’s start with the economic benefits of subscription programs compared to traditional shopping experiences in person. For some programs, subscription services reduce the transaction costs associated with repeat purchases. These are the costs associated with the hassle of making a purchase and include costs related to extra time, money, or stress. Companies like Dollar Shave Club or Amazon’s Subscribe & Save program operate in this particular space. For people who use products at regular intervals, subscriptions can both reduce the cost of the product and save the consumer time during their weekly shopping trips.

The majority of e-commerce subscribers, at least according to a report by McKinsey & Company, value being surprised by the product variety in their subscription service. These programs send subscribers a curated selection of different products with varying levels of consumer input. The most common categories include products such as clothing, food, and beauty products. Some of the major companies in this space include Stitchfix, HelloFresh, and Birch Box. These companies provide benefits to their customers by focusing on product differentiation. Unlike subscriptions that are focused on lowering transaction costs, subscribers here are willing to pay higher prices for the added variety. A lot of these programs offer some sort of personalization that makes the product offering feel unique to the subscriber.

While subscription services can lower transaction costs and provide value through differentiation, it’s easy for subscribers to lose track of how many active memberships they have signed up for and how much those memberships cost. How did subscription programs start as a rational method of lowering costs and suddenly turn into a system that irrationally results in paying more than we intended? Nobel Laureate Richard Thaler would likely blame this behavior on mental accounting. This sort of irrational behavior occurs when people place different values on money based on some sort of subjective criteria.

People don’t generally like spending money and are more careful about purchasing things they don’t need when they must pay for items immediately. Subscription services, however, separate the payment and consumption periods. When people pay for something long before using the item, it can almost feel like the item was free once it’s finally consumed. By offering year-long subscriptions, companies can make their customers feel like they’re getting something for free when it finally arrives.

Consumers not only lose track of how much they spend on monthly subscriptions, but they also lose track of how many services they subscribe to and use. [C+R Research]

As you add more subscriptions to your monthly budget, it’s easy to forget how many programs you have subscribed to. Marginally, one more program may seem worth the added cost, but collectively we are less happy with how much is being spent. Because each monthly payment is often a small fraction of our income, we tend to easily forget how much each service cost and that’s compounded by the fact that many subscribers auto-pay their monthly fees. According to C+R Research, the average subscriber estimates that they spend only about $86 per month on subscription-related services. The problem? Their actual monthly spending on subscription services averages around $219. More than half of the respondents were off by more than $100 per month:

Beyond the cost of the programs, it’s not uncommon for people to simply stop using the service while continuing to pay. You’re not alone if you’re still paying for a gym membership months after you last stepped foot in the gym. Even popular platforms like Netflix and Hulu go unused for long periods of time despite never being canceled:

It's not uncommon for people to sign up for Netflix or Hulu, but never actually watch anything on them because they're too busy with life and other things going on in their lives. This can lead to wastefulness with money as well as time spent figuring out what shows are worth watching on these platforms when there's so much content available at any given time.

If you’ve found yourself oversubscribed, there are ways to break free from the irrationality of mental accounting. The most common recommendation is to start budgeting subscriptions like you would when determining other expenses like utilities, rent, or dining out. Placing the values in a spreadsheet with other expenses makes the cost more tangible and may motivate you to cancel one or two of the least-used services.

An easy place to start cutting back is with streaming services. Years ago, people started “cutting the cord” to move away from expensive cable bills that bundled channels people felt weren’t worth the cost. Today, streaming services have become so common that the collection of subscriptions for people is likely more than the cost of cable.

• Subscription business revenue has grown 437% over the past 10 years [Business Wire]

• Studies have shown that the average consumer subscribes to over five different digital services. [TheStreet]

• The most popular subscription category is entertainment subscription services—streaming, cable, music, and games—with 95% of people subscribed to at least one program [SurePayroll]

• Dollar Shave Club reportedly had over 4 million subscribers in 2019 [CNBC]

• 61% of adults ages 18 to 29 say the primary way they watch television is with streaming services on the internet [Pew Research Center]