The Portrait of the Subscriber in the Customer Life Cycle
Up to 80% of customers in subscription-based services cancel their subscription during the first three months. Across the customer journey, here are the personas you should be aware of and the actions you should take to retain them
Subscription-based services have been around since the turn of the previous century – think of library memberships or milkmen and ice-sellers completing their route, providing their goods to their “subscribers” door to door. In recent years, the internet era, combined with the increasing efficiency of the parcel post services, has boosted the rise of companies utilizing B2C subscription service-based business models. Many online retailers have a subscription or auto-ship element on their websites, (e.g. Amazon, with their “subscribe and save”) while other companies devote their business models solely to the subscription-based model.
The majority of modern B2C subscription-based models can be divided into three major categories:
- Consumables – services that focus on replenishable or perishable goods such as cosmetics, food, and drugs. This is a very broad category in which you can find services such as Blue Apron, Freshly, Birch Box, Dollar Shave Club, Capsule and many more.
- Fashion & Collectibles– services that offer timely delivery of items based on the customer’s preferences. Such services are Stitch Fix, Adore Me, Trunk Club, Loot Crate etc.
- Digital Content – services that offer exposure to content (i.e. TV or music streaming, news, reading materials etc.) for a monthly or annual fee. Such services are Netflix, Spotify (the premium subscription), Deezer, Gaia etc.
Companies spend tremendous amounts of resources acquiring customers, offering them sign-up promos and competitive pricing. Retaining these customers is a whole new challenge. Up to 80% of customers cancel their subscription during the first three months, and up to 15% of those customers will renew their subscription only to take advantage of another lucrative promo or offer.
The nature of the subscription-based business creates consumer behavioral patterns, which are different than the pay-per-product consumer patterns. This requires adjustments when creating strategic customer marketing campaigns to effectively engage and retain customers. Marketing in subscription models takes a different approach than retail models, as the focus is on increasing longevity by nurturing long lasting relationship with clients, thus increasing lifetime value (LTV), rather than focusing on impulse or seasonal purchasing.
In this article, we’ll delve into the various “personas” of the consumables subscription services category discovered by Optimove’s data, based on several online subscription services. Persona segmentation is based on the clustering of numerous customer attributes, behavioral history, predictive analytics and other factors. We will present some of the common personas in the space, along with suggestions of how to best interact with them.
The “Promo Abuser”: Get to Know Who They Are
The “Promo Abusers” are customers who took advantage of a sign-up promo (e.g. $30 off your first box) and cancelled their membership right after they paid or after they received the goods.
In subscription services that offer widespread promos for first use, around 85% of customers use that promo. The data shows that between 30%-40% of customers use the sign-up promo but cancel their subscription before making a second payment. Out of those customers, 10% will cancel on the same day they made a payment, 50% will cancel in the first week and cumulatively, 80% will cancel up to 2 weeks from their first payment.
Around 10% of all customers who made at least 2 payments reused the sign-up promo by creating a new subscription. These customers are 35%-45% less valuable than other customers with 2 or more payments, however their longevity is up to 3 times longer. A third of these customers will cancel their subscription again after taking advantage of the sign-up promo and will not return.
The data also shows a direct correlation between the ratio of the promo value to the total value of goods in the first order and the likelihood of the customers to continue to a second payment: Customers who use promos with higher values are more likely to cancel their membership and less likely to make a second payment, thus becoming less valuable to the service provider.
The “Promo Abusers” are a significant group of customers which are very hard to retain, so it’s crucial to identify them at an early phase in their lifecycle.
While most companies validate new users against existing email addresses, new email addresses can be created very simply, allowing some customers to create new memberships and keep taking advantage of the sign-up promos. Therefore, the validation of new user creation should be conducted versus the phone number or address which do not change frequently, thus preventing customers from abusing the sign-up promos.
Moreover, instead of just offering a sign-up promo, subscription providers should reward their customers for loyalty and relate this message to the customer at an early stage, to encourage them to remain members. For example, every 5 consecutive paid orders a customer will see a marketing message specifying that he or she will be rewarded with a discount for the next order (the marketer can add “without skipping weeks/months” for increased gamification). Another example can focus on that elusive second purchase, like a pop-up during the first order encouraging the clients to pay for their second shipment straight away by offering a reward or discount.
The New Subscriber: Reward Engagement
New subscribers are recent sign-ups who are yet to become fully familiar with the service. They are in an incubation period in which their opinion is formed, their loyalty to the service built, and decision to continue or cut-off the membership is made.
We can clearly identify that customers who subscribe by a friend referral are of much lower value and less likely to remain active longer than other customers who used any other kind of sign-up promo.
These “referred friends”, which make up 15%-20% of new subscribers, are 33% more likely to become one-timers who cancel their subscription after one order and are 60% less valuable in terms of net value. Even by removing promo-abusers from the sample, we still see that referrals are 25%-33% less valuable on average.
