Subscription models are at first glance nothing new, with streaming services having adopted this strategy since their inception. However, this model has adapted and increased rapidly across the retail landscape. While the subscription model has clear benefits, businesses must be mindful of the potential stumbling blocks.

Considering the general idea is to inspire customer loyalty and satisfaction, and of course, secure a monthly fee, the model has the potential to be a win-win, for both business and customer. To execute this kind of proposition, it is essential for businesses to deliver on their claims at all times. If a customer commits to a monthly fee, the implication is that they are paying for a certain level of service and an array of product options as advertised. Paying for services on a rolling basis as opposed to the traditional one-off purchase comes with a new set of expectations. 

Neil Debenham, Business Troubleshooter, Corporate Consultant, Board Adviser and Private Equity Specialist

In the case of Pret-a-Manger, a pattern of issues with fulfilling the obligations of their subscription models has become apparent. Customers, many of whom already considered themselves loyal to Pret, were excited by the proposition on offer. The £20 a month deal offers unlimited hot and cold drinks, at any branch of the individual’s choosing. The reasonable price when calculated against the usual cost of multiple drinks on most days of the week, every month, was attractive. Prior customers signed up, and others ‘converted’ to using Pret as their coffee shop of choice.

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However, in practice, many customers began to notice that the drinks choice was limited. Branches began to consistently be ‘unable’ to produce cold drinks such as smoothies, an occurrence later attributed to overwhelming demand off the back of the subscriptions. On the one hand, this does signal a form of victory for Pret, as clearly their subscription model appealed to a large number of customers. On the other hand, it is a clear, real-world example of the problems with such a model which in theory should be universally beneficial. 

A company such as Pret should be data-led and by the number of subscriptions, should be able to predict the amount of stock needed to service its loyal customer base; however, it appears that Pret was more focused on selling subscriptions than they were delivering on their promise.

The implementation of a subscription model can also take the form of a type of ‘loss leader’. In selling their drinks at an overall much lower cost to subscription holders, they may be inclined to purchase other more expensive items alongside their drinks, such as hot food or sandwiches. Psychologically, the customer may think of the drinks in the subscription package as ‘free’, and so this eventuality is likely.

Despite the more expensive items being shifted, Pret is still selling their drink options at a hugely discounted rate in exchange for regular payment and customer loyalty. To begin with, the model can be tough on cash flow. In this case, a pricing strategy that offsets the possibility of cash flow issues must be designed. If not, the inability to do so is, even inadvertently, passed onto the customer. In real-life terms, the pitfalls of this model have been realised when considering the complaints made by customers and potentially long term loyal customers have been lost.

Subscription holders have become disillusioned as the promises on offer are not being met. Effectively, it has created a paradox whereby it is so popular that it is creating too much demand, and in turn, this demand cannot be met in a viable fashion. The result of this is that customers are more likely to terminate their subscriptions, and perhaps change their coffee shop of choice overall. If among the primary goals of a subscription model are to inspire loyalty at the same time as delivering good customer service, a review of strategy needs to occur.