The subscription e-commerce market continues to see rapid growth, with McKinsey's latest figures suggesting it now totals between $12bn and $15bn in the US alone.
Alongside the big global players, such as Hello Fresh, Dollar Shave Club and Naked Wines, are an increasing number of smaller, more localized brands such as LookFantastic, Pint Society and Japanese furniture and interior goods provider Muji.
Despite the growing popularity of brands such as these, subscription companies typically face high churn as they struggle to keep customers over time. So, what can subscription brands do to prevent and reduce churn?
What is churn?
Churn is the percentage of customers who stop using your products or services within a specific time frame. According to Recurly, a global subscription billing management company, the overall churn rate for subscription brands is 5.6% with subscription box and consumer goods running slightly higher.
Customers churn for several reasons. A big one is to reduce expenses – an issue that has become more prominent since Covid-19 as people have become more conservative with their spending. Other reasons include less frequent use of a product or service, regular travel, and the seasonal nature of some subscriptions.
According to McKinsey, 40% of people who subscribe to a product or service go on to cancel it. In addition, more than a third cancel in three months or fewer. As churn can greatly affect profitability, minimizing it is key to long-term success and growth.
How to minimize subscription churn
To reduce churn, subscription brands need to continually connect and demonstrate value to keep customers paying up each month, quarter, or year – something achievable with the right tactics and the use of massive data and AI-driven technologies.
1. Predict potential churners to rebuild a connection
Any customer who has signed up for subscriptions can potentially cancel at any time, but some customers are more likely to cancel than others. If you can figure out who these customers are, you can work harder to make them stay.
Leverage predictive machine learning (ML) models to analyze usage and contextual data from your existing customers. Usage data shows how much a customer used your product or service before they left, while contextual data adds more context to the former. ML can strategically predict which customers are high-risk based on their actions. For example, people who recently downgraded their subscription or who have been inactive. You can then engage them with regular, relevant communications to reignite that connection.
2. Ask customers why they want to cancel
Understanding why people want to cancel a subscription is crucial. It helps you create a strategy to avoid similar future losses. For example, if people are leaving because your service is too expensive or they aren’t using your products, you could look to adjust your prices or rethink your offering.
You can collect this data via a simple online survey, by email, or over the phone at the point of cancellation. Make it easy by giving a few multiple-choice options, plus give them the opportunity for open feedback. At the same time, tackle those pain points by suggesting they shift to a lower tier or pause their subscription temporarily.
3. Develop real-time customer profiles to stay relevant
One reason customers cancel subscriptions is that they no longer have the same level of need or interest in that particular product or service. This can be avoided by adopting a data-driven approach.
By leveraging legally-compliant third-party data on customer behavior and interests outside your owned channels, you can use AI tools to develop more accurate customer profiles in real time. This will provide you with a better understanding of your customers’ changing needs and preferences, so you can take actions to ensure your products or services remain useful and relevant.
4. Bring back lost customers based on lifetime value
Even if customers cancel their subscription, it is never too late to bring them back. By targeting the customers most likely to re-subscribe with engaging communications and relevant offers, you can see better success and increase your ROI.
To identify these high-value segments, you can use deep learning tools to define specific segments based on the audience’s massive behaviors and interests. You can then use predictive deep learning models to combine the best segments based on predefined rules and rank the segment combinations based on their value or likelihood of re-subscribe.
5. Re-engage through the right channel at the right time
Preventing churn is all about keeping your subscribers sticky – and to ensure that, you want to stay visible, connected, and continually deliver great experiences.
Using AI-based marketing automation, you can better understand your subscribers’ preferred channels of communication (email, app push, in-app messages, SMS, messengers, etc), their top times of day for engagement, and what types of creative formats they respond best to. You can then send personalized, interest-based offers to re-engage.
6. Explore partnerships to provide added value
Partnerships are the new black in retail, and subscription retail is no exception. Teaming up with another brand can not only help your bottom line, but it also allows you to offer subscribers something new and desirable – increasing re-engagement and reducing churn.
For example, an ice cream subscription box (for example, Pint Society) could partner with a movie streaming service, or a clothing subscription brand (for example, Her Velvet Vase) could team up with a beauty brand. Instead of simply guessing which partnerships might be valuable for your subscription brand, leverage AI-powered customer insights to explore ones that could provide added value to your subscribers.
7. Reward subscriber customers for their loyalty
The more loyal the customer, the more they value what you offer, and the less likely they will leave you. Because of this, incentivising and rewarding your best customers, as well as your new customers, is crucial.
To boost loyalty to its brand, food subscription box retailer Hello Fresh offers customers discounts and a free box for referrals. Birchbox does the same by offering members 50 points for each referral. You could also incentivize other activities, such as engaging on social or watching videos.
While a certain amount of subscription churn is always going to happen, you can keep it down and profits up by using data and the right tools to better understand what your subscribers want and why they come and go, and work hard to stay connected and deliver value.