by Robbie Kellman Baxter, author of “The Membership Economy: Find Your Super Users, Master the Forever Transaction, and Build Recurring Revenue“
Everyone knows that retention is crucial for subscription-based companies. If you can’t keep the customers who sign up with you, you’re going to quickly find yourself in trouble. Just ask Blue Apron, which has found itself in the news recently for its poor stock market performance and its widely criticized acquisition-focused growth strategy — not to mention CEO Brad Dickerson’s unwillingness to release its retention numbers.
Blue Apron is hardly alone with its churn problem. I get calls all the time from clients struggling to retain new customers. But most of them jump to the conclusion that price is their problem.
The truth is, pricing usually isn’t the issue. It could be the product itself, it could be the way you’re marketing, it could be that the customer isn’t savvy enough to use the technology, it could be any number of things. The point is, before you change your pricing, you need to dig deeply into what’s really driving your customers away.
Here are some of the reasons your customers might really be canceling:
The customer signed up ONLY for the “free trial.”
If Netflix offers customers a two-week free-trial period, and people are canceling on day thirteen, that’s a true acquisition problem. He never meant to be a long-term subscriber in the first place. (Maybe he just wanted to binge watch his favorite show.)
Not that there’s anything inherently wrong with offering a free trial, says Baxter. It can get a potential customer over the credibility hump. In fact, it works great for Netflix — they have the data to know they retain more than 90 percent of prospects after the trial period. Just be careful that you’re not structuring it in a way that attracts the wrong subscribers.
Blue Apron’s trial was so generous that it was worthwhile even to people who had no intention of subscribing. In fact, it’s unclear whether Blue Apron needed a trial period in the first place. Did people doubt their food was tasty or that their recipes were really quick and easy? It may have been better to just let people taste recipes at fairs, offer a slightly lower introductory price, or optimize around busy families, young couples learning to cook, or some other segment.
The customer has achieved her goal.
Continuing with the Netflix example, maybe the customer joined only because she wanted to watch Italian foreign films. Once she runs out of these shows, she intends to cancel and her behavior will change, unless Netflix is successful at identifying something new for her to watch. Netflix developed a sophisticated recommendation engine early on to avoid having people cancel because they couldn’t find relevant content, despite the huge catalog of shows.
The customer doesn’t know how to use your site.
Perhaps you have other features or benefits the subscriber would use, if he knew how to find them. In this case, you have failed to educate the customer. To prevent this, you could roll out an onboarding communication flow where you point out new features, as well as tracking engagement to see if subscribers are actually getting the value they’re paying for. And of course, the company must commit to continually improve the design of the website or app so it is as seamless and intuitive as possible.
The customer is having technical difficulties, like a poor streaming experience.
She might happily continue her subscription if that problem gets resolved — but if it doesn’t, she will cancel. I had a client known for its TV content that added streaming video service. Unfortunately, the streaming service was unpredictable and low quality, and the client knew that going in. Not surprisingly, the people who joined quickly canceled their subscription.
The company should have immediately refunded the money, and should have made fixing the problem their number-one priority instead of continuing to invest in marketing and content acquisition. And, once they fixed it, the company should have gone back to all the people who had canceled to let them know the problem had been fixed and offered them a deal to rejoin, as an apology for the trouble.
The customer’s credit card changed.
Let’s say the customer’s AmEx card expires or the number changes due to a new card technology, but the customer doesn’t inform you of the new card number. That’s an example of passive cancelation — and in many cases it’s avoidable.
Many subscription billing services are integrated with card issuers, so that they can seamlessly manage card changes. Even if you don’t invest in such a service, you might want to try reaching out multiple times, on different days of the week and via different channels — phone, text, and email — to reach a customer who has canceled. And you might be a little generous about getting them to re-up if your variable costs are low.
Another subscription has “stolen” your customer.
Customers who find better content or products for a better price might leave. To prevent this from happening, make sure your product isn’t solely a commodity. You can always layer in services and other features to differentiate it from the competition and build a personal connection, either with the company or the customer community. And even as you continue optimizing your service for existing subscribers, ensure that your value proposition is compelling for new subscribers.
Fifteen years ago, Netflix was the only game in town for video content subscriptions. Today there are many options, and Netflix must keep improving its benefits to stay relevant. They’ve done this through their integrations with cable television and video game consoles, not to mention their huge investment in unique content.
According to a briefing from The Economist in 2018, Netflix is on track to “spend $12bn-13bn this year — more than any studio spends on films, or any television company lays out on stuff that isn’t sport.” If Netflix had stuck with their old model of third-party content delivered via three DVDs at a time, they would probably be out of business by now.
The customer is disappointed in your product or service.
You simply cannot skimp on quality or promise benefits that you don’t deliver. If you are hearing that customers don’t like what you’re offering, it is likely time to take their feedback to heart and make some improvements.
You’re marketing to the wrong audience.
Some customers are not the right market for subscriptions. They aren’t saying, “Your product is good, but it’s a little expensive for what it is.” These are the customers who would never pay a monthly fee for the product you’re offering, likely because it doesn’t meet their needs. So there’s no reason to drop your prices for them. Instead, focus your market on the right audience.
So what should you do to help determine why your subscribers are canceling? I recommend taking these three steps:
STEP 1: Take a hard look at the data and other evidence. What is it telling you?
Maybe start with the possible reasons listed above. You can gain much insight by studying cancellation patterns, reading ex-subscribers’ comments about your products, and so forth. Many companies track their data and have an analyst in place to help them figure it out (and if they don’t, they should consider investing in both).
But even so, these same companies don’t necessarily study cancellations carefully enough, nor do they connect the cancellations to a change in engagement behavior or to the kind of people they’re actually acquiring.
STEP 2: Ask former customers, Why did you cancel?
Survey the people who have already canceled and find out why. Most will be happy to tell you. This will give you the information you need to start watching the behaviors of current members and predicting what they are about to do.
This question is especially important if a customer canceled their subscription after using it for a few months. Obviously, they liked it enough to subscribe, and something made them change their mind. You need to know what that “something” was. But be careful with a response around price — when someone says something was too expensive, they often mean “too expensive relative to the value.” A value problem is very different from a budget problem. Dig deeper.
STEP 3: Ask current customers, Would you recommend this product to a friend? Why or why not?
This Net Promoter System question represents an engagement metric that all subscription businesses should track. If the answer is yes, you know that you are keeping customers happy. If it’s no, you might be at risk of losing the customer. And based on the answers to the “why or why not” part, you can make appropriate changes — perhaps fixing what’s broken or maybe even hiring a customer success specialist to head potential problems off at the pass.
I have found that the problem isn’t usually as simple as price. There are a lot of factors that cause people to cancel. At the end of the day, your subscription model should deliver on the value you promise to the right audience. If it just isn’t, then you must figure out what’s wrong and make carefully thought-out strategic changes to fix the problem.
Yes, it’s a lot of work, but the payoff is much better if you figure out the underlying issue, beyond the price.
Robbie Kellman Baxter is the author of “The Membership Economy: Find Your Super Users, Master the Forever Transaction, and Build Recurring Revenue“. She is the founder of Peninsula Strategies LLC, a consulting firm based in Menlo Park, CA, that helps companies excel in the Membership Economy.