Sally:
And we're back with a vengeance!
Marc:
We're back and better than ever.
Sally:
I don't know about that.
Marc:
We're just back. And today we're talking about subscription overload.
Sally:
Definitely a topic that Marc and I realised is a little too close to home for us. How many subscriptions do you sign up to every month?
Marc:
Okay, so I did a little bit of prep for this and I came up with the following subscriptions for the year, PlayStation play, so I can game online, Netflix, Spotify, Adobe, I have an embarrassing subscription to a mind map service, which is like two bucks a month, which I removed after looking at these lists, Money Magazine, Amazon Prime, a sketching app.
Sally:
Do you draw?
Marc:
I used to but then the app, but then the app became free. So I'm in deep Sally, what about you?
Sally:
I mean, I looked and I'm pretty sure I only have Spotify and embarrassingly Dropbox I don't know why I feel embarrassed about Dropbox I just feel like that's such a nerdy thing to to pay for like why.
Marc:
It's quite practical.
Sally:
Yeah it is but why don't I just get a hard drive? Anyway we'll talk about my existential crisis later. But I'm also that jack that like uses everybody else's Netflix and Stan and Amazon Prime, right? They services by paying for them. That's called being savvy, Marc.
Marc:
Yeah, that's exactly right. Someone has to do it. I foot the bill for my parents' obsession with crime shows on Netflix. So I'm well aware of that. And according to a study by AMPD more than half of Australian adults are currently paying for video on demand services. You know, your Netflixes your Stans. Harry Potter streaming service, which will probably be coming one day, thank God on average, we're paying around $35 a month.
Sally:
35 clams huh?
Marc:
35 clams.
Sally:
Yeah, and it all adds up and when literally just talking about video on demand services right now, but you can get subscriptions for basically anything. So like let's say people subscribe to food services to get like pre-made meals. We were talking about the like surprise beauty boxes that you can get and you just get like a bunch of random cosmetics sent to you every month. And then you were telling me about some more niche things like jujitsu like training subscriptions.
Marc:
So I'm guessing that there are other really niche sports like to do too, but there are over I think I counted recently there are over 20 that you can sign up for just in jujitsu, which are usually like athletes who are creating their own videos of techniques, they can cost up to US$25 a month.
Sally:
Yeah, there was another study by Rest Super that showed that more than 1 in 10 Australians spend more than $100 on subscription services each month. So given how many different types there are, and you know, so many different shapes and forms, I'm not really surprised.
Marc:
Yeah, I think I've definitely been at that in that position, and I've had to rein in my subscription. So to help myself and others afflicted with subscription overload, we're speaking to Dr Paul Harrison, who is a senior lecturer at Deakin University and has a PhD in consumer behaviour.
Sally:
Yeah, so Paul is an expert in emotional and rational behaviour. So he gave us some really interesting but also a little bit terrifying insights into how these business models work, and why they're so hard for us to resist. And I think some of the really interesting things we spoke about was, you know how easy it is to sign up for these services, but hard to let them go. And we don't even notice the money coming out every month because it's just direct debit. It doesn't really feel like we're actually paying for it.
Marc:
Yeah, it can be quite scary once you delve into these things. So let's chat with Dr Paul.
Sally:
Well, welcome to Pocket Money, Paul. Thanks so much for joining us.
Paul Harrison:
It's a pleasure, Sally.
Sally:
So today, of course, we're going to talk all about subscription services, which it seems like that so many of them, it's hard to keep track of even the ones that we belong to Marc and I were going through the mobile. So what is the subscription business model? And why is it so successful?
Paul Harrison:
It's something that's been around for a long time. And you know, I guess the early stages of subscriptions of things like memberships of clubs and things like that, but the most prominent one we would be thinking about is, say, Spotify or something like that. They're all built into the same basic principle. And it kind of revolves around a whole bunch of psychological principles. The biggest one is that we like to avoid risk. Humans do not like to take risks and the subscription model in all sorts of different ways reduces risk for purchasing behaviour. It reduces financial risk, it reduces social risk, it reduces cycle illogical risk. There's all sorts of risks that humans are trying to avoid. And the subscription model does that beautifully.
Sally:
Is that just because we're paying in like small light, incremental, you know, usually monthly payments, rather than perhaps paying for something outright in a large chunk up front?
