Strategies to Prevent ‘Subscription Exhaust’ and Boost Recurring Revenue
4 Min Read
With the industry shift toward Headless Commerce, comes new ways to quickly iterate your ecommerce model to capitalize on revenue-driving trends, like the subscription offerings peaking in popularity right now.
According to research by Gartner, all new ecommerce entrants and 80% of historical vendors will offer subscription-based business models by 2020.
However, critics foresee ‘subscription exhaust,’ predicting this subscription trend bubble will pop as consumers reach maximum capacity for the amount of their paycheck they’re willing to forgo on a monthly basis.
So how can merchants enjoy the luxuries of customer retention and recurring revenue while staying immune to subscription exhaust?
Apps like Truebill allow streamlined subscription cancelation, identifying all recurring charges on a user’s account and allowing them to easily cut down on their expenses. Subscriptions must be more valuable and attuned to their audience than ever before, to protect themselves from financial services like this.
CONSIDER THE VALUE PROPOSITION FOR YOUR CUSTOMERS.
If you’re looking to introduce a subscription option in the future, think hard about the unique value proposition it provides. Why would your customers choose to subscribe rather than one-time purchase? What are the pain points a subscription can help alleviate? Rockets of Awesome understands children are constantly out-growing their clothes every season. So there’s an incentive to “Subscribe + Save.”
Rent the Runway (a personal favorite B2C at Corra H.Q.) fulfils their audience’s desire to look fresh and put together at the office, a special occasion, or wherever they’d like. There’s an increasing pressure to wear something new in every picture that their business model addresses.
Similarly, Feather is a furniture subscription service that alleviates a number of concerns for their target consumer: the headache of moving furniture to a new apartment, high upfront cost of furnishing a space, a desire to update and refresh their interiors, etc.
According to a survey by McKinsey & Company, the top reasons consumers would prefer to subscribe rather than purchase one-time are as follows:
- Flexibility to adjust capacity
- Smaller up-front investment
- Reduction in total cost
- Flexibility to discontinue subscription
- Alignment of costs with value capture
- Transparency and simplicity in pricing
The survey was conducted in the context of SaaS but is still relatively transferable to other subscriptions.
Successful subscription business models offer strong reasoning for subscribing rather than purchasing one-time. Other industries ripe for subscribers are barber shops or nail salons looking to increase client retention or curated household basics that need to be replenished regularly (toilet paper, toothpaste and hand soap). If the consumer behavior around your existing product shows frequent repurchase rates, a subscription model may be something to consider.
“Ecommerce subscribers tend to be younger urbanites with money. Compared with the general US population, they are more likely to be 25 to 44 years old, to have incomes from $50,000 to $100,000, and to live in urban environments in the Northeastern United States. These subscriptions particularly appeal to women, who account for 60 percent of them.”
REBRAND FROM ‘SUBSCRIPTION’ TO ‘MEMBERSHIP.’
Take a page from the gated publication playbook (think Business of Fashion, WWD, New York Times, etc.) to offer your customers exclusive content as an additional incentive. A lot of merchants have a content strategy in place, why not give members exclusive access to your top-performing pieces?
While you’re at it, consider building and facilitating a community of customers. Throw in access to a private slack channel, exclusive events, or in-app networking like functionality. Make sure to make subscribers well-aware of this additional value, and that they’ll lose access if they go to unsubscribe.
When done right, a long-term financial commitment increases engagement and loyalty with your customers. They’re more invested. You just have to cultivate this further with content that nurtures them.
GIVE CUSTOMERS THE OPTION TO SKIP THAT MONTH OR PAUSE THEIR SUBSCRIPTION.
Compromising or finding a happy medium with your customers can be the key to preventing them from canceling entirely. Rent the Runway gives members the option to pause their ‘Unlimited’ subscription for a month.
Billie, the shaving subscription service allows users to be flexible with their replenishment cadence. They’re able to choose how often they’d like to receive a delivery (every month, two months or three). The more you’re able to personalize the offering to the needs of each customer, the more likely they’ll stay subscribed.
OFFER ‘GRANDFATHERED’ MEMBERSHIPS.
Much like rent-controlled apartments in NYC are hot commodities, so too are grandfathered memberships or services. They’re a great way to reward customers for their long-term commitment while further incentivizing their continued business. Equinox does this by freezing membership rates. They won’t charge you more when their membership pricing increases, but if you cancel and sign up again, you’ll do so with the increased rate.
Soho House offers a temporary rate freeze. In an effort to attract a younger audience, they’ll discount your rate if you’re under 27, which doesn’t increase until the member turns 30.
SURVEY CUSTOMERS ON THE CANCELATION PAGE AND RETAIN THEM WITH PERSONALIZED OFFERINGS.
A one-question survey when the customer goes to cancel can be hugely informative. Not only to prevent cancelations, but to understand exactly why users are canceling. There may be preventative measures your team can take to keep them subscribed (either prior to them wanting to cancel or during).
For example, Audible surveys users and directs them to a personalized offer based on their response. If they choose ‘I’m using another service’ they’re directed to these discounted offers:
Subscription models can be a coveted source of recurring revenue. But as the market becomes more saturated, consumers are approaching ‘subscription exhaust’ at increasing rates. They’ll begin looking for reasons to unsubscribe and cut back to save money. The fewer reasons you give them, the better.
Contact Corra if you’re considering embracing a subscription business model. Our talented Customer Experience Designers and technical teams can design and build an ecommerce site to support this initiative, preventing subscription exhaust and delivering impressive ROI.