The Impact of Subscription Programs on Customer Purchases

Abstract

Subscription programs are increasingly popular among a wide variety of retailers. These types of programs give members access to a set of exclusive benefits for a fixed fee upfront. In this paper, we examine the causal effect of adopting a subscription program on subsequent customer behavior using a unique panel data from a company that launched a subscription program. To account for self-selection and identify the individual-level treatment effects, we combine a difference-in-differences approach with a generalized random forest that matches each member of the program with comparable non-members. We find the subscription leads to a large increase in customer purchases. The effect 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 is attributed to becoming a member per se. We provide evidence that members experience a sunk cost fallacy due to the upfront payment that subscription programs entail. We discuss the implications of our findings for customer retention and subscription services.