Paul Harrison:
Yeah, there's a theory in psychology called effective forecasting. And what we tend to do is that we tend to think about the future based on how we feel about something right now. So we're not very good at calculating into the long term. And so if we look at something and say, well, you know, like, this is only $7 a month, rather than, say, $70 a year, which is actually a discount if you think about it. $70 feels a lot more painful to our emotional thinking, then $7 does even know if we're being very rational $70 is a much cheaper way to particularly subscribe to something. So it is about reducing that kind of perceived risk. It's not these very simple kind of ID that humans singly focused on one particular bias, it's that whole bunch of biases come into play whenever we go shopping for anything, and the subscription model is a very clever way to tap into a lot of those biases.
Marc:
So Paul, just to set the scene for those who might not know, what are the other models, in addition to the subscription business model that are out there.
Paul Harrison:
There's all sorts of different ways, the traditional way of buying things, I guess, is to go down to the shops, hand over cash or credit card, and there's a little bit of information there as well, and then make the purchase. And so what the new kind of models and doing is reducing some of those, I guess those pain points and as a kind of side note, there's a really interesting research that suggests that handing over cash to another person is physically painful, as opposed to handing over a credit card to another person as opposed which reduces physical pain, or actually giving your credit card details online which reduces the pain even more so even then you've got these levels of different types of behaviours and different types of effects that are tapping into those kind of human needs, you know. So I think if you are feeling pain by handing over cash, one of the things that these models are trying to do is reduce that pain by removing the use of cash, the less you have to process it, think about it, the less likelihood that you'll feel that pain and therefore you'll feel more comfortable. And I think, you know, again, it's always presented as convenience but tapping your phone and going or tapping your, your watch or something like that and going reduces those pain points even more. To go back to the original question, this idea of, you know, what are the different models, there's the traditional model where you just buy something upfront. But then there's also, you know, different ways that we can kind of map out the way that consumers might buy. There's some interesting research that's just come out, which is basically saying that the strongest predictor of people maintaining the status quo which is not cancelling their membership, is if you get people to renew their membership automatically, once a month, the quarter release and the release have a very different effect on consumer loyalty, I guess, or consumer commitment to the product or the service.
Sally:
Yeah, you're talking about taking away I guess the the pain of spending physical money, which I think is so true. And we all feel that, you know, as we're using cash less and less, but I think that when we signed up to the services, and it's a direct debit, it's even more painless. You know, like, you don't even notice that coming out. Do you think that we're less likely to notice price increases as well? When we're using the subscription services, for example, Netflix recently increased their subscriptions and I know I barely bat an eyelid about it because it just seems like it comes out of my account automatically. And I don't even really notice it.
Paul Harrison:
Well, it requires effort to find out if they put the price up. It requires some calculation. So calculation has a cognitive energy affected, it takes away the ability for you to think about other things and so you have to go and look at your statements in your bank account or something like that you have to look back and say, what did I pay last time? And there's a whole area of research that looks at this idea of the just noticeable difference. So what point does somebody notice that something's different enough for them to do something about it. But also, small, incremental changes don't really change behaviour that much. So, for example, if Netflix or Spotify or something changed their subscription from $10 to $20, you'd notice it and it would cause what we call cognitive dissonance, it would cause you to go "hmm, I might reconsider it". One of the issues that all of these companies are trying to do is to stop your thinking is to actually invoke what's called the status quo bias, which is that you prefer to keep doing what you're doing, and you don't really want to think about it too much. And, you know, 10, 15 years ago, gym memberships were all about the status quo bias. It was signing people up in January, which is the peak time for signing up for gym memberships. Getting people to agree to have the money withdrawn every two weeks or every four weeks. Because eventually, you know, people would go well, it takes effort to get out of it. Status quo bias kicks in, I guess this whole idea of, you know, what we call the optimism bias, which is I will get to the gym or I will watch those movies on Spotify, or I will listen to more music on Spotify or watch those films on Netflix.
Marc:
Yeah, that's an interesting point. We're fighting our own brains. It seems like when it comes to subscriptions, do you think we are spending more because of the subscriptions? Or do you feel that they're better value than one-off purchases? In most cases?
Paul Harrison:
The evidence suggests that we're spending more on average on services. Now that might be because there's a lot more services so the service sector has become more fragmented. If you think about it. 6, 7, 8 years ago, Netflix and Prime and Apple TV coming up all these things didn't exist. And we basically, you know, in the olden days would settle down in front of the TV after dinner and watch TV. Put up with the ads and all those kinds of things. I guess the only subscription model was cable TV. Generally speaking, there's a lot more products out there, what tends to happen is that people don't notice what they're signing up to. And one of the things that people often find surprising when they sit down and do an audit, is to look at all of the things that they have pay out in a month. And if you calculate it over a year, in general, people are spending more on these things. That said, people also like the idea of convenience, they like the idea of being able to watch and listen to things when they want rather than having to, you know, go down to the record shop and buy a CD, those old things to actually just be able to stream something. And I think it's always that trade-off between perceived convenience and the cost of something. And it also kind of suggests that we live in a significantly more affluent world than we did maybe 20 or 30 years ago, which is good thing, but it also means that we're spending more and you know, the cost living in Australia is I think Australia's one of the most expensive countries to live in. So that suggests something as well. But there is a lot more things that we spend our money on. And a lot of things therefore, that we aren't necessarily utilising completely. I guess that's part of what it is to live in an affluent world really got a bit philosophical, soz.
