March 7, 2019 | Authored by: Kevin Cancilla
8 Ways to counter churn and increase customer retention
Customer churn is a major problem for any business, but companies with subscription-based business models are especially at risk for its harmful effects. It's well known that gaining new customers is more costly than retaining existing ones (some estimates claim that customer acquisition is five times more expensive than customer retention).
According to Forrester Research, more than two-thirds (68 percent) of subscription businesses find it either "very" or "extremely" difficult to replace lost customers. Beyond the clear financial problems associated with customer churn, there are product and service development ramifications to consider as well. Churn can have a paralyzing effect on business innovation: 36 percent of subscription stakeholders believe the threat of high churn rates stifles the pursuit of more dynamic and disruptive service models.
Combating churn and increasing customer retention rates is vital to sustainable market growth and ensuring the long-term health of any subscription business. If your organization struggles in this area, consider the following ways to reduce churn and keep customers in the fold for years to come.
1. Personalize services to provide unique value and engagement
Personalized services can go a long way toward improving the customer experience and offering subscribers value. An Epsilon survey published in January 2018 found that 80 percent of consumers were more likely to buy from a company that offered a personalized experience. Salesforce research came to a similar conclusion, determining that more than half of consumers would switch brands if they did not receive services and interactions that were tailored to their individual preferences.
Personalization can include offering new services or promotions based on a customer's past activity and purchase history. OTT services like Netflix and Hulu are especially adept at such tactics, leveraging a user's viewing behavior to make targeted recommendations that fall in line with their personal tastes.
"Look at all of your opportunities to personalize content."
Before you rush to slash prices and race your competitors to the bottom, look at all of your opportunities to personalize content and services to better appeal to your customers.
2. Enhance the customer experience at every touchpoint
Irrespective of how valuable or desirable you believe your service to be, don't underestimate the effect a bad user experience can have on customer satisfaction. A poor interface on mobile apps, digital portals, or brand websites, for example, or a lengthy, complex onboarding process, could easily create friction. Customers want to quickly and easily move across different platforms and touchpoints. A subscription service that does not support such seamless navigation could leave them displeased. Routinely requiring users to log in to their accounts or providing a special token to satisfy two-factor authentication controls - while pragmatic from a security perspective - may frustrate more than comfort customers.
Billing can be a major source of friction for subscription companies, as errors and processing issues can quickly sour the relationship between brand and customer. Failure to process a payment, award credits for service disruptions, or account for time zone differences on promotions and bills will inevitably frustrate users and potentially make them think twice about their subscription status.
Enhancing subscription billing systems and workflows to ensure such issues don't occur will help improve customer retention over the long run.
3. Be transparent about services, offerings, payment, and billing
Many subscription businesses attract new customers by offering competitive entry prices and enticing promotions. However, users may be paying more than they realize if they don't read the fine print.
For instance, a wine club service provides the first order for free while also allowing users to select from a service package that includes shipments every month, every two months, or every three months. What the customer doesn't immediately realize is that regardless of which plan they choose, the first paid shipment will arrive - and hence, be billed - one month after their initial free package. Those expecting to have a three-month grace period before being billed will be surprised when they see a charge on their credit card statement a month after they receive their first shipment.
From the business' standpoint, it makes sense to bring in revenue from new customers as soon as possible and weed out individuals looking for a free trial they can cancel within a fairly large window. The customer likely won't see it that way, though, and will feel that they've been taken in by bait-and-switch tactics.
The lesson here is to always be transparent with your customers when it comes to pricing and billing. You may turn away some users, but you're likely to lose even more if your customers receive a bill or credit card charge they weren't expecting for a few months.
4. Actively monitor customer usage and activity
Customers rarely up and decide one day to just cancel their subscription services without reason. While one-off incidents can turn away members, in many cases, cancellations can result from loss of interest or long-standing, pent-up frustration and dissatisfaction.
Frequent monitoring of each customer's service usage and activity history gives subscription businesses the ability to spot potential red flags indicating a cancellation may be looming. If a once-active user suddenly scales things back - perhaps by moving to a lower service tier or consuming content on a less regular basis - that could be a sign that they are no longer happy with their subscription.
Armed with this information, subscription companies can proactively reach out to churn risks and determine what can be done to retain their business.
5. Use data to spot overarching trends
The insights gleaned from customer activity don't need to be limited to those specific individuals. The more data subscription companies can gather about their users, the better an understanding they will have regarding general customer and service trends. Points of friction can be pervasive, but collecting and analyzing more data will quickly bring those issues to light.
