Thinking Outside the Box: How to Solve Three Sources of Subscriber Churn
The subscription sector is booming. Four out of five Americans have at least one subscription service, and between product boxes, retail apps, and streaming services, the industry generates USD$3 trillion annually. However, it’s an industry at a crossroads. The number of active subscribers has decreased 10% year-over-year and customer acquisition rates have fallen from their pandemic high in 2020. Financial constraints are forcing consumers to be more selective about which services they keep. The good news is, once they’re committed, customers are more likely to spend, but only if companies can address the three main sources of customer churn.
The State of Subscriptions
The subscription model offers many benefits to consumers. There’s a certain ease to having your groceries delivered to your door, or the ability to stream videos on demand without leaving the comfort of your living room. Yet, inflation, competition, and subscription fatigue are finally taking its toll.
Customer acquisition rates have fallen from their pandemic high of 5.3% to only 3.7% in 2023. Additionally, a recent study showed that two-thirds of U.S. consumers feel they are burdened by the rising cost of living and can no longer afford all their subscriptions - 20% will cancel to find a better alternative and another 20% will cancel altogether because of cost.
Therein lies the heart of the problem. Consumers are becoming more selective about their subscriptions out of economic necessity and are more likely to cancel those that provide less value, less convenience, or poor customer experience. In fact, there are three main points of consumer friction that will need to be addressed if companies wish to reduce churn.
Three Sources of Subscriber Churn
Pain Point #1: Customers Want More Flexibility and Personalization
Customers shouldn’t feel locked into a service that doesn’t meet their needs. That adds to consumer frustration and increases the likelihood that they will cancel their subscription. For instance, part of the appeal of box subscription services, like Ipsy or Stitch Fix, is the ability to receive a personalized, curated selection of products right on your doorstep, which can cater to a wide range of interests and offers the flexibility to “discover” or try new products every month.
This has allowed the box subscription market to grow to over USD$ 37 billion, attracting an increasing number of companies. Unfortunately, this makes it easy for customers to switch to different subscriptions if they are unhappy with their current provider.
Solution: To retain their customer base, brands need to offer customized experiences and recommendations.
Customers need to feel as if they have the flexibility of choice. They also need to feel that subscription services are catering to their unique interests and can be customized if their needs change. Customer support plays a vital role in this. Consumers will want targeted offers and specialized recommendations, not generic “one fits all” services. Agents can play a vital role in helping customers find the options that work for them. They can also play a critical role in gathering customer feedback, so companies can develop new products or plans that can increase retention.
Pain Point #2: Customers Want Easier Subscription Management
There’s been some controversy surrounding the Federal Trade Commission’s (FTC) new “click-to-cancel” rule that requires sellers to make cancellations simple and straightforward, and to be more transparent when it comes to negative billing features like subscription renewals. But what this highlights is how some companies have intentionally made it difficult to cancel as a retention tactic, which may only fuel customer frustration and could harm a brand’s reputation.
Consumers want more control over their subscription management. When Forrester surveyed more than 750 customers in the U.S., U.K., and Canada, many said they had to be diligent about renewal dates and that they didn’t like “services that make you jump through hoops to cancel” - over 70% also prefer options like monthly billing because it allows them to manage their budgets more effectively. Billing or payment experiences can be so central to the subscriber experience that a report by Recurly found that issues in these two areas were top drivers of cancellations.
Solution: Subscribers need billing transparency, with the ability to cancel a subscription when needed.
Though it may seem counterintuitive, by making cancellations easier, you may actually win more customers. A recent report from Toolkits and National Research Group found that 67% of consumers would be more likely to subscribe to digital publications if canceling was easier. Knowing you can cancel at any time lowers the risk factor for many consumers, which may make some more willing to try a service. Additionally, avoid customer frustration by making billing as transparent as possible and renewal options clear when customers opt in. Don't make it difficult for people to seek help if they have billing issues. Customers should always have the option of speaking to an agent if needed.
Pain Point #3: Customers Need to Be Better Understood
Increased competition and saturated markets mean that many companies are now vying for the same pool of subscribers. What’s even more troubling, according to a recent streaming services study, is that 30% of customer acquisitions in 2023 were in fact re-subscribes from customers that had previously canceled. This volatile churn behavior, coupled with an overall decline in new customer acquisitions has prompted many brands to increase prices by up to 43% just to boost profitability. Yet, those price increases have led to a 6.3% jump in cancellations this year alone.
While increasing prices will only make it difficult for consumers to justify multiple subscriptions, it may be more beneficial to understand what actually retains subscribers. This is where technology can help us gain more insight. Video streaming providers like Netflix have doubled down on content, using consumer data and analytics to perfect their algorithms and enhance the user experience through more personalized recommendations. Like many streamers, they also heeded the call for more pricing flexibility and now offer ad-supported subscription tiers at lower costs.
Solution: Stay attuned to consumer preferences by using AI analytics.
It’s crucial in today’s highly competitive landscape to stay attuned to consumer preferences. Find ways to delight customers and encourage loyalty by leveraging technology that allows companies to become more responsive and agile to consumer demand. That’s where AI-powered platforms like itelligence® can help. AI analytics can inform new ways to streamline the user experience, personalize recommendations, and provide new ways to enhance customer support. This allows brands to constantly innovate, using both digital platform and contact center data to stay ahead of the curve.
Why CX is Crucial for Subscriber Loyalty
New research has shown that there are three things that affect subscriber loyalty across markets besides price, and that is reliability (55%), convenience (40%) and the quality of customer support (39%).
Almost half of subscribers will cancel their service due to technical or billing issues, which shows how crucial it is to offer a total customer experience that considers not just the sales process, but also after sales support and subscription management.
Customers need easy paths to assistance if a technical problem arises. Clarity around billing and renewals is also essential with the FTC’s “click-to-cancel” rule. Companies will need to be diligent about informing customers about these negative option features as failure to provide sufficient information can lead to compliance issues.
The bottom line, companies cannot afford to let the quality of customer support decline but must instead find cost effective ways to enhance customer satisfaction. This can be done through a combination of finding the right service delivery locations, the right technology, and agents who are trained to provide quality interactions that enhance customer retention. This is what turns “cost centers” into revenue-generating “value centers” that keep subscribers loyal.
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