Subscribers Cut Services and Subscription Businesses Get Serious About Innovating

The freewheeling sign-ups of the pandemic era are now the good old days as subscription merchants are having to be smarter to retain customers, to say nothing of acquiring new ones.

This was the underlying talk track between PYMNTS’ Karen Webster and sticky.io CEO Brian Bogosian during a conversation for the J.P. Morgan Payments Series: Global Innovators in Payments.

Bogosian summarized the current consumer mood: “The bar continues to get higher. People’s budgets are getting squeezed. People aren’t spending money frivolously. If they don’t get value, if they don’t get flexibility, if they don’t get incentives to continue, they’ll drop off.”

That’s causing subscription merchants to revisit every aspect of their businesses, from packaging to delivery to creativity in bundling, to how payments are best processed. Merchants are between a rock and a hard place, having to consider taking away things like free shipping and free returns on physical goods that may have been a motivator to subscribe at all.

Asked how merchants are responding, Bogosian joked that they “squeeze their service providers, like us.” But he went on to say that before cutting back on subscriber nice-to-haves like free shipping and returns, merchants should look for payment efficiencies and the like.

“It could be a solution that allows them to save money on their credit card processing,” he said. “Looking at debit transactions, which on our platform are more than half the transactions coming through,” he said merchants need to find ways to generate savings from those transactions — “easy cost savings that don’t affect that merchant-consumer relationship.”

See also: Subscribers Seek Affordability and Convenience

Experimenting With LTV

Getting down to cases, Bogosian outlined what the sticky.io platform is doing to add value in this climate, offering strong opinions and ideas for how subscription merchants should be approaching cost-cutting clients who now want powerful reasons to keep subscribing.

“I think all businesses should be contemplating ways that they can extend customer lifetime value and optimize predictability to their revenue streams and experiment with different things,” he said. “If they work, they work, you continue with them. If they don’t work, you discontinue.”

This takes the form of using purchase history data for greater personalization, looking for opportunities to bundle, and pursuing upsells and cross-sells to optimize offer choice.

“Successful subscription businesses are understanding who their customers are, understanding what is attractive to them, and understanding the price points that allow them to reach that tipping point where they can start to see significant market traction.”

This can include the use of artificial intelligence (AI) and machine learning from platforms they use to extract operational data to watch for trendlines, which are shifting faster now.

Loyalty points are top of mind as consumers start scrutinizing their various memberships looking for ways to turn points into dollars they can spend. Bogosian admitted he’s doing this now with his frequent flier miles, and subscription consumers want to know what their loyalty is worth too.

“It depends on what is the price point of the products they’re offering, what value do those points provide in offering a free service?” he said. “Loyalty is definitely a way to keep people in a subscription. That, along with a variety of other strategies and tactics, is going to be helpful in extending customer lifetime value.”

This is happening more now as subscription merchants get proactive with product extensions and partnerships with other companies on complementary added-value bundles “that work both ways where their products sold can provide extensions into your products and vice versa.”

Bogosian gave the example of a stemware subscription partnering with a wine subscription, but it only works well when the “systems and software platforms are able to manage that so that the accounting isn’t a nightmare and is relatively straightforward.”

Read also: 3 Areas Subscription Businesses Need to Focus on to Retain Customers

The Churn Turnaround

On the persisting topic of subscription churn, Bogosian said he is a believer in predictive analytics of the kind that platforms like sticky.io and others provide to inform the roadmap.

For example, he pointed to the practice of smart dunning, where rather than continually trying to charge a card that’s getting declined then suspending the subscription, the system analyses the best date and time to bill the card to achieve a successful outcome.

“We’ve shown materially better approval rates and retention by virtue of doing that,” he said. “Consumers will get annoyed when they see that they’ve had a decline. Their bank’s not happy with having nonsufficient funds to be able to complete a transaction. That’s another reason why consumers would just terminate.”

It’s the same with communications, where too many emails add up to pestering a subscriber.

“Say it in a compelling, concise way for me to understand what is the message you’re conveying so that I can understand it and appreciate it and … it took me 15 seconds,” he said.

Dismissing the idea of using often primitive DIY rebilling software some companies have, Bogosian said the subscription sector of 2023 is unforgiving, requiring sophisticated platform capabilities that not only process payments, but yield the data insights that lead to innovation.

“A lot of our business has been wrapped around payments and risk mitigation services and things like 3D Secure and smart dunning and chargeback representments and alerts, anti-fraud, account updater,” he said. “We tokenize and store all this credit card data.”

“We believe that the payments and the subscription are part of the same strategy that a merchant needs to employ,” he added.

That’s important as new types of companies from credit repair to identity protection to antivirus software and more try their hand at subscriptions.