A meaningful shift is happening in how subscription businesses are adapting to today’s macro environment. In what is being referred to as the “Retention Era,” new research shows that merchants have shifted from growing primarily via customer acquisition to prioritizing new and valuable ways to retain and monetize their existing customers.
For the past several years, businesses have sharply focused on growth through acquiring new customers. Now, 2023 is all about retaining them. With churn expectations increasing, 87% of businesses now prioritize retention on an equal or greater footing than acquisition.
As we look ahead and move from the pandemic-driven subscription boom to its implementation as a key strategic business model for reliable revenue, there are 10 subscription industry trends to expect during 2023 and beyond.
1—Consumer businesses continue to push subscription models, especially in VC-backed companies.
Venture capital and technology firms are increasingly focused on long-term profitability, making the subscription model an attractive avenue for revenue generation. Emulating the success of loyalty and membership programs like Amazon Prime, businesses from Uber to DoorDash are expanding their subscription offerings to grow revenue
2—Retention and sustainable growth will win over “growth at all costs.”
The changing market demands of 2023 will drive the switch to a focus on loyalty and customer retention. As the New York Times recently declared, the “Lifestyle Subsidy” historically provided by VCs “is over.” As such, acquisition discounts will be replaced by retention deals.
3—The rollout of AI will come with opportunity and peril for subscription-oriented companies.
With the rise of Generative AI, we expect more chatbots in subscription acquisition and cancellation flows, which will benefit early adopters. Concurrently, companies, from media to content, will experience disruption to search engine traffic due to new algorithms with changing technology.
4—As pricing pressures soften, companies will turn to bundling to keep their revenue growth up.
Our survey strongly indicates that subscription companies expect revenue to grow at a rate that outpaces inflation. In eCommerce, media, and SaaS especially, we’re seeing trends towards increased bundling of content and services, from Microsoft integrating ChatGPT to the merging of Disney and Hulu—companies are trying to justify an increase in prices by delivering more value to customers.
5—Subscription fatigue will breed wariness.
As the number and types of subscription businesses continue to grow, we will see a negative impact on acquisition costs for consumer-only businesses. We see that over 80% of customers would be more likely to purchase from a company that makes it easy to cancel, so we can anticipate that “easy” cancellation experiences will have a lower customer acquisition cost (CAC) than those who have significant friction in the cancellation process.
6—Regulations will increasingly protect consumers.
With both New York and California recently making it illegal to force customers into phone/email-based cancellation experiences, we can expect more regulations. The FTC has proposed a rule to make it easier for customers to “click to cancel” online memberships, and this will just be the beginning.
Germany recently implemented a two-click cancellation law effective July 2022, and the UK introduced the Digital Markets, Competition, and Consumers Bill t in late April 2023, which is expected to take effect in 2024.
7—SaaS revenues will grow.
Despite rounds of layoffs at SaaS companies in the last year, our survey shows that companies plan to increase spending on technology and tools in the coming months. Solutions that adapt and future-proof will fare well, even with adverse market conditions.
8—We will see the rise of Hybrid-Pricing models.
Hybrid-Pricing combines the benefits of fixed-cost pricing models (like subscription tiers and seat-based pricing) and variable-cost pricing models (like usage-based pricing). With flexibility remaining a business-critical value, the ability to tailor pricing strategies, optimize revenue and enhance the customer experience will all help companies to gain a competitive advantage.
9—The increasing importance of customer data and personalization will continue.
Customers not only expect but demand a more personalized experience. By collecting and analyzing customer data, businesses gain insights into preferences and needs, enabling them to customize subscription offerings.
10—Subscription marketplaces will increase in popularity.
Subscription marketplaces like Dollar Shave Club, Thrive Market, Birchbox, Rent The Runway, and Adobe Creative Cloud maintain popularity by providing consumers with convenience, cost savings, and personalized experiences – all under a single subscription.
This year has brought rapid change to the business landscape, with companies finding ways to prioritize investment for continued growth, no matter what business model they employ. Businesses are adjusting to changing market conditions by shifting priorities and budgets to combat. The smart bet is on retention, a more direct and efficient approach to long-term growth that places customers at the center of business.
Guy Marion is the CMO at Chargebee, the leading revenue growth management platform for subscription businesses. Guy Marion has over 15 years of strategic marketing, sales, and product leadership experience driving growth for SaaS businesses, including Autopilot and Zendesk. Before joining Chargebee, he was CEO and founder of Brightback, which was acquired and is now Chargebee Retention. For more on the state of the subscription industry, please visit https://www.chargebee.com/resources/guides/subscriptions-industry-report/.