Are You in Control of Your Subscriptions? 
 

Are you in control of your subscriptions, or are your subscriptions controlling you? 
Hi, I'm Klaus Miller, an assistant professor of quantitative marketing at HEC Paris and a shareholder at the Hi! Paris Center for Data Science and Artificial Intelligence. I do research on pricing, advertising, and customer management in the digital economy. 

Current projects focus on online advertising, privacy, and dark patterns in online platforms. So what is the problem we are looking at in this research? 
 We are studying digital subscription services such as movies, music, or, for example, e-commerce services. And a lot of these subscription services are built on consumer inertia. 

So, inertia is the tendency to stay in the state that we are currently in. If a subscription renews, you're more likely to keep it, even if you're not using it. If it cancels, you're more likely to stay canceled, even if you would like to resubscribe. And if prices increase, you would not react as much as if you were first considering the service in the beginning. 

And firms know this, and they build business models around this. A lot of these subscription services are built on consumer inertia, and this is what we are studying in this research. 
 So, we are asking: do consumers know about their future inertia, and are they aware of it? Or, in other words, are consumers naive about their behavior in digital subscription services, or are they instead more sophisticated, as we have previously thought? 

In our research, we run a large-scale field experiment where we randomize people into two groups. The first group is an auto-renewal group. That means their subscription renews automatically, without any interference by the consumers. The second group is a group where the subscription automatically cancels, for example, after one month. So, you would have to actively renew if you would like to stay subscribed. 

We randomized 4.2 million consumers into these two groups and then observed consumers over two years with regard to their subscription behavior and their usage behavior of the service. We were interested in outcomes that are relevant for firms. 

First of all, the initial signups to the subscription, but also the long-term retention of the customers. In the end, we are asking the question of whether the firm benefits from auto-renew, or if it actually hurts firms by providing subscriptions that are auto-renewing versus auto-canceling. 

Our research shows that consumers are not as naive as we previously thought. They are less likely to sign up for subscriptions that are auto-renewing, and they're also less likely to remain subscribed in the long run, after 24 months in our experiment. 

What does this mean for firms? Firms can use auto-renewing subscriptions to benefit in the short run, but not necessarily in the long run. The main finding of our research is that fairness actually pays off for firms. Treating customers in an honest and truthful way also shows up in the bottom line of the firm at the end of the day. 

So, what are the implications from our research for firms and policymakers? 
 For firms, the solution is easy: they should offer more consumer-friendly subscriptions, which offer easy cancellation, reminders that subscriptions are going to renew, and, of course, ongoing value for the customers. 

For policymakers, they should not only focus on making it easy for customers to cancel, but they should also focus on consumer empowerment, informing consumers, for example, by offering or forcing firms to provide more information with regard to the costs of subscriptions, but also initiating reminders that remind people that they're still subscribed to the subscription service. 

So, what is the key takeaway from our research? In the short term, firms can benefit from auto-renewing contracts. In the long term, these contracts will backfire because consumers push back. So, the big question is, in the end: what should the future of subscription services look like? 

Should we have auto-renewing contracts or auto-canceling contracts? Or maybe a hybrid solution, which could be something like a fair auto-renewal, which we are also suggesting to subscription services.