There have been numerous headlines recently asking whether the market has peaked for subscription services and its sister concept, loyalty programs with fees. And it doesn’t take a crystal ball to predict that there will be more such headlines every day as new programs continue to enter the market.
The most obvious reason for these headlines is that the triple-digit growth has slowed to single-digit growth as the market expands – it is easy to have 800 percent growth when your revenue base is $1M per year and your market penetration is under 1 percent. It becomes harder when you are a $1B company. Most casual business readers focus on the rate of growth and don’t bother to calculate that 800 percent growth on $1M is $8M while that same $8M would represent only 0.8 percent growth for a $1B company. Or perhaps you literally can’t continue to double your market penetration every year, because your penetration is higher than 50 percent.
That is what has happened to Amazon Prime. For households with income over $150k, growth in market penetration has slowed to 2 percent – but they already have penetration over 65 percent. Double-digit penetration growth is increasingly unlikely. Modest single-digit growth will still be a huge achievement, especially with the price of membership increasing to $119.
The more potent argument that Amazon Prime may have peaked is a Forbes’ report about penetration declines in households with incomes of $35k-$75k which they note may indicate higher non-renewal rates. 1
The question is whether the revenue boost from the price increase that is still being paid by higher end households is enough to offset any weakness at other demographics. Also, Amazon gives a variety of opportunities for free shipping without annual membership which may be enough to satisfy households who are not leveraging the other benefits of Prime membership. Amazon’s focus on continued expansion into new categories will give them access to more share of affluent Prime members’ wallets – that strategy appears likely to continue to fuel growth even if Prime renewal rates fall in other demographics.
In the end, Amazon Prime still boasts a healthy 90 percent renewal rate despite initial polls after the price increase that projected renewal would drop below 50 percent.2 The majority of fee-based loyalty programs are in the 55 percent – 65 percent renewal range. Only programs with aggressive member pricing benefits such as Costco or RH have been able to achieve renewal rates over 80 percent.
The point is that the market for subscriptions and fee-based loyalty programs is maturing, not dying.
There is still opportunity for new programs willing to challenge established players with innovative value propositions – a mere competitive match fee-based program with free shipping will not be enough to shift share.
https://www.forbes.com/sites/forbesinsights/2018/10/19/has-ama- zon-prime-peaked-first-signs-that-membership-may-be-leveling- off/#44e131212d13
https://www.forbes.com/sites/jeanbaptiste/2018/05/09/exclusive-60-of- amazon-customers-will-not-renew-their-prime-membership-poll-re- veals/#5484314e5c0d