Q&A: Why Are There So Many Subscriptions, And Why Do We Forget About Them?

Born of good intentions, they silently sit inside your bank account, chipping at your checking and sipping from your savings, often going unnoticed and unremembered.

They are subscriptions, recurring charges for video game platforms, music, television streaming services, wine clubs, soft drinks at restaurants and even smart beds that monitor your sleep habits.

They’re even in your garage. Tesla charges monthly for its self-driving software, Mercedes-Benz offers subscriptions to unlock more horsepower, and BMW once floated the idea of monthly subscriptions for heated seats.

Even Bank of America, the nation’s second-largest bank, recommends businesses consider subscriptions.

Anthony Palomba’s research examines the intersection of entertainment, analytics and business strategy. (Photo by Matt Riley, University Communications)

UVA Today reached out to Anthony Palomba, assistant professor of business with the University of Virginia’s Darden School of Business, to learn why subscriptions are proliferating and why people often forget they’re even paying for them.

Q. There are subscriptions for almost everything, including frozen fish from Alaska. Why are so many companies and services offering subscriptions?

A. Subscription services, from the perspective of firms, are a powerful mechanism for smoothing revenue curves, creating structural lock-in, exploiting sunk cost psychology (the consumer reasoning of “I have already paid for this, I might as well keep engaging to extract value”) and enabling robust data collection.

Firms can now track entire consumer journeys that were previously untraceable, opening the door to stronger predictive models and, under the right research designs, more credible causal inference about customer behavior.

Q. What sort of data can a company collect from a subscription that it wouldn’t get otherwise?

A. Consider a wine subscription service: The firm can observe how consumers browse and select wines, how frequently they consume them and how those patterns shift across seasons, holidays and broader cultural moments. That behavioral richness simply does not exist in the traditional retail model, where a consumer walks into a wine shop, makes a purchase, and the transaction ends.

The firm learns almost nothing about downstream behavior unless the consumer volunteers it – an unlikely and unsystematic source of insight at best. In this way, the subscription model binds together disparate parts of the value chain that were once fragmented and opaque, transforming a series of isolated transactions (distributor, store, consumer) into a continuous, observable relationship between firm and consumer.

The logic extends naturally to perishable goods. A fresh fish subscription, for instance, allows the firm to calibrate harvest volumes against known demand, reducing spoilage, tightening cost control, and anticipating how consumer preferences shift across seasons and occasions. The operational and informational advantages compound across virtually every dimension of the supply chain. This is remarkably valuable for a firm in this industry.

Q. Why do we keep and pay for subscriptions we don’t use?

A. The phenomenon at work is called the status quo effect,or status quo bias, first formally identified by economists William Samuelson and Richard Zeckhauser in 1988. Status quo bias describes the tendency of people to prefer things to stay the same by doing nothing, or by sticking with a decision made previously, even when the transition costs of changing are small, and the stakes of the decision are significant.

In the context of subscriptions, it is the reason a $15-per-month charge can sit quietly in a bank account for a year without triggering any conscious decision to keep it. The default is continuation. Cancellation requires action. And action, psychologically, is expensive.

What the subscription economy did was atomize the billing, reduce the individual charge to a psychologically tolerable level and then rely on behavioral inertia to do the rest. It is a remarkably elegant business model. It is also, for the consumer who never audits the statement, a slow and nearly invisible drain.

This article first appeared in UVA Today.