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During the first COVID lockdown, subscription businesses experienced unprecedented growth. From coffee to cars, nothing was off limits, and subscriptions went from a revenue strategy to a movement. Thanks to the unlimited adrenaline rush of recurring revenue, investor love for subscription businesses has only grown by leaps and bounds. Then suddenly the world awoke from its stupor.
The undeniable king of pandemic subscriptions – Netflix (NASDAQ: NFLX) – lost subscribers for the first time in 10 years in the first quarter, 200,000 of them!. And more recently, major DTC and online retailers have also struggled with steadily declining visitor traffic. Subscription fatigue was no more than a hypothesis.
Why is the subscription engine running out of steam?
Of course, there is always war, its indiscriminate slaughter of oil reserves and the anxiety of a potential recession, but the kryptonite of discretionary subscriptions isn’t just economic prudence. According to Adobe’s Digital Economy Report, BNPL (buy-now-pay-later) transactions increased by 500% through fall 2020.
This means that even during the subscription frenzy, consumers (and subscribers) were looking for ways to keep their money closer. Now that physical commerce is drawing its curtains, customers can finally exercise greater control by moving from macro to micro transactions.
Instead of a four-bottle/week milk subscription, they can buy milk by the carton based on their needs, and instead of a bundled subscription box, they can choose individual products tailored to their needs. The infallible truth is that one-time expenses, while more inconvenient, are also more flexible than long-term recurring commitments.
If that wasn’t enough, it’s probably easier for subscribers to cancel now than ever before. First, New York State joined 25 other states in making subscription information more transparent – requiring clarity of cancellation for subscribers through its model subscription law. (2020). On the other hand, Mastercard and Visa have extended this same transparency to negative option billing and free trials, making cancellation links mandatory during or before renewal communications.
Influence > Control
Our observations of over 4,500 subscription-driven businesses confirmed a basic hypothesis: subscription churn and poor net performance scores (an indicator of customer experience) are the corollaries of complicated customer journeys.
Giving consumers the choice to opt out, although it seems counterintuitive, has worked well in the past. Take the case of the CAN-Spam Act, which was first introduced in 2003. It made it mandatory to include a “clear and prominent explanation of how the recipient can opt out of receiving emails ” (and therefore the email unsubscribe button). . Obviously, the marketers weren’t too amused.
Almost two decades later, the unsubscribe button still exists and readers haven’t gone anywhere. In 2022, there are an estimated 4.3 billion active email readers, and by 2025 that number will reach 4.6 billion.
What changed? Mail-tech in evolution. Today’s emails are more personalized and time and context sensitive than ever before. Instead of the unsubscribe button being a pain in the ass, it now works effectively to filter out indifferent readers or non-ideal profiles from your list.
The new regulatory and industry focus on subscription-driven businesses is no different. It’s a recognition that any subscription-based e-commerce business is in a marketplace built to serve its customers. And sometimes you have to accept that a customer may no longer need what you are selling.
How, then, to think about retaining customers without exerting coercion? Simple.
Understand that while you cannot stop exits, you can influence exit points.
Many subscription-based e-commerce businesses use incentivization as their primary customer retention strategy – without fully understanding exit intent. Here’s a tip: it doesn’t always pay off!
While pricing is important, your subscriber’s relationship with your business is a derivative of “perceived value.” Therefore, for the same product, the motivation to use the expected benefits and the “demand” would vary for each customer. When cultivating customer relationships, and more importantly, exiting, analyze these individual motivations before trying to stop churn. Especially in the post-Covid context.
If your subscriber has recently been put on leave, it would be rather insensitive to ask them to renew their “monthly wellness box”. Acknowledging that your product is not a priority for them at the time and instead presenting them with a solution to suspend the subscription will go a long way in retaining those customers.
Our benchmark analysis shows that breaks had a higher acceptance rate of up to 50% compared to discounts (up to 30%) at the time of cancellation and were more effective as an offer both to deflect and avoid customers from churn.
Not all customers are equal
By extension, offering personalized offers to your subscribers has a better reward-risk ratio. If you were to offer a significant loyalty offer to a newly onboarded customer who doesn’t fit your ideal customer profile (ICP), they would still accept the offer. But they would also be eager to leave once the benefits expire.
On the other hand, if you present that same offer to a long-time customer who had been very engaged before choosing to unsubscribe, they are not only more likely to convert, but it also becomes a great opportunity for you to understand the reason behind their planned release and build similar propositions and solutions for long-term customers – turning them into brand advocates.
And that is the magic of “the art of letting go”. Instead of chasing after lost leads, you’ll spend more time nurturing strong relationships and leveraging them into your acquisition strategy. Your business will probably thank you too.
So if you think about it, every exit point is also an acquisition funnel. Instead of hanging on, consider selling a product that suits them better, redirecting them to a better pricing plan, or using exit feedback (when customers are the most honest) to refine your product roadmap and minimize the output load in the future. .
Be omnidirectional in your retention strategy. Look beyond loyalty discounts, think beyond cancellation points, and think of customers as individuals, not numbers on the balance sheet.
When the largest prepared meal delivery service in the United States, Freshly, experimented with personalized offers based on reasons for cancellation, length of commitment, and customer lifetime value (LTV), they learned that customers with higher LTV stopped more frequently to return at a higher rate. This idea has led to targeting longer-term customers with offers to flexibly suspend and manage their accounts. Customers experiencing financial difficulties saw different offers. At the same time, students saw recommendations tailored to their specific needs, for example, suspending their account for summer vacation. Their updated, hyper-personalized retention strategy resulted in an additional $1 million revenue forecast over a 52-week period.
Ultimately, retention becomes a function of the perceived value of your customers and the value generated by the customer for your business. But more importantly, it makes your customer retention funnel aware, accepting, and more importantly, acknowledging the idea that the decision to stay (or leave) should rest entirely with your e-commerce customers.
Customer relationships are driven by change, not inertia
The rapidly changing customer perception of subscriptions is also emblematic of an overarching product and technology narrative – that our thinking and approach to customers, their needs and our relationships with them must evolve. .
In 2011, when marketing gurus Susan Fournier and Jill Avery were dissecting the strange growth of CRM tools and big business leaders were willing to spend to bolster unit profitability, they pointed out the lack of continuity in thought and action – “… companies fail to recognize that relationships are two-way and that these relationships evolve with each interaction. While managers like to take credit for successful relationships, they must also be willing to look inward to understand why relationships break down. By failing to treat relationships as dynamic works in progress, companies walk away from relationships that could generate significant value.”
A year after this article, Kodak – the company that democratized video and photography – declared bankruptcy. But in all honesty, everyone saw it coming. The company was so enamored with its own idea of ”analogue photography” that it lent a deaf year (in fact resisted) when the world gradually shifted to digital photography.
For subscription-driven businesses, “today” is the same inflection point. We may exert willful resistance, but the truth silently pervades and hovers around us like music in elevators – inertia kills innovation. For subscriptions to see tomorrow, companies need to get out of their heads and let customer interactions guide loyalty strategy, product roadmap, or even the future of subscriptions as an industry.
Krish Subramanian, co-founder and CEO of Chargebee.