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In this week’s ‘Five on Friday’, we dive into key issues shaping subscription software, retail, autos, fashion, and cable. We start by looking at the tensions between promises and profits in SaaS subscriptions. Then, we examine the importance of letting retail subscribers change their subscription plans, the controversy over automakers making basic car features into paid subscriptions, and the challenges faced by fashion retailers offering a wide range of choices while staying profitable. Finally, we’ll discuss how younger generations are favoring streaming services over traditional TV, impacting the TV industry. Check it all out below!

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Reviving the Promise: Sustaining SaaS Beyond Profit

Despite the apparent success of subscription-based models, recent price hikes by major tech companies like Meta, Netflix, Microsoft, Oracle, SAP, and Salesforce have raised questions about the true value customers receive.

Techcrunch’s Vijay Sundaram writes that software providers need to refocus on their original promise: passing on the advantages of cloud-based services and subscription licensing to customers.  He highlights key strategies like extended trial periods and prioritizing trust to maintain a healthy subscription economy, arguing that prioritizing customer value and productivity over mere profit accumulation would sustain the subscription economy, including:

• Encourage Flexibility: Allow more extensive and comprehensive trial periods for potential customers to fully experience the software’s capabilities before committing. This not only benefits the customers by enabling informed decisions but also allows providers to gauge the impact of users on their systems without affecting existing paying customers. This approach aims to increase customer trust and improve long-term conversions.

• Prioritize Customer Trust: Customers prefer establishing trust with a product before making significant purchasing decisions, especially in the software industry where deals involve substantial sums. Encouraging trial periods and offering flexibility in subscription models allows businesses to explore and trust the software before investing.

Overall, he advocates for a shift in focus within the subscription-based tech industry and suggests that prioritizing customer value, trust, and flexibility will not only benefit customers but also sustain the growth and health of the subscription economy in the long run. Read the full article here.

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Flexibility Reigns: Retail Subscriptions Must Adapt

According to a PYMNTS Intelligence study, approximately three-quarters of retail subscription merchants surveyed allow existing subscribers to change their plans whenever they want. This flexibility has become a standard practice within the industry.

Offering flexible plans is crucial for building and maintaining subscriber loyalty especially now that consumers facing financial challenges. They expect greater value and flexibility from their subscriptions. The ability to change, pause, or cancel subscriptions without hassle is seen as a critical factor in retaining subscribers. The trust factor associated with flexibility and control over their subscriptions builds trust. 

For subscription programs to thrive, consumers need varied choices. Restrictive subscription plans that don’t align with customers’ needs often lead to cancellations, hindering the success of such programs.

In essence, the article underscores the importance of flexibility in subscription models, indicating that giving subscribers control over their plans fosters trust, boosts loyalty, and ultimately contributes to the success of subscription-based businesses. Read the full article here.

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Driving Discontent: The Rise of Auto Subscriptions

Techdirt covers a trend that quite frankly has us feeling a bit queasy, more and more auto subscriptions. We are not talking about subscriptions for the entire car but for access to features in cars that consumers have bought.

Automakers are increasingly converting basic features into subscription services to boost their quarterly returns. This includes features like heated seats and improved engine performance, which are already present in the vehicles but are being locked behind paywalls.

Despite facing significant backlash (for example, BMW had to backtrack on some plans), the auto industry seems determined to continue making basic functions subscription-based. Automakers justify this shift by suggesting that the added revenue from subscriptions will fund the transition to electric cars.

Consumers are widely opposed to paying recurring fees for features already embedded in their vehicles. Surveys indicate strong resistance to subscription-based services unless they result in a net decrease in overall costs.

Automakers claim that integrating subscriptions reduces the retail cost of vehicles, but evidence supporting this assertion is lacking. Instead, the implementation of subscription models is primarily aimed at meeting Wall Street’s demand for consistent quarterly growth.

This shift towards endless subscriptions for basic functions could have unintended consequences. It might exacerbate affordability issues for consumers and potentially impact new car sales, leading individuals to opt for older vehicles with simpler technology. In addition, the move towards subscription-based models raises concerns among right-to-repair advocates, potentially creating barriers to repairing and accessing technology already owned by consumers. Read the full coverage here.

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Fashion’s Subscription Saga: Balancing Choice and Profit

Business of Fashion explores the rise and struggles of subscription-based retail models, focusing on Stitch Fix and Rent the Runway, which initially promised a revolution in the way people shop for clothing. Challenges in cost management and meeting market expectations highlight the difficulties in offering limitless choices while remaining profitable.

The subscription-based approach in fashion retail, as pioneered by Stitch Fix and Rent the Runway, offered an ‘endless closet’ concept, aiming to provide infinite choices to consumers via subscription boxes or rental luxury fashion. 

Yet, despite initially high valuations and market excitement, both companies encountered significant challenges:

• Cost and Execution: Providing an extensive array of choices turned out to be expensive and challenging to execute efficiently.
• Meeting Investor Expectations: Demand didn’t match investor expectations, leading to financial difficulties.

To address these issues, both companies have made efforts to cut costs. Stitch Fix reduced costs by scaling back its ambitions and operations. Rent the Runway has closed physical stores, reduced staff, and minimized shipping costs. However, both companies are still operating at a loss. Their subscribers have noticed and have voiced complaints about turnaround time and limited availability of desired brands and styles, demonstrating how challenging it is for these companies to balance cost-cutting measures without compromising service quality.

Despite their challenges, Rent the Runway continues to grow, surpassing pre-pandemic revenue levels, while Stitch Fix faces a decline in revenue, raising questions about the market’s appetite for subscription boxes. The ‘endless closet’ concept is likely to remain a niche market, and both companies aim to capitalize on this niche market for profitability.

Overall, it paints a picture of the struggles faced by these pioneering subscription-based retail companies, offering insight into their challenges and future prospects in a competitive market landscape. Read the full article here.

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The Decline of Traditional Pay TV Subscriptions

Cord Cutters explores the continuous decline in traditional pay TV subscriptions, driven by changing viewing habits among younger generations favoring streaming and flexible entertainment options. 

As pay-TV revenue dwindles, the article forecasts the future landscape of TV consumption and its impact on the cable industry as the percentage of U.S. households subscribing to providers like Comcast and DIRECTV is expected to drop to just under a third by 2028. This is a significant fall from the past, where the percentage was over 85% in 2010 and an estimated 42% for this year.

The shift in viewing habits is evident as cord-cutters (those abandoning cable TV) and “cord nevers” (individuals who have never subscribed to cable TV) are driving this decline. Younger generations are leading the charge towards alternative platforms like ad-supported services (e.g., The Roku Channel, Tubi, Pluto TV), live streaming services (e.g., YouTube TV, Sling TV), and subscription-based platforms (e.g., Netflix, Disney+).

Analysts note that the “generation rent” phenomenon, where younger consumers face housing market challenges and prefer more flexible entertainment options that don’t require physical installation or long-term commitments, contributes to this shift away from traditional cable TV.

As streaming services gain traction, experts predict a rise in subscription rates, prompting consumers to explore free, ad-supported platforms. While pay-TV will continue to decline, cable industry players aim to control more of the shrinking pay-TV market by leveraging high-speed internet services and bundling streaming services. However, the success of this strategy remains uncertain.

The article also forecasts a decline in pay-TV revenue, estimating a drop from the current annual revenue of $80.8 billion to less than $63.6 billion in 2028. And, essentially the ongoing decline of traditional cable TV subscriptions, driven by evolving consumer preferences, younger generations’ viewing habits, and a shift towards more flexible and diverse entertainment options provided by streaming services and ad-supported platforms. Read their full coverage here.