Another interesting although expected insight is that new subscribers who have a better “experience” will remain active members longer. This “experience” can be measured by analyzing the ratings and comments that were submitted by the subscriber, but also by measuring the overall ratings and comments of the goods that the subscriber ordered, submitted by the entire subscriber pool.
It is important to differentiate between unsatisfied customers who cancelled and customers who cancelled because they wanted to take advantage of the promo.
Customers who cancelled after their first payment and rated their experience 18% lowerrest of the customers, give the company the opportunity to identify those unsatisfied customers and incentivize them proactively before they cancel their membership.
Marketers can proactively identify New customers with a potential risk by utilizing the wisdom of the crowd and calculating the average rating of the goods in the initial shipment. If the calculated average of the rating of the goods is on the lower end, the customers have a 5%-10% lower survivability (and a 20% lower LTV) than customers who ordered goods with a mid-range rating, and a 10%-14% lower survivability than customers who ordered goods with a high-range rating.
Encourage new customers to rate their experience after receiving their first product shipment. However, responding quickly to a negative review is crucial. Time is of the essence and using real-time responses may prevent immediate churn.
Rating is one form of increasing engagement with your brand and product. Other forms of engagement such as participation in a survey, updating preferences in the platform or even picking out the items in the next shipment are expected to increase brand loyalty and lifetime value consequently.
Adding a reward program is a fantastic way to encourage these additional forms of engagement. It can be as simple as granting points for every rating, shipment or survey, which customers will be able to redeem later for a discount or a “special surprise” in the next shipment.
The Active Subscriber: Gamified Campaigns form a Permanent Bond
Active subscribers are those who have received several deliveries, have become familiar with the brand and offerings, and still have an active membership. These are the core revenue-generators and it’s an important task to ensure their satisfaction to prevent churn.
Many active subscribers request to skip a delivery at some point in the membership, around 75% to be more precise. There is a direct relationship between the ratio of deliveries skipped and the predicted future value.
- Low Skip Ratio – Up to 25% of deliveries skipped
- Mid Skip Ratio – 25%-50% of deliveries skipped
- High Skip Ratio – Over 50% of deliveries skipped
Those with a low skip ratio have a 185% higher predicted future value and a 25% lower churn rate than customers with a high skip ratio.
Starting a conversation with Active subscribers might be tricky as they are already consuming the product, their subscription is active, and we might not want to wake sleeping bears and cause them to opt-out of any communications, or even worse, cancel their subscription.
Having said that, approaching these customers with targeted and catered messaging and offers might improve engagement, strengthen the relationship with the customer and build brand loyalty.
An interesting way of relevant communication with the customer is to use product recommendations, suggesting items that might resonate with them, either as an add-on to their next delivery (a great upselling opportunity) or as a method to suggest alternative items which we think they might like or relate to. This less-invasive method which is connected to an upcoming shipment may increase their awareness and involvement with what they are getting and lengthen their activity as a result.
Another way to increase customer engagement, and thus increase customer longevity, is to use gamified campaigns, enticing the customer to complete a series of actions by offering an incentive as a reward. For example – “Rate your next 5 deliveries and you’ll get a surprise in your following box!” These types of campaigns increase customer loyalty and can also reduce the skipping ratio (i.e “complete your next 3 consecutive deliveries…”) resulting in a churn decrease and predicted future value increase, as seen above.
The Churned Subscriber: Understand What Makes Them Tick
Churned subscribers are non-one-timer promo abusers who have cancelled their membership or have paused their membership for a long duration.
Reactivating churned subscribers is not an easy task, and marketers should be cautious about offering tempting incentives to the broad range of churned subscribers as this might have a negative financial effect.
Instead, marketers should focus on sub-groups of churned customers and pair the message or offer with an aspect of their customer experience or activity.
Surprisingly, a substantial proportion (10%-25%) of Churned subscribers without an active membership continue to visit or browse the website without renewing their membership. These former customers who recently visit the site have a 2.5-5X higher probability of reactivating their membership. The more they visit, the higher the probability.
Ratings and reviews have a significant importance in identifying the Churned customers with a higher probability of reactivating. Customers who provided many positive ratings in the past are 55% more likely to reactivate than customers with a few positive ratings, and 100%-250% more likely to reactivate than customers who provided overall negative or neutral feedback.
Customers who submitted low ratings should receive a message acknowledging that the company is aware of their lack of satisfaction, encouraging them to give the product another shot. Engaged customers who provided positive feedback should be approached differently, with messaging that focuses on their past satisfaction and pleasant experience. Here, timing is also key. Churned subscribers who visit the site should be approached immediately to increase the likelihood of reactivation.
A subscription-based model creates new challenges and new opportunities for customer marketers. Keeping a positive trend in customer retention requires a data-based understanding of the different personas and consumer behavior associated with them. Utilizing customer data throughout the customer journey is guaranteed to increase loyalty and maximize customer value.