What rising inflation mean for the UK’s subscription businesses

This blog first appeared as a Linked In post on Access Paysuite’s profile.

With inflation rising and the possibility of a recession on the horizon, we spoke to Mike Chambers, payments industry expert, Chairman of Answer Pay and non-executive director of Card Industry Professionals, about what is causing the current problems and where companies can go from here.

Q: Why is inflation increasing?

Energy costs are one of the main contributors to the recent rise in inflation. The supply of energy has struggled to keep pace with global economy’s recovery from the pandemic. As a result, prices have increased – especially in European markets. 

 There’s a similar pattern across other goods and services. Recent events (e.g. Russia’s invasion of Ukraine and China’s Covid lockdowns) have added to this supply and price pressure. 

 Companies are also competing for talent during a period of relatively low UK unemployment. The resulting wage increases can also add to inflation.


Q: What are the likely short and long-term effects on the economy?

In the short term, we will see a continued pressure on UK households real incomes and therefore consumer spending. 

 Energy costs make up a larger proportion of poorer UK household’s spending. So the current – and likely future – increases in energy prices will cause further reductions in spending. We might also see a [worrying] rise in household using high cost credit (e.g. BNPL) to meet rising costs.  

 We can expect to see the commercial viability of business models being tested. Especially those that rely on discretionary spending. While most companies can pass costs on to consumers, consumers will be looking to cut their least valued product(s). 

 Over the long term, we can expect to see the financial resilience of UK households damaged by high inflation from both lower savings and the continuing personal finance impact.


UK households resort to ‘buy now pay later’ loans to cover energy bills https://www.ft.com/content/e0b0959b-97cf-41f5-91db-413dd16b45cb?shareType=nongift 

Great cancellation spreads beyond Netflix https://www.ft.com/content/226a28e9-d524-4424-b8ff-02f97d0b37c8?shareType=nongift 

3) How will a 10% inflation rise affect subscription businesses?

The UK has entered an unprecedented period of high inflation and, with no end in sight, the impact on all businesses cannot be underestimated. However, any business offering a good or a service that is considered to be ‘discretionary’ is likely to be affected to a greater extent than a business offering a good or service that is considered to be ‘necessary’.

 Paused memberships, cancelled subscriptions and non renewal of subscriptions are the very real impacts that subscription based services will experience in a time of high inflation. In reality each of these events equate to customer churn and the need to acquire new subscribers to mitigate the lost subscribers. Acquiring new subscribing customers can be difficult enough in a more normal economic environment but will represent a significant challenge to subscription based businesses in a time of high inflation.

Q: What can companies who use a subscription-based business model do to reduce the impact of an inflation rise?

With such inflationary pressure on consumers and UK households alike it is clear that consumers will be looking to cut the least valued products and services that they purchase – the first port of call is likely to be discretionary spending, which is likely to include subscription based services.

 Whether offering TV streaming services, magazine subscriptions or a monthly bottle of gin businesses will need to be both innovative and creative if they are to protect themselves both from an inflation driven churn in subscribers and a potential drought in new subscribers.

 Here are five potential ways in which a company who uses a subscription based business model can reduce the impact of an inflation rise:

 – Communicate well with the subscriber: Regular and appropriate subscriber communication will maintain or, perhaps, increase brand sentiment and perceived value with the customer.

 – Add value to the subscription proposition: Consider adding value by providing new bonus material, access to a back catalogue, a referral scheme or discounts / incentives for other products.

 – Offer a greater choice of payment options: In addition to offering subscriptions paid for by credit card why not offer the ability to pay for a subscription by Direct Debit?

 – Offer payment flexibility: With incomes under pressure and, for many, a departure from the predictably of receiving a consistent income on a set day each month why not offer a choice of Direct Debit payment dates throughout a month?

 – Offer better value: Consider how a subscription based offering can provide better value than a consumer acquiring the same good or service outside of a subscription? Demonstrate how the subscription model offers better value through reduced purchasing friction, a lower cost or a better product.

This blog first appeared as a Linked In post on Access Paysuite’s profile.

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