How Subscription Providers Can Prevent Churn With Positive Experiences

Vindicia - Subscription Commerce Tracker - May 2022 - Learn why frictionless checkout experiences are a must for subscription firms to avoid cancellations

Vindicia - Subscription Commerce Tracker - May 2022 - Learn why frictionless checkout experiences are a must for subscription firms to avoid cancellations

Subscription-based businesses flourished during the pandemic as consumers largely confined to their homes sought ways to entertain themselves or continue buying deliverable items they needed for their households. Seeing an opportunity to develop long-term loyalty, these businesses typically allowed consumers to provide monthly payments in exchange for deliveries of product boxes or streaming services such as exercise, video or music memberships. 

As pandemic restrictions wane, consumers reassessing their monthly spend find themselves canceling subscriptions they no longer need or switching to new providers offering tempting trials or better deals. Subscriber churn, as this behavior is known, is not an unexpected market phenomenon, but for providers, finding ways to retain their members is essential. While the share of consumers who held at least one subscription grew from 72% in February 2020 to 80% in July 2021, that growth had already begun to level off. Consumers want to save money, and that is being reflected in subscription-based businesses’ financials. The number of subscriptions per average consumer, however, nearly doubled to 2.3 as of July 2021, raising the question of how to maintain and grow that loyal share of subscribers. 

The good news is that consumers continue to enjoy the convenience of subscriptions and are very likely to keep subscription services they value. Gaining subscribers’ loyalty, however, requires offering not just the services they demand, but also secure, frictionless automatic payments and a personalized, hassle-free experience across all their devices. This month, PYMNTS Intelligence takes a close look at the problem of subscriber churn and what subscription companies need to do better to provide a frictionless checkout experience that creates loyal customers and revenue. 

A Subscription Market Ripe for the Picking

Projections show that the global subscription and billing management market will almost double in size to $7.4 billion by 2027, up from just under $4 billion in 2020, representing a compound annual growth rate (CAGR) of 8.9% during the 2021-2027 time period. Streaming video on demand (SVOD) content providers seem to be the most popular, but this market, having gone beyond TV and movies over the past 15 years, now faces a younger and tech-savvier audience that wants a one-stop platform for all their video, music and social media needs.

Increased market competition will present consumers with a wide array of providers looking to offer a quality experience without the need to manage multiple subscriptions on individual plans, search for competing streaming platforms for their preferred content or deal with cumbersome checkout processes. These problems often lead to churn, with consumers either canceling a service altogether or switching to another. Although the United States churn rate has remained constant since 2020, it stands at a significant 37% across all SVOD providers. 

The prospect of losing more than one-third of customers is daunting, but these customers are also willing to come back for the right reasons. Research from Deloitte found that one-quarter of U.S. consumers canceled a streaming service in the last year only to resubscribe later. These subscribers come back for various reasons — a new season of their favorite show drops or they were offered a free trial or a discount to return, for example. Cost management always wins out, as savvy streamers looking to save are willing to subscription-surf as they seek the best value.

An Opportunity to Learn From Churn

If research shows that customers are willing to come back, then it is incumbent on providers to give them a good reason to resubscribe. Lower cost is certainly an incentive, and research has shown that 36% of customers will cancel if the price is too high. In fact, 35% of U.S. customers have canceled monthly subscriptions due to inflation.

It costs a lot of money to acquire customers, and providers will need to cater to their demands to keep them. For one, they need to work to become that one-stop shop, as three out of five subscribers are annoyed with the streaming experience of searching for content they want. Consolidating experiences under one brand can increase subscriber numbers and provide more content for one price. 

Payment frictions also can lead to churn, as customers simply give up if they have to think about the transaction. PYMNTS’ research found that 27% of subscribers experienced a declined payment over a period of 12 months, which can lead to passive churn as their accounts get canceled unwillingly. More than one-third of declines were from digital wallet payments.

Subscription providers can eliminate many of these payment frictions by partnering with cloud services firms that offer robust billing management tools. A recurring billing platform can automate payments, even retrying failed ones, by attaching to users’ bank accounts or credit cards. These systems typically have built-in tracking tools to help organizations increase engagement and retention based on a better understanding of customer behaviors and needs. Such features also require an emphasis on security to gain consumers’ trust. Many subscription billing management platforms even offer loyalty rewards and benefits that can further boost customer satisfaction and retention. 

Consumers have embraced subscriptions as a fast and easy way to get the entertainment and services they want and need, but a multitude of choices means they have the freedom to shop around. To avoid watching customers go to the competition, providers will need to invest in the experiences consumers demand without hesitation. Creating experiences that are easier for consumers to access and customize while maintaining low prices and reducing frictions during checkout will go the greatest distance in keeping them subscribed.