People's opinion on subscription eCommerce is shapeshifting faster than Elon Musk's opinions of bitcoin BTC/USD - whipsawing between blatant optimism and outright disregard.

During the first COVID lockdown, subscription businesses witnessed unprecedented growth. From coffee to cars — nothing was off-limits, and subscriptions went from a revenue strategy to a movement. Thanks to the unlimited supply of recurring revenue adrenaline, investors' love for subscription businesses only grew by leaps and bounds. Then suddenly, the world woke up from its stupor.

The undeniable king of pandemic subscriptions — Netflix NFLX — lost subscribers for the first time in 10 years in Q1, a whole 200,000 of them!. And more recently, top DTC and online retailers have also struggled with the steadily declining visitor traffic. Subscription fatigue was no longer just a hypothesis.

Why is the subscription engine losing steam?

Of course, there is still a war, its indiscriminate butchering of oil reserves and the anxiety of a potential recession, but the kryptonite for discretionary subscriptions isn’t just economic caution. According to Adobe’s digital economy report — BNPL (buy-now-pay-later) transactions grew 500% through the fall of 2020.

What this means is even during peak subscription frenzy, consumers (and subscribers alike) were looking for means to keep their money closer. Now that physical retail is drawing back its curtains, customers can finally exercise greater control by moving from macro-transactions to micro-transactions.

Instead of a four-bottle/week milk subscription, they can buy milk by the carton on an as-needed basis, and instead of a bundled subscription box, they can choose individual products tailored that fit their needs. The unerring truth is ad-hoc expenses, while more inconvenient, are also more flexible than long-term recurring commitments.

If that wasn’t enough, it is probably easier for subscribers to cancel now, than ever before. First, the State of New York joined 25 other States in making subscription information more transparent — mandating cancellation clarity for subscribers through its Subscription Model Law (2020). On the other hand, Mastercard and Visa extended that same transparency to negative-option billing and free trials making cancellation links compulsory on or before renewal communications.

Influence > Control

Our observations of over 4500 subscription-led businesses confirmed a core hypothesis — subscription churn and poor Net Performer Scores (a proxy for customer experience)  are corollaries to complicated customer journeys. 

Giving consumers a choice to opt out, while sounding counterintuitive, has worked well in the past. Take the case of the CAN-Spam Act, which was first introduced in 2003. It made the inclusion of a "clear and conspicuous explanation of how the recipient can opt-out of getting email" (and therefore, the email unsubscribe button) mandatory. Obviously, marketers weren't too amused.

Nearly two decades later, the unsubscribe button still exists, and the readers haven't gone anywhere. In 2022, there are an estimated 4.3 billion active email readers, and by 2025, that number will nudge up to 4.6 billion.

What changed?  Evolving  Mail-tech. Today's emails are more personalized and time/context-relevant than before. Instead of the unsubscribe button being a predicament, it now effectively works to filter uninterested readers or non-ideal profiles off your list.

The newfound regulatory and industrial attention to subscription-led businesses is no different. It is a recognition that any subscription eCommerce business is in a market built in the service of its customers. And sometimes, it is necessary to accept that a customer might not need what you sell anymore.

How, then, should you think of retaining your customers without applying coercion? Simple.

Understand that while you can't stop exits, you can influence points of exits.

Many subscription eCommerce businesses use incentivization as their primary customer retention strategy — without quite understanding exit intent. Here's a tip: It's not always cost!

While pricing is important, your subscriber's relationship with your business is a derivative of 'perceived value.' For the same product, therefore, the motivation to use expected benefits and 'the ask' would vary for each customer. When cultivating customer relationships, and more importantly, at exit — analyze these individual motivations before trying to arrest churn. More so in the post-Covid context.

If your subscriber has recently been furloughed, it would be rather insensitive to ask them to renew their 'monthly wellness box.' Recognition that your product isn't top-of-mind for them at that moment and instead presenting them with a solution to pause the subscription will go a long way in retaining those customers.

Our benchmark analysis shows that pauses have had a higher acceptance rate of up to 50% over discounts (up to 30%) at the point of cancellation and were more successful as an offer both in deflecting and saving customers from churn.

All customers aren't equal

By extension — offering customized offers to your subscribers has a more excellent reward-risk ratio. If you were to give away a significant retention offer to a recently onboarded customer who doesn't fit your ideal customer profile (ICP) in the first place, they would still accept the offer. But they'd equally be eager to leave once the benefits expire. 

On the other hand, If you present that same offer to a long-term customer who had been highly engaged before choosing to churn, they are not only more likely to convert, but it also becomes a great chance for you to understand the reason behind their intended exit and build similar propositions and solutions for long-term customers - turning them into brand advocates.

And that's the magic in the 'art of letting go.' Instead of chasing lost leads, you will spend more time nurturing solid relationships and leveraging them in your acquisition strategy. Your business, too, will likely thank you for it.

If you think about it — each point of exit, therefore, is also an acquisition funnel. Instead of holding on, think about cross-selling a product that's more relevant to them, redirecting them to a better pricing plan, or utilizing the exit feedback (when customers are most honest) to refine your product roadmap and minimize exit load in the future.

Be omnidirectional in your retention strategy. Look beyond discounts for retention, think beyond points of cancellation, and view customers as individuals and not numbers on the balance sheet.

When USA's largest prepared meal delivery service — Freshly, experimented with tailored offers based on cancellation reasons, tenure of engagement, and customer lifetime value (LTV), they learned that higher LTV customers paused more frequently to come back at a higher rate. This insight led to targeting longer-tenured customers with offers to pause and flexibly manage their accounts. Customers experiencing financial hardship saw different offers. At the same time, students saw recommendations tailored to their specific needs, e.g., pausing their account for summer break. Their refreshed and hyper-personalized retention strategy resulted in an added $1million in revenue forecast in a 52-week period.

In the end, retention becomes a function of your customers' perceived value and the value generated by the customer for your business. But more importantly, it makes your customer retention funnel aware, accepting, and, more importantly, appreciative of the idea that the decision to stay (or go) must rest squarely with your customers in eCommerce.

Customer relationships are driven by change, not inertia

The rapid change in customer perception of subscriptions is also emblematic of an overarching narrative in product and technology - that both our thought and our approach to customers, their needs, and our relationships with them should evolve.

Back in 2011 when marketing gurus Susan Fournier and Jill Avery were dissecting the uncanny growth of CRM tools and the big buck business leaders were willing to spend to bolster unit profitability, they remarked on the lack of continuity in thought and action - “... companies don’t recognize that relationships are two-sided and that these relationships evolve with each interaction. As much as managers like to claim credit for profitable relationships, they also need to be willing to look inward to learn why relationships break down. By failing to treat relationships as dynamic works in process, 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 that coming. The company was so enchanted by its own idea of “analog photography” that it lent a deaf year (in fact resisted) when the world gradually transitioned into digital photography.

For subscription-led businesses, ‘today’ is the same inflection point. We can exercise willful resistance, but the truth permeates silently and hovers around us like music in the elevators - inertia kills innovation. For subscriptions to see tomorrow, businesses need to get out of their own heads and let customer interactions guide retention strategy, product roadmap, or even the future of subscriptions as an industry.

 

Krish Subramanian, co-founder and CEO of Chargebee.