Such insights extend across your entire customer base, pointing toward macro trends rather than the highly specific findings discussed in the preceding section. It gives you that higher-level view to spot more widespread issues that need to be addressed.
"Too often, brand interactions only occur at fixed intervals."
For instance, after analyzing user behavior and activity on a broad scale, you may notice that a bundle or service package that had been previously very popular with your clients is no longer gaining the same amount of traction. It may be outdated or perhaps your customer demographics have shifted to the point that they are interested in a different offering. Either way, that old standby may need to be retired in favor of a fresh, new service bundle.
6. Stay in contact
Too often, brand interactions only occur at fixed intervals: billing notifications, payment requests, shipping alerts, etc. It's very easy for customers to check out a brand relationship when their awareness of the brand is limited to these fixed, technical interactions.
The good news is that subscription companies have ample opportunity to engage customers on a regular basis and through multiple channels, thanks to the numerous digital, mobile, web, and social media platforms consumers use today. Moreover, it is subscribers who choose their channel of preference, by responding to the communications that they receive in their channel of choice, Digital marketing guru Neil Patel highlighted Dollar Shave Club as a subscription-based business that actively interacts with users across different channels and which keeps its messaging and brand values front and center. It's worthwhile for companies to emulate that strategy and make your brand a regular presence to your customers.
7. Offer a variety of paying options
People differ in their preferences with respect to paying and billing. Some prefer credit cards; others prefer bank debits; others find it easier to track digital payments. Some use Android; others, iOS. Some are committed to the service; others are experimenting with it. Some want to be able to cancel any time; others prefer to receive a substantial discount for a long-term commitment. Subscription businesses need to offer sufficient variety in payment options to match the lifestyle of potential customers.
Interestingly, there's reason to believe that enabling customers to pay upfront for longer subscriptions can improve retention rates beyond monthly billing models.
As Patel pointed out, long-term subscriptions that are paid in full often push users to invest more in a given service because they know they are locked in for the foreseeable future. Whereas customers who are billed month to month may feel empowered to cancel services at a moment's notice, users who have paid up-front view the subscription as an investment. As such, they will be more likely to immerse themselves in the service, acquaint themselves with different features and realize as much ROI as possible.
8. Talk to your customers
Perhaps the simplest step subscription companies can take to minimize churn is to regularly contact users to gather feedback and assess customer satisfaction levels. Segment the responses you get by demographics, personas, and service tiers to gain more insight into the various pain points and subscription drivers across different customer types. Also, be sure to solicit feedback whenever a cancellation request is submitted to better understand what specific factors drove a customer to end their subscription. These individuals are the least likely to sugarcoat their responses, giving your organization a clear view of the customer mindset.
"Passive churn can be tricky because the causes are less obvious."
Reducing passive churn
The 8 tips listed above are good strategies for curbing instances of active churn, but we would be remiss if we did not address passive churn as well. Passive churn can be much trickier correct because the causes are less obvious. An angry or dissatisfied customer will likely make himself known, but one who involuntarily leaves your service because of a glitch in your payments network is more difficult to spot and anticipate. Something as seemingly trivial as having an expired credit card on file puts subscription statuses at risk and could be costing businesses a lot of money in lost revenue.
There are only a handful of viable strategies to effectively address passive churn, which makes it all the more important to have a subscription billing and payment platform that includes these tools:
- Retry - Your subscription billing platform should include customizable retry configurations to attempt payment processing as many times as you like and avoid prematurely canceling a user's subscription.
- Account Updater - If left unchecked, outdated account information could easily lead to higher instances of passive churn. Account updater pulls the latest available information from card networks to keep your customer accounts completely up to date.
- Dunning - Many organizations use fairly basic - even manual-based, at times - dunning tools to collect outstanding payments. Sophisticated, automated dunning solutions optimize these crucial processes, improving revenue streams and keeping customers in the fold.
- Vindicia Select - Vindicia Select goes above and beyond other payment reconciling solutions, using state-of-the-art subscription intelligence capabilities to automatically resolve as many as 30 percent of your terminally failed payment transactions. Vindicia recently commissioned Forrester Consulting to conduct a study entitled The Total Economic Impact™ of Vindicia Select that examined the potential customer retention ROI that enterprises may realize by deploying Vindicia Select.
Reducing churn rates and increasing customer retention is the formula for sustained success in the subscription market. From billing processes and payment models to service delivery and user experience, subscription-based businesses need to take advantage of every opportunity to counter churn and maximize recurring revenue.
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