The Impact of Subscription Programs on Customer Purchases

• Published in: Journal of marketing research Vol. 59; no. 6; pp. 1101 - 1119
• Main Authors: Iyengar, Raghuram, Park, Young-Hoon, Yu, Qi
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01.12.2022; SAGE PUBLICATIONS, INC
• Subjects: Consumer behavior; Marketing; Profitability; Retailing industry; Subscriptions; subscription program; generalized random forest; sunk cost fallacy; e-commerce; retailing; causal inference; machine learning
• ISSN: 0022-2437; 1547-7193
• DOI: 10.1177/00222437221080163

Subscription programs have become increasingly popular among a wide variety of retailers and marketplace platforms. Subscription programs give members access to a set of exclusive benefits for a fixed fee up front. In this article, the authors examine the causal effect of a subscription program on customer behavior. To account for self-selection and identify the individual-level treatment effects, they combine a difference-in-differences approach with a generalized random forests procedure that matches each member of the subscription program with comparable nonmembers. The authors find that subscription leads to a large increase in customer purchases. The effect of subscription is economically significant, persistent over time, and heterogeneous across customers. Interestingly, only one-third of the effect on customer purchases is due to the economic benefits of the subscription program, and the remaining two-thirds is attributed to the noneconomic effect. Evidence supports that members experience a sunk cost fallacy due to the up-front payment that subscription programs entail. Finally, the authors illustrate how firms can calculate the profitability of a subscription program and discuss the implications for customer retention and subscription programs.