Published in News

Subscription models are winners for companies

by on18 August 2023

Mostly because users forget to cancel them.

Subscription-based models are helping companies' bottom line because users are forgetting to cancel them.

Researchers have put a number on the high value of customer inertia. Buyers' inattention can boost a business's revenue by as much as 200 per cent.

In a paper submitted to the National Bureau of Economic Research Boffins from Stanford and Texas A&M said that they knew that people were forgetting to cancel their hardware or software subscriptions but no one was really aware of the problem’s magnitude or pervasiveness.

They calculated the cost of inattention by zeroing in on a specific moment when they replaced a credit card.

Using a large dataset from an undisclosed payment system provider, the researchers first identified 10 standard subscription services and then looked at how frequently they were renewed during normal times and when the subscriber replaced a card, forcing them to update their payment information with each service.

Renewals sharply dropped off after these card replacements, even as other shopping behaviour, such as buying groceries and gas, continued normally, leading them to a conclusion: When people had to actively decide to resubscribe to a service and enter new payment information, many opted out.

Last modified on 18 August 2023
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