Vindicia in the News
Why the 'Great Unsubscribe' is more like the 'Great Rethink'
Aug 24, 2022 | By PYMNTS.com
Is the subscription boom over, or just in a lull caused by consumers being a bit oversubscribed coming straight out of pandemic lockdowns and into the highest inflation in 40 years?
Opinions differ, but where the wisdom of the sector is maturing rapidly is in why consumers subscribe and how to keep them as customers even if they need to prioritize other spend for a few months before returning to their favorite streaming services.
Speaking with PYMNTS on the topic, Jesus Luzardo, vice president and head of global partnerships and international sales at subscription management platform Vindicia, said he sees the value proposition of streaming as strong enough to prevent the churn providers are experiencing — and expected.
“A lot of people in the industry were anticipating this because during the pandemic, most households signed up for a lot of subscription services that provided them the convenience, the entertainment that they needed when they were living and working from home,” Luzardo said. “Now that everybody’s going back to normal, we knew that there would be some attrition, some churn, there will be some cancellations coming up. It’s really not a surprise.”
However, he said he sees growth in the sector despite this momentary jostling as consumers consider what they signed up for since 2020 and decide what streaming is “essential” even in tight times. That’s because he said he thinks people subscribe to experience as much as content.
With a nod to the free trial tango, Luzardo said pausing or canceling subscriptions because other needs arise is “very typical” of streaming behavior. It’s that subscription dismount that providers must stick or risk losing that customer permanently.
He noted people are signing up to HBO Max “because now you have ‘House of Dragons’ coming up on [Sundays], but once you watch that maybe you don’t want to keep HBO Max. You want to go back to your ESPN Plus, and maintain your streaming services subscription spend.”
The sign of success or failure is how that subscriber found the end-to-end experience, including the pausing, cancellation and restarting the subscription. He said if that experience is bobbled, “they will never come back to that, even though they like the content.”
Regarding churn, he noted, “price is a factor for people that are rationalizing their budget, but price is not necessarily a factor for people that want to subscribe and want to continue to pay for some subscription services.” For customers who love the content and the experience offered by a service, he said, “whether I pay $12.99 or $10.99 is not going to make a difference for me to pay $2 more if I’m very satisfied with experience and I’m very satisfied with the content.”
“Rising costs and growing frustration are leading consumers to reevaluate their paid subscriptions and cancel those they deem unwanted in a process known as churn,” noted the August Subscription Commerce Tracker®, a PYMNTS and Vindicia collaboration. “Video streaming subscriptions are particularly vulnerable, with a churn rate of about 37% in the U.S.”
Payment Declines and Other Landmines
That delicate time in the life of a subscriber can be triggered by other factors like a failed card payment. How streaming providers handle failed recurring payments can mean retaining or losing a customer, again, depending on the experience.
Luzardo cited Visa data finding that close to a quarter (23.5%) of recurring payments fail. When that happens today, most providers, after retrying to process the payment several times, will go as far as calling the subscriber and asking for another payment method, while also prompting them to enter one in an app or online.
He said that “depending on the policy of the subscription company, what they do is either they pause subscription, they cancel the subscription, which is terrible for the consumer experience, or they use customer service to contact the consumer to get another card for the payment. That’s a problem because you are facing the moment of truth. Maybe the consumer when you call will say ‘I don’t need that subscription anymore, why don’t you cancel that anyway?’”
That’s the opposite of an intended outcome, and technologies and services like Vindicia Retain can take those failed recurring payments and recapture about 30% of them without having to contact the consumer.
It’s a critical issue now, as he said 8% to 10% of payments terminally fail “because of issues in the payment infrastructure, from the merchant billing platform to payment processor to card network to issuing bank. All that infrastructure has inefficiency in communication between platforms.”
Managing this passive churn is or should be a central consideration for subscription services as it’s preventable with the right technology and processes — and that’s crucial when pioneering platforms like Netflix are seeing huge numbers of subscribers actively churning out.
Households Are Made of Individuals
Luzardo noted that households are rationalizing subscription spend in the face of brutal inflationary headwinds, and the rivalry between Amazon Prime and Walmart+ offer examples and clues to others in the subscription space about navigating this period.
PYMNTS research shows that 84% of Prime members signed up for free shipping, for example, casting doubt on the retention strength of Prime Video alone versus its streaming rivals.
“Amazon Prime would be more challenged to compete in the world of video streaming as a standalone service versus other video streaming offerings out there,” he said, “but if you bundle that with the Amazon marketplace where the consumer gets the convenience, that’s a differentiator.”
He added that Amazon Prime keeps its comfortable lead by thinking it terms of the individual wants and needs in the household rather than treating the household as one entity.
Luzardo said he thinks that in Prime’s case, “the differentiator is the shipping, but maybe for my son, what he wants is the Amazon Prime content. If I tell him we’re going to switch to Walmart because I can get the same subscription with no shipping costs and all that, he is probably going to question, ‘Why? I love Amazon Prime content and video.’ If you cater to the different users inside the household, then the ability to retain the household is higher.”
Also pointing to the continued strength of bundling, Luzardo told PYMNTS that a single package for the household with multiple types of content is still relevant, but the key to success may be something more than that.
“The key for subscription services we believe is that for them to stay relevant with the fragmented digital life of that consumer, they need to offer a more compelling 360-degree set of subscriptions that are relevant for that consumer,” he said.