Publication Type

Journal Article

Version

submittedVersion

Publication Date

12-2022

Abstract

Subscription programs have become increasingly popular among a wide variety of retailers and marketplace platforms. Subscription programs give members access to a set of exclusive benefits for a fixed fee upfront. In this paper, we examine the causal effect of a subscription program on customer behavior. To account for self-selection and identify the individual-level treatment effects, we combine a difference-in-differences approach with a generalized random forests procedure that matches each member of the subscription program with comparable non-members. We find subscription leads to a large increase in customer purchases. The effect of subscription 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 two thirds is attributed to the non-economic effect. We provide evidence that members experience a sunk cost fallacy due to the upfront payment that subscription programs entail. Finally, we illustrate how firms can calculate the profitability the subscription program and discuss the implications of our findings for customer retention and subscription services.

Keywords

Subscription business, Retailing, E-Commerce, Causal inference, Machine learning, Generalized random forest, Sunk cost fallacy

Discipline

Marketing | Sales and Merchandising

Research Areas

Marketing

Publication

Journal of Marketing Research

Volume

59

Issue

6

First Page

1101

Last Page

1119

ISSN

0022-2437

Identifier

10.1177/00222437221080163

Publisher

American Marketing Association

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1177/00222437221080163

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