Apple, Alaska Airlines, Taco Bell & Sweetgreen: the trouble with subscriptions
Typically, people explain new subscription models as a way of stabilizing monthly revenue, but subscriptions also point to a massive failure in advertising.
By Brad Berens
Two recent articles caught my eye about a new vogue for subscriptions for products that are typically transactional.
The first has a misleading title: “Apple Is Working on a Hardware Subscription Service for iPhones” (Bloomberg, March 24th) is misleading because the planned service actually covers all Apple hardware software.
In the March 29 episode of The Pivot Podcast (to which I am devoted), Kara Swisher and Scott Galloway talked about the customer experience side of an Apple subscription in what I can only call twin arias of self-involved entitlement that nonetheless had savvy observations (it starts at 27:00… I laughed and thought at the same time, a neat trick).
The second article’s title is accurate: “Airlines, Restaurant Chains Join the Subscription Bandwagon” (Wall Street Journal, March 30th). The subscriptions covered are odd:
- Alaska Airlines’ “plan starting at $49 a month covers six trips a year and requires passengers to book tickets 14 days before they travel,” confined to trips in California/Arizona/Nevada (There’s also a more expensive tier.) This is an attempt to compete with Southwest, but where Southwest embraces simplicity and ease this plan is complicated and difficult.
- Taco Bell has launched the Taco Lover’s Pass, “charging $10 for a 30-day subscription that lets customers get a taco a day from a menu of seven options.” (This prompts me to wonder what ingredients are inside tacos that cost 33 cents.)
- Salad chain Sweetgreen (which suffered during COVID) has “tested a subscription approach for a few weeks in January, during which customers could buy a one-time, $10 Sweetpass that provided $3 in daily credits for digital orders over the following 30 days.” (If you know you’ll go at least three times per month, it isn’t a bad deal, but it isn’t great either.)
It’s worth noting the WSJ article’s subtitle: “Opportunity to book consistent revenue and retain customers brings various marketers to try subscription models.” This is the typical explanation for why businesses are shifting into subscriptions. It’s better for the business to have subscribers rather than customers.
It can also be better for the subscribers when it comes to the Everything as a Service (EaaS) model. Instead of buying a disk or download of Microsoft Office or Adobe Creative Cloud that is obsolete the moment you’ve bought it (like the value a new car loses as you drive it off the lot), you have an always-current version of the software. However, the downside is that if you stop paying that monthly fee you lose access to your programs.
None of the EaaS advantages accrue to Alaska Airlines, Taco Bell, or Sweetgreen: they’re just possible bargains (depending on the customer’s individual situation). With Apple it’s a toss-up: you’re paying a higher monthly cost but not having to swallow $3,500 for a new computer every few years. You also don’t have to face an elephants’ graveyard of abandoned computers you don’t know what to do with in your garage. (I mean… hypothetically speaking, he says, pressing the close button on his garage door opener.)
Subscriptions are the flip side of frequent buyer/frequent flier clubs. Clubs reward past behavior as a way of encouraging you to stick around as a customer. Clubs say, “we believe in this relationship.” My friend Jeffrey Cole describes himself as “a slave to American Airlines” because the benefits of belonging to the top tier of the Admiral’s Club (he flies a lot) outweigh any short-term transactional savings if he were to fly with another airline.
In contrast, subscriptions lock in future behavior as a way of holding a customer hostage. Unless the subscription super-serves the customer, which is unlikely given the margins, it’s not a healthy relationship.
What the typical explanation misses
Consistent, recurring revenue is a huge enticement, but this explanation is incomplete. The new vogue for subscriptions also points to a massive failure in advertising.
The art of branding exists for two primary reasons: 1. to differentiate among otherwise identical products like cows (the original recipients of brands) or Coke and Pepsi; 2. to help customers avoid thinking and trade salience (how easy it is for a thing to come to mind) for due diligence.
Advertising (a subset of branding, which is a subset of marketing) mostly* exists to build up awareness of a product and automatic purchase through clever campaigns and media tonnage.
For fans of Daniel Kahneman’s Thinking, Fast and Slow, advertising targets System 2, the nimble but easily fooled part of the mind that relies on cognitive shortcuts to triage the vast amounts of stimuli we encounter every waking moment.
As my friend, mediologist Jim Meskauskas, quips, “advertising is getting people you don’t know to spend money they don’t have on things they don’t need.”
Advertising exists to create a “no brainer” relationship between customer and product. “I’m thirsty… I’ll have a Coke” happens not because Coca-Cola is good for you (it isn’t) or will quench your thirst (water works better) but because the company has set up an automatic, System 2, association between thirst and its product.
The rise of subscriptions points to a decline in the power of advertising to create the automatic relationships brands need to thrive. It replaces genuine loyalty to a brand (whether earned by quality and service or media tonnage) with cognitive dissonance, and it leverages the sunk cost fallacy in the service of the seller.
Not all subscriptions are bad
Discovery-driven subscriptions like the monthly makeup samples from Ipsy or even the old-fashioned Book of the Month Club curate new opportunities for curious customers. But little discovery is happening with the subscription services I’m discussing.
Taco Bell, Sweetgreen, Alaska Airlines, and even Apple are all commodities. You can get perfectly good lunches, flights, and smartphones from other companies. Subscriptions for these sorts of companies coax customers away from looking at alternatives that might be better or just different.
Subscriptions make more money for companies through lock in. On the customer side, subscriptions cost more money, but they are cost effective with a different currency: attention.
Human attention is a precious resource. In The Principles of Psychology (1890), William James famously wrote:
My experience is what I agree to attend to. Only those items which I notice shape my mind—without selective interest, experience is an utter chaos. Interest alone gives accent and emphasis, light and shade, background and foreground—intelligible perspective, in a word.
There is nothing wrong with choosing a subscription to preserve your mental bandwidth in order to spend it on things you find more valuable than what salad to eat or what airline to fly.
You just need to know what you’re paying for and what you’re really saving.
* Yes, advertising also exists to inform people about products they that can help them do new and exciting things or do old things better or cheaper. That is, however, a minority of ads. For example, this year’s most buzzed-about Super Bowl ads were for commodities (cars, mayonnaise, website platforms, beer, gyms, snacks) rather than unique products. When Netflix and Tesla each dominated their markets without significant competition, in other words when they weren’t commodities, they didn’t have to advertise.
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Brad Berens is the Center’s strategic advisor and a senior research fellow. He is principal at Big Digital Idea Consulting. You can learn more about Brad at www.bradberens.com, follow him on Twitter, and subscribe to his weekly newsletter (only some of his columns are syndicated here).
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April 14, 2022