Subscription-based models dominate daily life and businesses profit from forgotten subscription payments. The problem of forgotten subscriptions is so large there’s now a robust ecosystem of startups promising to save users money by ferreting out and canceling the subscriptions they forgot about. From a report: Now, researchers have put a number on the high value of customer inertia. Buyers’ inattention can boost a business’s revenue by as much as 200%, according to a new working paper from researchers at Stanford and Texas A&M submitted to the National Bureau of Economic Research. “I knew that people forgot to cancel,” said coauthor Neale Mahoney, an economics professor at Stanford. “The magnitude, the pervasiveness of this issue was surprising.”
Mahoney, along with fellow Stanford economics professor Liran Einav and Benjamin Klopack, an assistant professor of economics at Texas A&M, calculated the cost (or — to companies — benefit) of inattention by zeroing in on a specific moment in purchasers’ lives: replacing a credit card. Using a large dataset from an undisclosed payment system provider, the researchers first identified 10 common subscription services, and then looked at how frequently they were renewed during normal times and when the subscriber replaced a card, forcing them to update their payment information with each service. Renewals sharply dropped off after these card replacements, even as other shopping behavior, such as buying groceries and gas, continued normally, leading them to a conclusion: When people had to actively decide to resubscribe to a service and enter new payment information, many opted out.
