*Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
This article was last updated Jul 30, 2020. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
The COVID-19 crisis quickly altered consumers’ lifestyles and spending habits. Sheltering in place led consumers to rely heavily on delivery services and subscriptions for entertainment and essentials. The impact of these behavior changes may forever transform the retail market.
As Americans tripled their spending on subscriptions during the coronavirus pandemic, some credit cards stepped in by offering rewards and discounts for subscription services.
The drastic spike in subscription spending may indicate a shift in the way consumers will experience retail shopping post-pandemic.
For example, consumers are already adapting to contactless cards as a preferred method of payment. On the other hand, there is research that supports the desire to return to pre-pandemic habits; more than 1 in 4 Americans said they look forward to sitting down in their favorite local restaurant again, according to a recent survey by CompareCards.
Still, retail stores see the convenience and value of a subscription model during a crisis and may consider adopting subscription services to reach new audiences.
To understand the impact subscription spending trends will have on retail, CompareCards turned to Rebecca Wang, assistant professor of marketing at Lehigh University. She has done substantial research on retail and consumer behavior, especially in the areas of digital and mobile channels, social media, and data-driven marketing.
She also contributed to numerous publications, including Journal of Consumer Research, Journal of Retailing, Journal of Interactive Marketing and Computers in Human Behavior. CompareCards asked Wang about her outlook on changes retailers may consider making to their channels and deliveries.
Q: How might retailers adapt to this shift in spending habits? What do you recommend for retailers to stay relevant?
Rebecca Wang: All retailers should think of innovative ways to digitize their channels and deliveries. For some companies, it means expanding their product mix with their preexisting e-platforms. For instance, Amazon sells “in-theatre” movies through its Prime video platform at an additional “movie ticket” price. For others, it means serving or communicating with their customers in a novel way to eliminate as many physical or even psychological barriers as possible. Contactless delivery is one example in practice.
Another practical tactic is customizing a retailer’s digital advertising and paid search campaigns. This insight stems from a forthcoming research article, “Construal Matching in Online Search: Applying Text Analysis to Illuminate the Consumer Decision Journey,” with my co-authors Ashlee Humphreys of Northwestern University and Mathew Isaac of Seattle University.
Before the pandemic, people might only be searching for a product in general. Now, for certain product categories, the pandemic essentially rushes a consumer to purchase. So, knowing that they will be purchasing the subscription, they might directly search for “amazon prime” or “grocery delivery service,” signaling their readiness to buy and commit. As such, a brand’s advertising strategy should be different depending on what people are searching for online.
Q: How effective are trial period/sign-up discounts in keeping consumers hooked long-term to a subscription?
Rebecca Wang: Sign-up discounts are a customer acquisition tool, not a customer retention tool. Retention comes from providing superior services and fulfilling customers’ needs and wants. Customers are only going to continue to subscribe if they believe the value of a subscription outweighs its price.
Sign-up discounts are great at attracting customers away from competing businesses or tipping the undecided customers over to click on the “buy” button, but to maintain any long-term customer relationships, a subscription service has to offer convenience and value.
Q: How do subscription services impact or disrupt the future of retail?
Rebecca Wang: Subscription services are not exactly new. Entertainment and media services have been operating on a subscription model for years, and they will continue to do so in the future. Perhaps even more so, e.g., selling add-ons or bundles, now that customers are used to paying for services like news articles or ad-free videos. For other types of products, many customers were already searching, buying, and subscribing online. COVID essentially pushes those that were still offline-only shoppers to become online shoppers.
After COVID, I suspect that for some product categories, customers will revert back to pre-existing behaviors before the pandemic. But for habitual, repeat-purchase types of products that customers are loyal to, subscriptions may continue , even after the pandemic ends.
What does this mean for retail? In some ways, not a whole lot immediately – after COVID-19, subscriptions won’t be the main retail channel for physical products in the foreseeable future.
However, a prudent retailer should rethink its delivery system and gauge whether it makes sense to include subscriptions as part of their business model, so it can handle events like a pandemic or customers’ gradual shifts from offline to online shopping.
Q: In your research, have you found or would you expect to find similar insights relating to branded apps that also adopted a subscription service model?
Rebecca Wang: My research published in Journal of Retailing, Journal of the Association for Consumer Research, and Computers in Human Behavior on mobile shopping and mobile apps would suggest that mobile apps are essentially a habit reinforcement tool. So, a subscription service should definitely have a simple, convenient app that allows customers to easily manage their subscriptions and browse through other offerings.
The ubiquitous nature of mobile platforms allow customers to interact with a brand anytime, anywhere, and this type of “always-on” interaction can lead to customers’ top-of-mind engagement with a brand, and subsequently leads to more engagement on the brand’s website or social media sites and positive reviews or feedback, resulting in customer acquisition, retention, and development.
Q: Would you expect a certain product category to have more success in increasing customer loyalty with branded apps and subscriptions services than others?
Rebecca Wang: Again, mobile platforms are great at reinforcing habitual behavior. So, products that fit within a consumer’s daily routine and can continue to fit within the routine even after COVID-19 will have more success. Examples include groceries, food deliveries, and daily news and entertainment.