The Sunk Cost Fallacy drives subscription value

The Sunk Cost Fallacy is a cognitive bias where individuals are more likely to continue with an endeavor if they have already invested time, money, or effort into it, regardless of whether it is the most rational decision. The past investment (the "sunk cost") cannot be recovered, but it unduly influences future choices.

This psychological principle is a key driver behind the effectiveness of many subscription models.

How it applies to subscriptions:

1. Initial Investment: When a customer pays a subscription fee (e.g., an annual membership), they have made a sunk cost.
2. Desire to "Get Their Money's Worth": To justify this initial investment, the customer feels compelled to use the service as much as possible. This desire to recoup the cost leads to increased engagement and loyalty.
3. Behavioral Change: This can lead to customers choosing the subscription service over competitors, even when there might be better or cheaper alternatives for a specific transaction. The goal becomes maximizing the value of the subscription they've already paid for.

For example, a member of Amazon Prime is more likely to buy a product from Amazon to take advantage of the "free" shipping they've already paid for through their membership. This makes them a more loyal and frequent customer, as explained in Subscription models turn casual shoppers into loyal customers.