Direct marketing continuity subscription merchants sell subscription services directly to consumers and businesses. Direct marketing cuts traditional middlemen like advertising agencies out of the picture, reaching out to potential customers (drumroll please) directly with emails, phone calls, text messaging, and good old-fashioned snail mail.
How Big is the Direct Marketing Subscription Industry?
Direct marketing is a big industry that’s estimated to be worth $6.5 billion with a CAGR or 2.4%. To put that in perspective, food services are estimated to have a 3.7% CAGR in the same time period, entertainment by 7.7%, and fashion by 8.7%.
While direct marketing continuity subscription services are not outpacing this retail sector consumer discretionaries, a $6.5 billion net worth with a 2.4% CAGR is not bad for an industry built on reaching out to complete strangers. Also keep in mind that the subscription industry can be a separate bird, estimated at $27 billion. It’s where these two industries overlap that our discussion resides.
Who Do Direct Marketers Sell to and What Do They Sell?
There are about 2,500 direct marketing companies in the United States with an estimated collective revenue of $9.5 billion. The most popular products are B2B applications, business-to-government, and B2C products and services. Some of the largest companies include Aimia, SourceLink, Rapp, Merkle, Epsilon, and SapientNitro. You might recognize some of the names on this list, while others are umbrella corporations for a variety of businesses.
Noticeably absent from the list are recognizable names in direct selling such as Amway, Cutco, and Ambit Energy. That’s because not all direct sellers offer subscription services, although some do. Many direct sellers focus on providing a one-off product experience for customers. By contrast, subscription services are focused on collecting recurring automated payments from subscribers.
Conflicting Opinions on the Subscription Business Model
Though subscriptions may receive a lot of bad rep for the difficulty many cardholders have when attempting to cancel their services, they can actually be quite helpful. Subscriptions rid user headaches by negating hassle and offering convenience.
Continuity services mean that customers don’t have to remember to make their monthly purchases. This means they will never run out of their favorite products, nor will they ever lose access to their favorite services. Subscription products and services come in a variety of shapes and sizes. Many merchants offer preference choices for order frequency such as every week, month, 3 months, 6 months, or year.
Direct Marketing Subscriptions Need a Payment Processor More Than Cash.
And because of that particular cash flow model, direct marketing continuity subscription businesses need a payment processor. Unlike brick-and-mortar businesses in retail and hospitality which can take cash, subscription service companies will need a credit card, debit card, or bank account number to conduct recurring payments over the card or ACH network.
The problem is that the direct marketing industry is somewhat plagued by chargebacks, due to an influx of fraudulent or unscrupulous businesses. Even aside from those troublemakers, the nature of the industry itself may facilitate cancellations and chargebacks from customers who let their finances go on autopilot until they realized they’re being charged every month. For these reasons (and others) companies selling direct marketing subscriptions will often need to use a high-risk payment processor.
How Do Direct Marketing Subscription Services Work?
The first step in the process is finding a customer. A direct marketing company may purchase a contact list of emails and/or phone numbers for potential clients from a company that specializes in creating curated lists. Many times these curated lists can be built to focus on specific demographics.
For instance, a direct marketer selling a subscription for anti-aging beauty products would probably want a list of women between the ages of 34 and 54 (we’re just tossing out numbers here), because this demographic is more likely to subscribe to such a product than a list of small business owners. On the other hand, a list of small business owners is more likely to be responsive to a subscription for HR and payroll management software than anti-aging beauty products.
Another popular approach is called the sales funnel. There are many varieties of sales funnels and they change every few years in terms of the most effective structure. But generally speaking, sales funnels will attempt to improve the close rate of direct marketing sales by building a warm audience—that is, an audience that has already expressed interest in the product or service.
A direct marketing company may build this warm audience by offering free content on social media that will engage browsers and encourage them to receive a video course or ebook in their email. Once these emails are captured, the recipient of this course or book may be placed into a drip marketing campaign that feeds them a certain number of emails to get them more intrigued about the product or service. Or they may get emails for life, which hopefully eventually leads them to close a sale.
Are Sales Funnels an Effective Direct Marketing Approach?
If you’re wondering if sales funnels are effective, they are. One study from Forbes found that businesses that engage in lead nurturing (as it’s called) create a 50% greater likelihood of closing a sale at a 33% lower cost than other marketing methods.
As you can see, the sales funnel process is often more effective than old-fashioned cold calling, which has about a 2% success rate. Tangentially, studies have shown that certain processes can increase the success rate of cold callings. Such tactics include asking more personalized (but not necessarily personal) questions (10%), explaining the reason for your call (2%), and mentioning common LinkedIn groups (a whopping 70%), which shows that a little bit of customer research and sales strategizing goes a long way.
What Do Subscriptions Include or Provide?
In any case, however, the direct marketing company gets there, the purpose is to lock the client into a subscription-based service. Three common subscription service types are software (specifically SaaS or software as a service), subscription boxes, and accessibility subscriptions.
The software usually performs a business-related function such as accounting, payroll, or customer relationship management (commonly called CRM). Subscription boxes can include consumer staples such as household cleaning goods, or consumer discretionaries such as accent pieces and bespoke conversation pieces. And accessibility subscriptions provide access to services like Netflix, Spotify, and Amazon Prime.
