Subscriptions can be tricky business, not least because most consumers at one time or another have had a bad experience with a subscription service. Whether they got roped into an endless (and costly) supply of cassette tapes from Columbia House in the ’90s or still, despite years of trying, can’t seem to convince their cable provider they don’t need a landline — the often annoying, sometimes deceptive practices of subscription’s forebears have left many consumers with a few trust issues.
That has not stopped consumers from subscribing though, especially with the rise of new takes on the model (box services, auto shipping and streaming TV, to name just a few). The average U.S. consumer spends $219 a month on subscriptions, according to a recent study from C+R Research.
Indeed, consumers are signing up for subscriptions in record numbers — a whopping 85% of U.S. consumers are active subscribers, according to the Subscription Trade Association (SUBTA), and the global subscription industry is predicted to reach $275 billion in market value this year. There’s plenty of opportunity for many types of retailers: Juniper Research predicts that physical goods will account of 45% of global subscription revenue this year, as opposed to 39% for digital services like music and video streaming.
But retailers drawn by the lure of recurring revenue and enhanced customer loyalty must be wary of consumers’ lingering trust issues and an increasingly stringent regulatory environment.
The Federal Trade Commission (FTC) has labeled certain practices by the subscription marketing industry as “dark patterns,” a category of deceptive marketing, according to Linda Goldstein, Partner and Co-leader at the law firm BakerHostetler: “[The FTC] thinks that subscription marketing preys on consumer inertia, that it manipulates consumers into doing things they otherwise might not want to do and that consumers basically don’t understand what they’re signing up for because the terms and conditions aren’t adequately disclosed,” she explained at SUBTA’s SubSummit conference in early June.
In order to avoid this label, and the consumer ire that comes along with it, there are three basic things subscription service providers must do, explained Goldstein, all of which are dictated by the Restore Online Shoppers’ Confidence Act (ROSCA), which was passed in 2009:
- Disclose the terms of the subscription offer;
- Have consumers actively consent to the subscription offer; and
- Make it easy for the consumer to cancel.
Four Steps to Subscription Success
When done right, subscriptions offer a unique opportunity to create great brand experiences that build loyalty, and experts at SubSummit offered four pro tips for doing just that:
- Focus on the value you’re providing: Consumers don’t buy subscriptions, they buy the solution to a problem or need (that just happens to be in the form of a subscription);
- Mine the data to personalize and enhance subscriber loyalty: Subscriptions are a more intimate exchange than one-off purchases and retailers can leverage the additional knowledge they have about their subscribers to create tailored experiences and lifelong customers;
- Make it easy to cancel: Research shows that not only does easy cancellation boost consumer confidence in a service, it also makes re-subscribes more likely; and
- Use cancellations to sharpen your offerings: Subscription cancellations are a rich source of consumer insight that can be used to help improve and grow the business.
1. Focus on the value you’re providing.
“Subscription is a business model, it’s not a service,” said Anthony Napolitano, Founding Partner of Triple C Consulting at SubSummit, who was part of the team that launched HP’s Instant Ink subscription. “Customers are not buying subscriptions, they’re buying a product or a service and in exchange they’re agreeing to pay you on a monthly, quarterly or annual basis. I know it might sound silly, but it’s important to understand that subscriptions are not what people buy — they’re buying the problem you’ve solved for them. Focus on the value first.”
This more holistic approach can also be helpful in branding your subscription product, especially because you might not want to actually use the word “subscription.” Napolitano recounted some consumer research he did back in 2015: “If you’ve ever done market research, you know there’s never a smoking gun, but we found a smoking gun in 2015 — any message that had the word ‘subscription’ in it tanked. Things have evolved since 2015, but there are still barriers and mental blocks that customers have when joining a ‘subscription.’”
Terms like “club” and “membership” have a more inclusive, less pushy feel that tends to appeal to consumers, Napolitano said.
2. Mine the data to personalize and enhance subscription loyalty.
The true power of subscriptions is that they are a long-term relationship with your company’s most loyal customers, and brands should make every effort to tap into and optimize that.
