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February 7, 2019 | Authored by: Vindicia Team

The hidden growth in subscription services and how to unlock it?

Over the past decade, we’ve all benefited from businesses embracing the online channel to offer services directly to us as consumers. I can say that with certainty because you’re using precisely one such service to read this post.

If you watch, listen, read, play or do almost anything online these days, you’ll know the popularity of premium versions of these services offered as paid subscriptions. We can’t seem to get enough of these services either. More of us than ever are paying for services from Netflix, Spotify, Amazon, and the like.

Advances in payment technologies have made it easy to use our credit or debit cards as a preferred payment method to sign-up and away we go, often with no more than a month-by-month commitment.

Not only do we find value in their offerings compelling enough that we’ll pay for them, but using these services often becomes habitual. We’ve become reliant, even dependent, on their availability, happily consenting for a modest payment to be taken periodically.

It takes months to find a new customer and only seconds to lose one

Yet, despite their best efforts, all subscription businesses struggle to obtain continuous payment from their subscribers. I’m not referring to active churn, where subscribers actively chose to no longer pay for the premium services. Subscribers churn off even the most compelling services. No, I’m referring to passive churn, where payment transactions fail through no fault of the subscriber. These are users who are happy to continue paying for the service and expect payment to be applied automatically in exchange for continuous service.

The very best subscription businesses employ a variety of established techniques to avoid passive churn. Card updater services, which ensure that changes to a card account don’t result in a payment failure, are a helpful preventative measure, but not a cure. Transaction failure is then followed by a series of retry attempts, using retry logic developed in-house. Yet, for a substantial number of failed transactions, neither method is successful in re-establishing the payment relationship.

Subscribers are unaware that remedial action is being taken behind the scenes. Though some companies will often attempt customer outreach efforts in parallel, ranging from a simple email to outreach from dedicated collection agencies. However, such actions can have unintended consequences.

Remind me what I’m paying for again?

Remember that paid subscription services often become habitual. Ask a neuroscientist about habituation and they’ll explain how people tend to lose interest in something predictable, and relatively mild. Much like a monthly subscription payment. Habituation is such a powerful process that the brain immediately focuses on any sudden changes in that situation. Interrupt them at your peril.

Without payment, most businesses are forced into taking the last resort of cutting off service to the subscriber. This creates a negative experience for the user, which I can testify to from personal experience. It typically happens at the most inconvenient time, often requiring that you re-enter your password to access your payment account (which inevitably I can never remember). In some cases, I’ve had personally valuable data related to that service deleted. In others, I’ve had to set up an entirely new account or received unwelcome phone calls from customer service representatives, reminding me of past-due payments. All this hassle for something that was caused through no fault of my own.

Given how hard most companies work to acquire new subscribers, it seems illogical not to put a similar focus on retaining them. But the disparity I often see in this area is astonishing, from doing next to nothing, accepting this as a cost of doing business, to assuming they’ve exhausted all avenues and there’s nothing else that can be done to improve the outcome. Which simply isn’t the case.

Unlocking hidden growth through marginal gains

We recently engaged Forrester Consulting to study the impact of using the insights and best practices we have at our disposal to supplement existing retry strategies at subscription businesses. Forrester applied their Total Economic Impact™ (TEI) methodology and concluded that we consistently recover transactions our customers considered terminally failed, with an average 18% recovery rate. You can read the full study here.

Even this marginal gain, achieved above and beyond our customers’ exhausted attempts to recover payment, has a profound effect on revenue from extended customer lifetimes, with 92% of the revenue uplift coming from extended customer lifetimes. It does make you wonder why every subscription business isn’t doing this.

Has payment failure affected access to any of your subscription services? Were your experiences similar to my own? Perhaps you work for a subscription business. What small changes have you found to make a big impact in this area?

About Author

Vindicia Team

Vindicia Team

We value our subject matter experts and the insights each of them brings to the table. We want to encourage more thought leaders to come together and share their industry knowledge through our blog. Think you have something interesting to contribute as a guest blogger? Contact us at info@vindicia.com