Marc:
I love it.
Sally:
So we're going to jump into our underrated, overrated segment of the show. So we'll give you a bunch of different topics and then you can tell us if it's underrated or overrated. Okay, let's kick it off with reality TV, overrated or underrated?
Paul Harrison:
Oh, I'd say underrated because they're beautiful little psychological experiments. So I think it's under-utilised. I actually find reality TV really fascinating. Just a little bit frightening.
Sally:
I love that. I think that's the perfect way to describe it.
Marc:
Halloween. In Australia, underrated or overrated?
Paul Harrison:
Overrated, but a good thing if it's done as a family exercise don't get caught up in the commercial reality of it.
Sally:
Yeah, if you're just going out and scaring your neighbours getting some candy, okay, most underrated subscription service?
Paul Harrison:
I reckon, podcasts. I know that they're emerging. They've been around for a long time, but I think podcasts are underrated and most of them are free. And I think that's a great thing.
Sally:
Especially podcasts like pocket money. I mean, come on.
Marc:
The NBN overrated or underrated?
Paul Harrison:
Maybe its promise is overrated. I think it's certainly under delivering. I think many Australians are pretty disappointed. And I think you know, the handling of when things go wrong back to the providers is problematic as well because, you know, it's the infrastructure that fails, not the providers' delivery of the infrastructure.
Sally:
Okay, Stranger Things overrated or underrated?
Paul Harrison:
I would say, overrated. It isn't thoughtful or challenging it's lots of tropes and clichés. That's just my kind of general sense of it.
Marc:
I totally agree with you, especially with the last season spoiler free. Yeah.
Sally:
Maybe I'm just dumber than both of you. I think that makes sense.
Marc:
Black Friday, overrated or underrated?
Paul Harrison:
Overrated. You can get good prices throughout the year, I reckon don't get carried away by a particular time of year and we get caught up in the hype. We get caught up in the ritual, we get caught up in the scarcity. So pretty overrated.
Sally:
And to finish it off, it's not really an overrated or underrated but we were just curious, how many subscriptions do you sign up for?
Paul Harrison:
I guess I probably got maybe four or five, TV, you know, music kind of ones. But I also funnily enough, I have a cook because I think paying your insurance in monthly amounts is a form of subscription. So I do that. I also do things like fruits and vegetables, subscriptions and I do a coffee subscription, where I get coffee beans delivered every two weeks. So it just depends on how you define a subscription but I do spread out my payments and then do we call something like Afterpay a subscription, what you're doing is that you're spreading the cost so we're kind of getting into muddied areas of what is a subscription and what is a way of kind of spreading out payments because I probably a more likely to spread out my payments. But the trick the trick is if you do spread out your payments to allocate that to your bills rather than to your budget for discretionary or something like that, so you allow yourself to kind of say this is one of the bills and over a year this is how much I spend.
Sally:
Yeah, I suppose the services like Afterpay or you know, other buy now pay later models, they play into that same psychology of making the purchase seem less overwhelming by making them breaking them down into smaller increments. Right?
Paul Harrison:
Exactly. And you know, it's really interesting countries like that. Brazil, for example, have had forms of Afterpay for things like airfares for a really long time. So when you buy an airfare in Brazil, you can spread out your payments over 10 payments, for example, because they don't necessarily have the money upfront. But the thing is that if you pay it off within the 10 payments, you don't pay interest. But after that you do. And I think the issue with something like Afterpay's that, they would say, well, we don't charge interest, but there's a whole bunch of fees that go on top of that there's a whole bunch of debt that people go into that, you know, to some degree suggest that they can afford to buy these things in the first place. Not that I want to remove freedom of choice or anything like that. But there's a whole bunch of other murky little areas that we go into when we think about subscriptions, beyond you know, the digital stuff, but just these kind of small payments and you know, we have this overrated or overinflated sense of self-control think that we're a lot more in control of our decision making them we actually are and I think subscriptions play into that sense. I think about Harvey Norman for example, they've always offered this six years' interest-free kind of thing, or whatever it is. But these are all forms of tapping into those, you know those vulnerabilities. And it's very difficult to challenge those things when you're kind of existing in a world where you have to feel like you have to belong and buy certain things and do certain things to belong to certain groups.