“We live in an economy, so every service is a transaction in many ways, but we want to keep evaluating how we can communicate with customers in a way that feels like a relationship,” said Max Nimaroff, General Manager of Subscriber Experience at DoorDash, which launched its monthly DashPass delivery membership in 2018. “At DoorDash, which every day is becoming more and more of a subscription, we’re seeing teams have to rethink how they do business — How do we offer a service to customers? How do we speak to people? How do we separate our marketing messages from our transactional messages? Working in subscription is betting on the long term.”
Taking the time to build and nurture those relationships can reap big benefits: “The promise of subscription is that you have a customer for life,” said Napolitano. “In a transactional business, that’s not possible — somebody buys your product, then you hope they come back and buy it again. We all know that the hardest sale isn’t the first one, it’s the second one. When you have someone in a subscription, your opportunity is to have these customers forever, and that’s super powerful.”
How exactly do you do that? Napolitano offered two pieces of advice.
First, your subscribers are your “VIP customers,” so treat them that way. “Don’t nickel-and-dime these folks,” he said. “If they say they had some sort of issue like, ‘I didn’t realize I paid for that,’ give them a refund. If they say they didn’t get the package, send them another one. These are not the folks that you should try to get every penny out of, these are the folks that you should try to keep for their entire lifetime.”
Take for example the Chewy customer who took to Twitter to share the great experience she had with the brand after her dog passed away. When she called to see if she could return a bag of unopened food, Chewy told her to donate it to a shelter; then the customer service agent she spoke to sent her flowers. Not only did her post go viral, but it spurred an outflowing of similar stories from other customers.
Napolitano’s second piece of advice is to leverage all the additional customer information you get from subscribers to make their experience even more meaningful. “If you can personalize messages to your customers that really helps to build trust,” he said. “The more you talk to them as an individual, the more they feel ‘This is personal. I have a relationship with this company.’”
3. Make it easy to cancel.
This advice would seem to be counterintuitive, and indeed, many subscription retailers assume that the harder it is for a member to cancel, the better off the business will be. But according to Haroon Mokhtarzada, Founder and CEO of Truebill, which is (in a rather meta way) a subscription service that helps consumers monitor and manage their subscriptions, it’s simply not true. Six years of data from his company shows that not only are consumers more likely to re-subscribe if it’s easy to cancel, but they are also more likely to subscribe the first time because they are less wary of the commitment.
“[The ability to] end a subscription easily should be thought of as a moral right,” said Mokhtarzada at SubSummit. “If you’re keeping your business going because people want to cancel, but it’s difficult, you’re going to have a cap to how big you can grow. The brand damage you do by making it difficult to cancel is not something you see on your P&L that day — it shows up over the course of years in reviews all over the internet that you’re never able to remove; it shows up as people less likely to refer your brand to their friends. It’s a series of slow cuts that put a ceiling on the growth of the business. If you’re looking at the holistic picture — conversion, retention, reactivation, chargebacks — the equation falls squarely in favor of making [cancellation] easy.”
One mitigating tactic that companies including DoorDash are finding success with is the subscription pause. “From a business standpoint, if a subscriber pauses or a subscriber cancels, it’s the same thing, but from the customer point of view it’s completely different,” said Nimaroff. “This idea that instead of canceling they can just take a break changes the way that you can design your product. When somebody is in a pause state versus a cancel, you can run re-engagement campaigns and reduce that friction of resuming. With ‘membership pause’ we actually see the likelihood to resurrect is much higher than people who cancel.”
(This writer can attest to that, having paused Hulu just last month and then resumed it again within a week when a new series launched on the service.)
4. Use cancellations to sharpen your subscription offerings.
Those subscribers who do cancel can actually be the single best source of intel that a company has. “There’s nothing better than understanding why people are canceling — that’s free customer research,” said Napolitano. “Understand the reason they’re canceling and build that back into your service to improve.
“The best retention programs, though, are the ones that are proactive,” he added. “So understand what those triggers are that [indicate] people are going to cancel and reach them before they do. As an example, if you have a subscription that has any usage component to it, you should know the level that usage drops, [indicating that] folks are likely to cancel, and you should do whatever you can to try to get them to increase their usage.”
Want to dive deeper into the new rules of subscription retail? Check out this conversation with Ordergroove discussing replenishment models and how to add subscriber value through content and community building.