PYMNTS Topic TBD

Eliminating ‘Subscription Friction’

Merchants and consumers benefit from relationships that stretch out for a long time, with recurring payments, trust and knowledge of just what the consumer is getting for that commitment. Easier said than done. In the latest Topic TBD, Recurly CEO Dan Burkhart tells Karen Webster what it will take to eliminate “subscription friction.”

 

Customers are the lifeblood of merchants, and the best relationships are sticky ones built on trust and, just as important, recurring, steady transactions.

Some of the steadiest can come via a model that uses recurring billing to make it easier for consumers to enjoy the products or services that they have come to enjoy. Subscription commerce may be among the most effective ways to “lock in” a customer for life, but it can be among the hardest relationships to keep afloat.

In the latest installment of PYMNTS’ Topic TBD, Karen Webster and Recurly CEO Dan Burkhart tackled “subscription friction,” which can get in the way of a happily-ever-after consumer-merchant experience. Burkhart said that the subscription model is formed on the basis of a relationship with a customer over a longer period of time, which, he contends, introduces a whole new consideration set for merchants who wish to introduce that model to their customers.

“It’s different than the typical one-time eCommerce checkout experience where the customer may not return,” Burkhart said. And should the process on the way to signing up for a subscription model be one fraught with friction, consumers will simply vote with their feet (or fingertips, as the case may be) and abandon the transaction at checkout.

The flip side of that potential customer loss is what Burkhart calls “involuntary churn” — a situation that happens when a card is declined. That, Burkhart says, gives the consumer a chance to reevaluate their relationship with the merchant, potentially deciding that they don’t really need or want it after all so they never bother to go in and update their credentials.

“They might evaluate the relationship and experience and say, ‘I have not used that service in quite some time, so I am just going to let it lapse,’” Burkhart explained.

But, Burkhart said, it doesn’t have to be that way. There are a variety of mechanisms through which would-be consumers might be brought back into the fold — or never be exposed to a situation for which an involuntary churn situation could be set up. One way, he offered, is the use of account updater services provided by the card brand, which take lost or stolen cards, subsequently replaced by the issuing bank, and makes them available to accredited service providers. For Recurly, said Burkhart: “What we do in the service of our merchants is to make sure that pending invoices are passed into the updated service to see if replacement cards have been issued [ahead of] invoices.” Recently, roughly a third of larger banks have signed onto this program, said Burkhart, and as of late, mid-sized financial firms have been opting in as well.

There’s also a push towards using tools to help prompt consumer engagement by monitoring frequency of usage. If, Burkhart said, there’s evidence that transactions have not been done in months, for example, the merchant can offer incentives to reengage the consumer to use that service again.

One strong caveat, noted Burkhart: “Nobody should ever be surprised” at the terms of the recurring payments, when they occur and for how much. He noted that, in the past, hidden or less-than-transparent terms of subscription models — one glaring example from the past can be seen via ringtone providers and all sorts of hidden charges — have “left a bad taste” in consumers’ mouths.

In response to Webster’s query about the efficacy of free trials, Burkhart said that the free trial remains “a great mechanism to encourage [subscription] adoption.” A free trial, he said, alleviated what he termed the “cognitive hurdle” of committing to a subscription, as the ability remains to delve into and sample a product without (initial) commitment. Gone are the days, he said, where consumers stood in retail store aisles, examining high-priced, shrink-wrapped software packages and “scratching their heads” as to whether the money spent would be worth it. Now, he said, the 30-day free trial can help push consumers to commit. And, he added, the recurring revenue stream smooths out the cost for the consumer. But the onus is on the merchant to track the trial conversions, where they come from and what different channels are giving the highest-quality users, who convert from free trial to subscription commitments most readily.

Interestingly, those consumers who come to the subscription model with credit card in hand, said the CEO, “are five times more likely to retry” signing on to the subscription model even if the card is declined, indicating real intent to purchase. One way to ease the friction for those quite serious about committing to a subscription is to limit the range of data that must be provided at the point of sale; in other words, the merchant can come back for additional information once the relationship has progressed from free trial, converting into a commitment to the subscription. But, he added, in the case of B2B transactions, where typically “higher-ticket” payments are made relative to B2C, involving hundreds and even thousand of dollars each, there should be the expectation that more data should be provided upfront.

In the end, said Burkhart, the checkout experience is a constantly evolving one. “We recommend that merchants test, learn and iterate … They need to approach the checkout experience as one that has not been [perfected] right out of the gate … and by testing can have a nice balance between conversion, checkout and the lifetime value” of a continuing relationship with the customer.

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