Sally:
I think a really interesting part of this whole subscription world that I think taps into some of those, I guess, murky, psychological elements that you've mentioned, those like surprise beauty box subscriptions, or, you know, whatever it may be where you sign up, and then every month you'll receive like a box and it might be full of different like cosmetic products or, you know, items of clothing. And you don't necessarily know what you're going to receive every month. So can you talk us through a little bit about the psychology behind the appeal of this model because I don't really get it.
Paul Harrison:
I get I don't get it. Although I can't explain it the concept of novelty is important. And people also like to self-gift so I can understand why people would do it. It's a form of gambling in a way and you know, we all like to do a little bit of kind of gambling depending on the different types of things This feels like what would you call it a degree of sensible gambling because at least you know, every month you're going to get something but I don't know maybe I'm too old. But since we were kids, we had lucky dips.
Sally:
That's surgery. My god my childhood is not as innocent as I thought it.
Paul Harrison:
You're gambling with your whatever it was $2 or something like that. Mixed lollies a bag of mixed lollies you don't really know what you kind of get you kind of kind of get a lot of black jelly beans in there. I love kids don't love the black jelly beans. You give it to your dad.
Marc:
Yes, an interesting way of looking at it. I never realised I was a gambler since I've been a child.
Sally:
You have a problem.
Marc:
Paul, do you think we'll ever reach a point where there are too many subscription services? So I'm particularly thinking of TV and video streaming. So at the time of recording we're approaching, you know, that I could count 10 services for movies, TV, reality TV, all that sort of stuff. What are your thoughts on that?
Paul Harrison:
I think it does depend on the different groups. You know, we talked about segments and things like that, but also on your own capacity to pay. I think people do start to notice when they look at their bank account, that the issue is that it requires quite a lot of effort to undo a subscription. So all of these subscriptions are playing on a whole bunch of, again, psychological biases that prevent us from thinking too much. The issue then is how many is too many. I would imagine that there are some people who have subscriptions that they haven't used for 6 months, 12 months or something like that, and it requires a lot more effort to undo something than it requires do something. And that's because we have a positivity bias. So we tend to think more positively and optimistically about the future. So giving up something is actually quite hard. The answer to your question is depends. It depends on what stimuli is going to create the situation where a person says, I need to stop subscribing. And it could be as something as simple as a crisis. So people suddenly go, I have a budgetary crisis, I need to really, you know, audit what I'm doing. One of the mistakes that lots of people make, including government and regulators and people in general is if you don't want something, then you shouldn't sign up for it. Human behaviour is a lot more complex than telling people to behave in a particular way. And I work a lot in the area of public health and trying to get people to eat more healthfully and things like that. And one of the things they will say is, we need to educate people, but nobody wants to be educated. Nobody wants to be told what to do. So you need to come up with ways to convince yourself that you're making a good decision. And that's it. Any way that you can come get out of those kind of subscriptions or prevent yourself from signing up to these things.
Marc:
Yeah, that speaks to me so much. I feel like I'm a digital hoarder sometimes. And I'm like, I might use that in a couple weeks. I might use that next month. And yeah, that's just me in a nutshell.
Paul Harrison:
Well, everybody suffers from it. I mean, the other one is anticipated regret. Humans, deep deep down a just golden retrievers having a snooze, and every now and then looking up and you know, wagging their tail kind of thing. We actually would prefer not to do anything to just have a good life and be convenient. And that's really what these models do is that they introduce this idea of convenience to us, they suggest that at some point, you know, you probably want to watch this. He's the one thing and the models are very much about kind of giving you two or three entries into the subscription model and then basically relying on the status quo bias that you once you're kind of in there, it's going to be really difficult for you to remove yourself from it. I've been saying this is altering.
Sally:
So what's the end game for all of this? There was a study by the ABC, and they were saying that over the next couple of years, they predict that 70% of Australian businesses will offer products and services, you know, that function on a recurring basis. What are some industries that you can see the subscription model really growing in?
