Cup of coffee in a mug with inscription "Just one more episode" and tv remote controller nearby on a table.
Editorial

Why the Subscription Economy Needs to Focus on Customer Retention

6 minute read
Tue Sottrup avatar
In the subscription economy, brands need to react quickly to keep customer churn to a minimum.

It’s no secret that the subscription economy has been one of the fastest-growing sectors in recent years. According to the Zuora Subscribed Institute, 78% of adults paid for subscription services last year in the US.

Yet, in April, we saw one of the world’s biggest players in the subscription economy — Netflix — announce a net loss of 200,000 subscribers globally. In addition, the company expects to hemorrhage a further two million subscribers over the next few months.

Naturally, this raises the question of whether the subscription economy boom is starting to wane, and if so, what brands can be doing to react, keep customer churn to a minimum, and even keep pace with growth projections.

In my view, a key component to this is the service function, and more specifically service agents themselves. Let’s look at why.

Is the Subscription Boom Waning?

Yes, there are caveats to the Netflix case, chiefly that it suspended its services in Russia. Further, it's seen increased competition from new players in the space, especially Disney+. However, given that the company is projecting to lose even more of its subscribers, it ought to serve as a warning to the rest of the subscription economy. 

If we look more generally at this sector, the immediate driver of any stalling in growth and loss of customers is inflation and a rise in the cost of living. For many consumers, getting notified that another subscription charge has been taken from your bank account will only prompt them to probe whether they have extracted value from that service or not.  

This doesn’t mean there is going to be a mass exodus from subscription services — there are subscriptions for just about everything these days, whether that’s streaming services, beauty products or food boxes. They aren’t going to just disappear.

However, it is probably going to be the case that we’ll see consumers going through a process of justifying expenditure and asking: is this thing I pay for monthly really of value to me?

We also need to view these changes in the context of more macro trends in consumer behavior. Firstly, the vast increase in online shopping and boom in services that offer convenience as their unique selling proposition has only heightened consumer expectations of brands. In some places, you can now get a full week’s shop on your doorstep in 20 minutes, ordered on your smartphone. These buying scenarios have been accelerated by the COVID-19 pandemic. 

Secondly, this has also been coupled with a dramatic drop in the cost of switching to another brand. It is now no longer a huge undertaking for consumers to cancel direct debits and move to a competitor — it’s just one click away. This is probably why, when we spoke to 3,000 consumers across the US and UK last year, we found that just one poor experience is enough for 95% of consumers to consider never returning to the brand.

Overall, then, convenience is at an all-time high, but brand loyalty and the cost and effort of switching is at an all-time low. Add in the new dynamic of the rising cost of living, it’s easy to see this contributing to the loss in subscriber numbers associated with Netflix, and potentially the subscription economy more broadly.

Related Article: How to Make Your Customer Experience Better: Be Convenient

Retention and Customer Service

And when I say the loss in subscriber numbers, what I am referring to is customer churn. This is why it is critical to focus on customer retention. For subscription services, growth and increasing the number of subscribers has been the key objective. But now, with consumer behaviors changing and costs rising, reducing the churn rate and increasing retention and loyalty now ought to be the key objective.

Learning Opportunities

Yes, there are tactical ways subscription brands can reduce churn and increase retention, such as offering customers the option to suspend subscriptions. But, in my view, the customer service function has a key role to play in reducing churn by increasing loyalty in the sector.

In most digital brands today, reaching out to customer service is the only contact a customer has with a brand, and service agents are the ones managing and nurturing these relationships. They are on the front line and are key to shaping the experience of the customer, and as we know, just one poor experience can mean a once-loyal customer churns.

The challenge is that many brands are getting the service function wrong. In the same survey we conducted, the large majority (66%) of consumers we spoke to said companies are still not getting customer service right; hence why they are willing to switch loyalties more quickly. Crucially, we found that some of the key drivers of this disloyalty are everything from having repeating information across different channels, receiving a robotic service and, in general, high effort engagements with agents.  

For brands in the subscription economy, reducing churn through driving retention and loyalty will become the new oil. But if your service agents can’t deliver the experience customers want and demand, helping them see the value in your product, then you’ve already lost. So, how can they get on the winning side in a climate where the brand-consumer relationship is more unstable than ever?

Related Article: 6 Strategies for and Effective Call Center Culture

Agents as Drivers of Retention

Last year, we also spoke to around 300 customer support staff that work across retail and ecommerce in the US and UK, with 88% reporting that they are currently losing customers due to poor customer support: 46% say it takes them longer than it should to find simple information such as a customer’s order status, while over one in three (34%) of staff still Google customer problems to find the answer.

In my view, this provides a key part of the answer. Convenience is at an all-time high, but brand loyalty and cost of switching are at an all-time low. Where consumers will be reassessing the value of the services they pay for, giving your service agents what they need to protect, build and strengthen this relationship is vital.

The bedrock of this is ensuring they have the right information at the right time. What is this customer inquiring about? How much have they bought from us in the last three months? Are they part of our loyalty scheme? In having the answers to these questions at their fingertips, agents will have all they need to protect, build and grow the relationship, reducing churn rates and increasing retention in the process.

Overall, the successful subscription businesses will be those that focus on becoming even more customer-centric. Not only does this mean giving customers control over managing the subscription relationship, but also having a focus on providing ongoing customer value through the service function across all contact channels. Prioritizing the latter will mean reducing customer churn and driving high levels of loyalty, which will be vital in a period of consumer-brand instability.

About the author

Tue Sottrup

With over 20 years of experience in customer service, Tue is driven by his passion for the industry. Customer experience and engagement is an integral part of any business, and Tue truly believes that software can empower brands to build stronger and longer lasting relationships, as well as dramatically improve the agent experience.

About CMSWire

For nearly two decades CMSWire, produced by Simpler Media Group, has been the world's leading community of customer experience professionals.

.

Today the CMSWire community consists of over 5 million influential customer experience, digital experience and customer service leaders, the majority of whom are based in North America and employed by medium to large organizations. Our sister community, Reworked gathers the world's leading employee experience and digital workplace professionals.

Join the Community

Get the CMSWire Mobile App

Download App Store
Download google play