In the past, purchases were mostly one-time transactions: a replacement ink cartridge, say, for $20, a pair of jeans for $65, or $50 for a new video game. Today we pay a $5 monthly subscription to keep the printer stocked, divide the cost of the jeans into three easy payments and download the video game for free, only to be charged 99 cents for each additional feature. Our financial lives have become a series of recurring small payments.
A recent and egregious example is BMW’s BMWYY decision to offer a subscription to the car’s most comfortable feature: front seat heating. In vehicles fitted with the required hardware, the automaker now charges a regular fee – around $23 a month in Britain – to customers in certain countries to activate seat heating, according to information on the company’s website. . While luxury automakers aren’t new to subscriptions to services like driver assistance and navigation software updates, the charge for heated seats has sparked an international brouhaha.
Canadians need not worry about that. Heated seats “are standard equipment” on the vast majority of the company’s products in Canada, BMW Group Canada spokesman Marc Belcourt said by email. And “there are currently no plans to introduce subscription services like this in Canada,” he added.
But the automaker’s decision to charge a recurring fee to warm up drivers’ butts is part of a phenomenon that goes beyond subscriptions. Small charges — you can call them micropayments — have become a steady stream of financial outflows that can make it easier for businesses to woo customer spending, but harder for consumers to budget and control costs, research suggests. academic and anecdotal evidence.
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In the United States, where subscriptions generate hundreds of billions of dollars a year, the average consumer now spends about $219 a month on subscriptions, according to a recent survey commissioned by market research firm C+R Research.
This kind of trickle-down spending is hard to track, some experts warn. Case in point: Americans who responded to the C+R Research survey initially estimated that they spent an average of $86 per month on subscriptions. In fact, the actual average monthly spend was $133 higher.
In Canada, a recent Bank of Montreal survey found that about half of respondents had at least one monthly subscription automatically charged to their credit card and about 20% thought they had paid for subscriptions that they had forgotten.
But consumers now also have the option of paying for something as inexpensive as a pair of shoes in installment payments with Buy Now Pay Later (BNPL) apps such as Afterpay, Klarna, Sezzle and PayBright. That pair of sneakers for $150 is now three monthly charges of $50, another kind of small payments that squeeze your budget.
Then there are in-app purchases and microtransactions in video games, which unlock features like enhanced abilities or premium content. Want a fancy spaceship to shoot down aliens? This will be another $2.99 drop from your bank account.
Businesses, for their part, have many reasons to love micropayments. Subscriptions, for example, provide recurring revenue, insights into consumer preferences and spending habits, and an opportunity to foster brand loyalty, according to Amy Konary of Zuora’s Subscribed Institute, which provides businesses subscription management technology.
Subscriptions can also be used to “smooth out business cycles in industries sensitive to seasonal dips and increases in demand,” Konary said in an email. In the notoriously cyclical travel industry, she cites the example of Alaska Airlines, which in February launched a subscription service offering up to 24 round-trip flights a year for a fixed monthly fee.
BNPL, meanwhile, makes consumers more likely to buy after browsing online — and place larger orders on average — and less likely to abandon their digital shopping cart at checkout, research finds. of McKinsey and Co.
In-app purchases and microtransactions allow mobile and video game developers to extract revenue from users while often offering apps and games for free through the so-called “freemium” business model.
The micropayment trend also has benefits for consumers. Paying with BNPL, for example, can be useful for expensive, necessary and urgent expenses, says Toronto-based financial planner Jason Abbott. Imagine, for example, a student who needs a new laptop before the start of the school year.
But business models built around micropayments pull psychological levers that generally make it easier to spend and, in some cases, make it harder to stop spending, experts say.
Researchers, for example, have found that people tend to overlook expenses they view as insignificant, said Stephanie Tully, professor of marketing at the University of Southern California’s Marshall School of Business.
“If it’s like a 99 cent purchase, you say 99 cents is nothing ‘and it literally doesn’t register in your mind,’ Prof Tully said.
In a 1998 article based on a series of laboratory studies, John Gourville, professor of business administration at Harvard University, found that reframing the cost of a product into a series of small, ongoing expenses was a effective marketing technique.
In one experiment, for example, Professor Gourville found that when a request for a contribution to a good cause was presented as costing 85 cents a day, 52% of respondents signed up. That compares to just 30% agreeing to donate when the expense was described as $300 a year, which equates to just under 85 cents a day for a full year.
When it comes to in-app purchases and microtransactions, research suggests that getting invested in gaming increases the likelihood that you’ll be willing to spend small amounts on digital add-ons, said Professor Tully.
And subscription payments apply the principle of automated reserve savings, Abbott noted. Setting up regular transfers from, say, your checking account to your retirement accounts can help you stay on track with your savings and make it easier to reach long-term financial goals, research shows.
This is why some governments and employers have resorted to automatic enrollment in pension plans – with the option of opting out – to encourage retirement savings. Behavioral economists call it a “nudge,” a term commonly used to indicate something that makes it easier for people to modify their behavior in predictable and positive ways.
But nudges can also work the other way around. Subscriptions are, essentially, spending on autopilot, Abbott noted.
And terminating a subscription often involves what economists have ironically called “sludge,” something that makes a decision harder by creating friction.
“If we know what makes someone likely to do something, we can make it harder for them to do what they would like to do,” Ms Tully said. “And then yeah we’re losing patience after being on hold for an hour trying to get someone to talk about our subscription being canceled and we let another three months pass until we had time to call back .”
If you notice a growing mass of micropayments, try to check your budget or spending plan at least twice a year, says Kathryn Mandelcorn, cash strategist at financial planning firm Spring Plans.
Ms Mandelcorn said she regularly sees couples among her new customers who have duplicate subscriptions.
“They’re like, ‘Oh, we didn’t even know we’d been paying for two Amazon Primes for three years,'” she said.
Sifting through your bank and credit card statements will help you spot unused subscriptions, assess recurring charges that are still worth it, and take stock of how much you’re actually spending on easy-to-miss transactions. like in-app purchases, she said. .
And if calendar reminders and spreadsheets put you off, you can try an app.
BMO, for example, recently rolled out a new feature that helps users track pre-authorized payments as part of its banking app.
The Mint budgeting app, provided by Intuit Inc., whose suite of financial management software includes TurboTax and QuickBooks, tracks subscription spending by tracking recurring payments in users’ accounts. The apps will also let you know if a subscription is new has changed price or remains unchanged according to Ryan Steckler, who runs Mint. PocketGuard, another cash management app, offers a similar service.
But Mint and PocketGuard require users to link their financial accounts to automatically track and categorize transactions.
While the mint is completely free to use, it makes money “from offers from carefully selected partners who help move Minters money forward,” Steckler said in an email. Those the offers include credit cards and personal loans that can be tailored to their financial circumstances, the company said.
PocketGuard, for its part, offers a premium product with additional features that costs $139.99 in Canada. If that seems too high, you can also – you guessed it – pay a monthly or annual subscription.
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