Big Data And Analytics Save Subscription Firms From ‘Involuntary Churn’

Will the boom in subscription growth during the pandemic lead to retention challenges — and a scramble to reduce churn? That growth, according to PYMNTS November Subscription Commerce Tracker, has produced 10 million new digital subscriptions in the first half of 2020. But only a few weeks into 2021, it’s apparent that the short-term future may be a bit uncertain for subscription companies, Vindicia Chief Operating Officer and Chief Financial Officer Roy Barak said in a conversation with PYMNTS.

“What we saw in 2020 was very much a rapid shift in mindset and in consumer behavior,” noted Barak, “and subscriptions went through the roof.” But what we see at the moment, he added, may be a trend toward rebalancing. He noted that with streaming media as but one example, U.S. households have generally added at least one service in the past year during the pandemic. The average stands at 3.8 services per household.

“What we’re seeing now are some changes in consumer spending around that,” he said. The very nature of subscriptions themselves allows some time for reflection, as there’s an initial trial period or a discounted onboarding period. When they end, the subscriber is presented with the choice of continuing, with payment, of course. The decision point has been one where consumers must mull the service they signed up for and whether the value-add is enough. Sometimes the billing systems are at fault when actual subscriptions are in place and payments have been recurring, but a change in payment information short-circuits the whole process.

Macro forces are also at work, where job losses or other income pressures may force consumers to tighten their proverbial belts.

In any of the scenarios, the result has been churn — and in the case of the billing systems noted above, “it’s a regrettable churn that could have been prevented.” For the companies themselves, the challenges of the subscription model, and one that underscores the importance of monitoring and preventing churn, is the fact that subscriber acquisition costs tend to be high.

“In order to achieve a sustainable financial model — and a sustainable lifetime value of the customer — you really need to ensure that the customer stays with you,” said Barak. Vindicia, he said, is focused on the “involuntary” churn that is caused by payment challenges and billing challenges. He said a range of 15 percent to 20 percent of all recurring payments fails, resulting in a significant churn for subscription companies.

Vindicia, he said, monitors client companies to spot payment failures (addressing both active and passive churn) through the use of algorithms and a database with a history of more than 1.3 billion transactions.

“We look at what the underlying causes were [for failed transactions] and we work to heal those transactions, to ensure that the consumer who never really wanted to opt out of the service stays on.” The goal, he said, is to make sure the technical aspects of the billing system and the payment network, in the background, do not affect the customer experience.

After all, an extra six months of recurring revenue for the subscription firm can make a world of financial difference.

Vindicia’s payments solution, he said, can recover up to 30 percent of those failed transactions, increasing the customer lifetime value significantly. He noted that there is no consumer intervention, and friction is removed at the point where subscribers and enterprise interact.

Monitoring Consumers’ Usage 

“We can also monitor the consumer’s usage,” said Barak. “Have they logged in enough during the previous period? Are they making sufficient use of the service? Are they on the right tier of the service?” That type of insight might spur companies to “tweak” their offerings and personalize them, which in turn will reduce churn. Monitoring usage and engagement provides an early indication of the subscriber’s intent to churn. Active churn solutions can help boost upselling opportunities for these companies. Upselling can be done effectively, he said, when robust ID technologies are in place.

“The ability to know that someone is more than a login and a password and email address is important,” he told PYMNTS. “So is being able to understand their preferences — in a way that makes the customer feel comfortable, where they have the choice of what data they want to share and don’t want to share.”

Looking ahead, he said it would be important (and interesting) to see how the subscription boom of 2020 matures, especially for the younger firms, the startups, that focused on top-line growth.

Churn may be a barrier to progress, he said, and will need to be addressed.

“It becomes harder to continue to grow at the same rate at the same percentage points, multipliers, et cetera, as they did early on,” Barak said. “If you have a big leak in your bucket of revenue, no matter how much you sell and bring new consumers on board, it’s going to hamper your ability to continue to grow.”