Of course, Netflix, Spotify, and Amazon Prime don’t exactly fit into the direct marketing box; even though they do engage in some forms of direct marketing, they can rely on a substantial amount of inbound traffic that is already familiar with their corporate brand name. Direct marketing companies often need to put in a little bit more work by contacting potential clients and customers directly to stir up some interest.
The most common forms of reaching out include email, phone calls, texts, targeted online ads, and paper mail—things like flyers, brochures, catalogs, coupons, and postcards. You may wonder if paper mail is worth the investment in the digital era, but studies have shown that direct mail has an open rate of 90%, compared to an average 37% open rate of email. Perhaps this is because 70% of people polled feel that the tangible nature of direct mail is more personal than email.
How Can Direct Marketers Sell Lifetime Subscriptions?
However the customer journey (as it’s called) works out, the end goal is to get that customer to subscribe to whatever you’re selling. The hope is that they will stay your customer for life, always paying their monthly, quarterly, or annual subscription fee. And that of course requires implementing a direct marketing continuity subscription charge.
For this, you will need some sort of place where customers can go to pay. Your best bet is a well-maintained, professional-looking website with an integrated payment processor. Processing solutions that service your merchant account may need to be one that works with high-risk merchants due to the nature of subscription-based businesses.
The average consumer is spending $219 on subscription services, juggling 12 subscriptions—and 42% of consumers are paying for at least one subscription they have totally forgotten about and no longer use. With so many subscriptions to juggle, it’s, unfortunately, more likely that a subscriber will initiate a chargeback rather than request a refund.
The Chargeback Threat and How Direct Marketers Can Prevent it
The difference between a chargeback and a refund is that a refund is initiated by the merchant. A chargeback, on the other hand, involves the customer going over the merchant’s head and disputing the charge with their bank or credit card company. Each chargeback often costs a business between $20 and $100, in addition to the lost revenue.
In terms of tangible store-bought items, the merchant is often able to issue a refund. The problem with subscription-based services is that often by the time the customer realizes they want to cancel the service, it is too late for the merchant to refund last month’s payment—yet another reason that the customer base won’t even bother to call the company to get out of their subscription and instead initiate a dispute with their bank.
One method to increase chargeback prevention and customer churn is for direct sellers to be more proactively communicative. Another is to offer more flexible pricing models such as annual discounts and tiered pricing. And lastly, being transparent about terms will help subscription vendors go a long way in terms of improving their long-term bottom line.
Billing terms should be clearly displayed in understandable language on the website. Trial periods must legally (in most cases) be at least 10 days. Verbiage about capturing payments must clearly communicate enrollment into a subscription membership. And the merchants must provide numerous avenues for cancellation, including email, phone, mailing address, and chat (for instance).
A payment processor will want to review a website before working with a merchant, and they will check for this kind of transparency, which can help avoid chargebacks.
Another issue that should be mentioned is that some direct sellers are engaged in industries that are already flagged as high-risk in terms of payment processing. Examples include any kind of subscription service involving a product on the cusp of legality (or having just crossed it), such as marijuana, CBD, and e-cigarettes.
Healthcare products and supplements that are not FDA-approved are also a potentially worrisome space in terms of potential lawsuits. Anything whose long-term effects are not established is a risky product, and subscriptions to that product are an ongoing risk.
Can Subscriptions Be Sold Door to Door?
While door-to-door marketing was more popular in former times and is still viewed as an effective channel, there are now other forms of marketing made available by the internet. Even so, some direct marketing continuity subscription services still take the door-to-door approach.
For years, one of the main types of direct-selling subscription businesses was magazine subscriptions. Unfortunately, per some of the points mentioned above, it developed a negative reputation as an overpriced scam. And in some cases, it was. In one case, poverty-driven individuals were manipulated into selling overpriced subscriptions before being bussed to the next town.
In order to return home, they’d have to sell enough subscriptions, or face being dropped off hundreds of miles away from everything they knew. It’s stories like this that make credit card processing companies reluctant to work with direct sellers.
Although your business may be more honest (if you are engaged in direct selling) it’s next to impossible to facilitate regulatory oversight of door-to-door subscriptions. In some cases, particularly in the energy sector, a sort of door-to-door subscription piracy has resulted in massive lawsuits. For businesses facing the uphill battle of securing a payment processing partner, high-risk payment processors could be the solution.
A payment processor that works with direct sellers should also be able to provide a high-risk payment gateway, mobile integrations or mobile hardware for on-the-go sales, such as a mobile terminal, an app, or a card reader that connects to a phone. There are plenty of valid business models selling legitimate goods or services whose bottom line would be improved by a partnership with a payment processing company. Some of these subscription services are charitable organizations. But unfortunately, even this giving space is lined with fraudulent participants.
The 5 Most Common Continuity Subscription Businesses Plus Honorable Mentions
Some consumers may not even realize it, but most actually have subscribed to a continuity business product, service, or two. And have been for years. In fact, many of the largest companies that work mostly off subscriptions are some of the most popular companies in the U.S. today.