Paul Harrison:
You know, I think about things like the Dollar Shave Club, again, people would have thought five years ago really, can you get people to subscribe up to shaving equipment, but you know, I do. Even food delivery, things like the surprise fruit and vegetable boxes, those kinds of things. I think every service industry and pretty much every product or goods industry has the capacity to offer some form of subscription. It's always going to play into the human vulnerabilities. This idea that we are much less likely to reject something if it seems like it's only a short-term pain or a small amount of pain. So you know, I can't really identify any industry that isn't right for subscription. It depends on how you think about subscription. But even holidays could be a form of subscription. Because basically, if you say I want to go on a holiday twice a year, you pay a fortnightly fee or a monthly fee, and you get to go on that HOLIDAY every two years, twice a year or something like that. So there's a whole range of areas that as long as you go into it with a principle that you know that you're reducing that pain, that that kind of short-term pain, that effective forecasting capacity, then pretty much everything is right for subscription.
Marc:
Okay. Also, in closing, are there any tips that you would give people to consolidate their subscriptions or determine whether they're still a value to them?
Paul Harrison:
I think probably the best thing is to it sounds really boring but to do an audit is to sit back and go if I haven't used this for six months, if it's going to be easy for me to re-subscribe when I want to. I should just cancel it and put aside a night have a cancel subscription party with all yours.
Marc:
That's a great idea.
Paul Harrison:
I think that would be a really useful way. Because one of the things we know is that a lot of the time when you make decisions, if you make them in isolation, you're not very good at processing the information. If you make it with others, what tends to happen is that people tend to be more supportive of each other's decision. So doing it in a group, when you sign up for something, talk to somebody about it, I think is always a good idea, saying, you know, I'm thinking of signing up to this, what do you think slowing down the process, if you're on Instagram and you kind of have a thing that says subscribe now slow it down, go to the actual website, rather than go via the Instagram app and and have a look, think about whether you actually really want that subscription. In psychology, everything is about slowing the process down, stepping away from the actual environment in which the decision is being made. And talking about it with neutral parties, or at least parties that can give you a different perspective. So you know, if you want go and talk to the dog, the dog always listen, the nice or the cat, the cat will just say you're an idiot. Don't do that. So yeah, whichever you prefer.
Marc:
Great. Well, thank you so much for your time, Paul. That was excellent.
Paul Harrison:
It's been a pleasure. Lovely to talk to you guys.
Sally:
Thanks, Paul.
Marc:
Okay, so I'm feeling a little bit self-conscious about my subscriptions at this point.
Sally:
Your subscription addiction.
Marc:
But there was a lot of gold in that conversation, particularly around if you don't think you have a problem with subscriptions, you know, broaden your definition of what a subscription might be, if you sign up for the gym that could be technically a subscription, your phone bill, it's a monthly it's a recurring payment.
Sally:
Yeah, that's so true. I never thought of utilities or something like a service like my gym membership as a subscription. And now I do but yeah, I guess if it's coming out of your account every month, that's what you need to be thinking about. Who cares about the semantic subscription or not if you're paying like recurring payments every month and you might not necessarily be using whatever the service is, like you need to think about it.
Marc:
Get familiar with your bank statement I think your your little calendar reminders.
Sally:
Yeah, ignorance is bliss. But I think that looking at your exactly, no, but looking at your bank statement is so true like you really can see where your money's going every month then yeah, that's definitely a good point. I thought that whole idea about having a little subscription cancelling party with your pals was cute. But if you're signing up for free trials, especially giving yourself calendar reminders, like the day before, or even, you know, the week before, to cancel, it is definitely a good idea. And I've done that before and you don't end up getting stung with having to pay like the next month or whatever it is.
Marc:
That's right. Yeah. And I think it's also interesting that subscriptions are here to stay and if anything, we're probably going to see a lot more of them. Because like Paul was saying, anything that is a service based business can be subscription-ised.
Sally:
Yeah. I love that. Should we trademark that? This place. Yeah, that's so true. And I think it'll move into like even more every day, sort of scenarios like banking. We're already seeing it in food and shopping. But it's time to like, really think about how we use them. And the tricks that have been used to, you know, get us to sign up.
Marc:
That's right. So that's it for us. Chuck us a subscribe. As always, if you enjoy the podcast, follow us if you're listening to us on Spotify.
Sally:
Yes, make sure to check out our Instagram Pocket Money podcast, and for all of the show notes and any other episodes make sure to check out finder.com.au/podcast and guess what when you subscribe to Pocket Money, it's free.
Marc:
Yeah, it just cost you a little bit of your soul.
Sally:
Exactly.
Marc:
Thanks for listening to Pocket Money for Finder. Head over to finder.com/podcast for the show notes for this episode. The Finder Pocket Money podcast is intended to provide you with tips, tools and strategies that will help you make better decisions. Although we're licensed an authorised we don't provide financial advice, so please consider your own situation or get advice before making any decisions based on anything in our show. Thanks for listening.
