The Next Casualty?
In times of economic uncertainty there is generally a predictable change in consumer behaviour as we look to cut back on discretionary spend. This year is different as we are not only experiencing an unprecedented combination of inflationary pressures but are witnessing the vulnerability of a whole new cohort of digital businesses whose model is based on recurring subscription revenue. This article argues that, whilst many such businesses are perhaps experiencing the chill winds of an economic downturn for the first time, they can benefit from learning how more established subscription management businesses take a proactive approach to mitigating subscriber churn.
Traditionally the first victims of a downturn tend to be in the hospitality sector as visits to restaurants and pubs are scaled back, but in 2022 these sectors have been joined by newer industries established in the digital era. Since the spring, we’ve seen evidence that streaming services such as Netflix, Amazon Prime and Spotify have been early casualties of consumers cutting back, followed by publishing media such as digital newspapers and magazine subscriptions. Especially at risk are services with a ‘pay monthly’ rolling contract subscription model. As consumers scrutinise their bank statements for opportunities to trim non-essential direct debits these stand out as candidates for culling. Anything from gym memberships to curated meals is therefore fair game if it is deemed to be non-essential.
This situation is also reflected in B2B customer behaviour, although here the sectors affected first tend to be related to business travel and (insanely) marketing, though many an FD might cast a gimlet eye at that HBR or Economist subscription…
In short, recurrent monthly subscription businesses are at risk because of their visibility and monthly frequency. If this is your business model what then should you do?
First, when it comes to managing customer churn it is important to distinguish between what is and isn’t addressable. For some customers no matter how compelling your proposition may seem if they can’t afford it they can’t afford it and it would be wrong to push the matter. But, you could offer a ‘third way’ such as a reduced monthly fee or even a payment holiday until they are able to return. The important thing being to show you understand their needs and are offering a practical solution.
Other, more pro-active solutions are worth considering. Many of these can be borrowed from the telco industry which has developed the science of churn management into an art form. For example, if a gym notices that a member has changed their attendance behaviour this is typically an easy indicator of being a churn risk, rather than wait for them to cancel their Direct Debit would it not make more sense to offer them a lower cost ‘light user’ subscription instead?
There are many creative approaches to choose from depending on your industry and audience. All require a careful strategy to be mapped out so that resources are focused were they are likely to have the most effect. They also require a willingness to accept the short term cost of a reduction in revenue in exchange for longer-term retention. But even that is a lot better than waiting for a customer to cancel.
A proactive retention strategy should not be viewed as a last chance desperate attempt to stem churn but as a demonstration that you recognise and care about your customers’ challenges. As such it will ultimately enhance your brand’s reputation and your customers' loyalty to it.