Many signs are pointing in the same direction: We’re heading into a global recession. So are subscription services recession-proof?
The yield curve is inverted, the global stock market is tanking and inflation is skyrocketing. Many large-scale subscription services are still seeing a healthy growth curve - while a few services like Netflix, are starting to lose subscribers en masse.
If we’re heading into a recession - which subscription services will be affected and how should they react?
First of all, I’d argue that subscription services are more recession-proof than other services and products. Why? Here are two reasons:
- They are customer-centric and built on loyal customers. Successful subscription services have very strong relationships with their customers. Such relationships can prove very important in a down-turn.
- Subscription services are built on opting out, which means there will be a lagging effect. If a recession strikes, then new sales might decrease. However, it usually takes longer for customers to actually opt out of their current subscriptions. This lagging effect can prove important to smooth out the effect of a recession.
Different subscription services will likely experience the recession in different ways - and some will even benefit from it. Here’s my take on how different types of services will be affected:
- Media B2C subscriptions. This includes streaming services, digital publishers, magazines and apps. These services will have a rocky road going forward. Consumers will think twice about their entertainment spend and then these subscriptions are very much at risk.
- Move up the ladder from nice-to-have to need-to-have. Make sure that your service is the one that subscribers stick with, even in bad times.
- Reduce price and rebate both new and existing users if necessary. It’s more important to keep their loyalty, then maximising revenue right now.
- B2B SaaS and B2B services. Consumer confidence usually goes down first and then corporations follow. These services might experience a lagging effect in a down-turn. They might also find growth in a down-turn if they play their cards right. Many B2B services help corporations reduce cost and increase efficiency (compared to if they would do it inhouse). Therefore, they might be able to increase their sales when other companies need to save and perhaps reduce their workforce.
- Adapt your value proposition to match the down-turn.
- Consider stepping on the gas if the opportunity arises.
- Product-as-a-Service. This includes services being offered as a subscription, which is traditionally sold as a product. Example: Cars, bikes, electronics, eyeglasses and the likes. This category might also see a strong upturn in a recession. If consumer confidence is falling, then they might be reluctant to take large investments (like purchasing a new car). Accessing these products through a subscription might be just what the consumers need.
- Adapt your pricing and value prop to fit the market conditions.
- Be wary of the credit risk: Every consumer might not have the means to pay.
- Retail memberships. Membership clubs like Costco and Amazon Prime are built to allow its members to access more value than non-members. In a down-turn, consumers will be vary of prices and do what they can to save. This can be good news for membership clubs which give their consumers hefty discounts in return for their loyalty. In many geographies, such as the Nordics, these memberships are still fairly uncommon.
- Break new ground - maybe it’s time to introduce a membership club to keep customers loyal throughout a recession?
- Provide an actual value: Your members need to feel that they are getting their money's worth.
So are subscription services recession proof? Not completely. But compared to traditional transaction-based models, they might actually have a chance to come out on top in hard times. If you like to consume more subscription insights we have a fully equipped resources hub for you to dig deeper into.