However, subscription businesses are actually not a new idea. This type of business model dates back to the 1800s. It was a common practice amongst newspapers and bookstores for customer retention.
However, it was far less convenient than it is today with digital payment processing, online card vaults, and recurring ACH and card payment solutions. With such an offer of convenience, it’s far more attractive to many customers than the standard manual monthly process of buying one’s favorite goods and services. A “set it and forget it” attitude as we like to call it.
So, let’s take a look at the 10 most popular subscription businesses and a few honorable mentions. Who knows, you may actually be a contributing member to one of these businesses’ profits…or maybe to most of these businesses.
As a global phenomenon, the leader of the pack as the largest subscription business is, by an overreaching 25 million ahead of its contender, is Netflix. With approximately 225 million subscribers worldwide, around 73 million of those are from either Canada or the United States.
Interestingly enough, Netflix actually lost 1 million subscribers in the first half of 2022. Though less than half a percent (.44% to be exact) doesn’t seem much of a threat, it does pose some concern when all previous quarters showed consistent growth.
The loss in subscriptions could have come from a variety of factors. Possibly the other competing streaming services such as Amazon Prime, Hulu, HBO, Disney+, and let’s not forget the illegal streaming services that many users are finding ways of getting into.
Or it could be from tough economic circumstances with 2022’s inflation. Many subscribers may have decided that they were going to cut luxuries out of their budget, which included their streaming service. Books it is kids!
Or it could be the simple fact that Maybe Netflix shows and movies are either not appealing to a multitude of users, including a few controversial titles that Netflix had decided to showcase.
Whatever the case may be, losing these subscribers still has not bumped Netflix off its thrown as the number one subscription service in the world.
2. Amazon Prime
Coming in hot at second place, Amazon secures the title of the most dominant online retailer. In fact, it would be a strange occurrence if you met someone that did not know or did not have an Amazon account.
With 200 million global subscribers, 147 million of those are based in the U.S. Amazon is so frequently used that around 85% of its Prime members order from Amazon once a week as do 56% of its non-prime members.
Prime members are afforded a wide variety of perks and benefits such as free shipping and same-day to 2-day delivery (zip-code dependant). Not to mention Prime members get exclusive access to commercial-free listening to Amazon Music, Prime Video, free Prime gaming, 5% off Whole Foods Market plus 2-hour delivery, try-before-you-buy options, early access deals, and more.
With all of these exclusive benefits, why wouldn’t you sign up for a subscription with Amazon? To us, it’s a no-brainer. Unless you don’t like fast and free things.
In third place the music and podcast streaming phenomenon, with 182 million subscribers is Spotify. With listening, sharing, and management access to over 80 million podcasts and song tracks, it’s no surprise that every year, Spotify has gained an additional 15% subscribership.
Though it will always compete with users switching, balancing, and trying out other platforms such as Apple Music and Pandora, Spotify remains confidently on top in the music subscription market.
As a new platform, only with a lifespan of 4 years, some might find it surprising that Disney+ came in 4th place for the most subscribers— 152.1 million to be exact. But in all fairness, the world’s population has grown up loving Disney and all it has to offer.
Why wouldn’t you want to have instant access to all your childhood memories in the palm of your hand? Not to mention the rapid amount of new Disney shows and movies that never cease to unveil. This streaming service is destined for greatness.
5. HBO and HBO Max
And last on our top 5 subscription services are HBO and HBO Max. Not to Mention Discovery+. All three of these platforms belong under the singular parent company of Warner Bros. HBO platform’s subscriber numbers of 76.8 million combined with its sister platform Discovery+ with 24 million subscribers makes a grand total of 100 million subscribers.
Though HBO does not have as many options to choose from compared to Netflix or Hulu, it does offer beloved and quality content that makes up for the lack of quantity. HBO shows can only be streamed on HBO’s platform keeping their subscribers steady and loyal.
Last, before we conclude, I wanted to give a quick shoutout to 9 honorable mentions that just fell short of the top 5 subscription companies. All of which the majority of the population has either heard of or has a subscription to themselves.
- Apple Music: over 78 million total subscribers
- Hulu: 45.6 million total subscribers
- ESPN+: 22.3 million U.S. subscribers
- Chewy: 20.7 million total subscribers
- FabFitFun: 1 million total subscribers
- HelloFresh: 3.5 million U.S. subscribers
- Ipsy: 3.5 million U.S. subscribers
- Dollar Shave Club: 4 million total subscribers
- Pandora: 6.2 million total subscribers
A Final Word About Direct Marketing Continuity Subscription Payments
As you’ve seen, direct marketing is an effective sales strategy, and subscription payment models are an effective way to build consistent cash flow. Put the two together, and you’ve got a potential money-making machine.
Unfortunately, its appeal has also attracted some unsavory businesses, which in turn makes it harder for honest ones to find a payment processor. The best course of action for a company relying on this marketing and payment model is to do everything it can to adhere to legal and regulatory guidelines in its industry. This will significantly improve their chances of working with a payment processor that can provide them with favorable terms and fees.