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4 Fatal Flaws That Will Send a Subscription Business Bust

Wouldn’t it be great if the customers you acquire kept coming back to buy from your business over and over again?

That’s the lure of the subscription business model and the reason why the subscription economy has been booming in the last few years.

Ecommerce Subscription Data from McKinsey for subscription business

Data from McKinsey shows the subscription eCommerce market has been doubling year over year for the last 5 years. It goes on to demonstrate that nearly half (49%) of all online shoppers are members of different types of subscription services, with media subscriptions like Netflix being the most common. Active subscribers hold a median of 2 subscriptions.

Subscription businesses come in various shapes and sizes. Of course, we’re familiar with media streaming services like Netflix, Hulu, and Spotify. But there are also product subscriptions like JustFab or Blue Apron that have made a sea change in the way consumers shop online and offline.

However, these are just the tip of the iceberg. The most common subscription services can be categorized as:

  • Subscription boxes
  • Memberships
  • Media
  • Subscribe and Save
  • Digital course subscriptions
  • SaaS

While each of these categories is unique in their own way, there are some fundamental issues that they all face, which impact not just top-line revenues, but also the longevity of the business.

#1. Customer stickiness – An uphill climb

The customer of today is an awfully fickle creature. With the mind-boggling array of choices available to them, who can really blame them? McKinsey’s study indicates that almost 40% of users who sign up for online subscription services cancel them pretty quickly. Over 30% of these cancel in under 3 months, while about half cancel in 6 months.

However, once they find a service they like, subscription customers tend to be a loyal lot. However, this customer stickiness does not come easy. On being asked about what factors make them continue to patronize a particular subscription business, the biggest factor across all different types of subscription services was personalization.

Personalization for Customer Stickiness for subscription business

A personalized user experience that takes into account the individual’s preferences, past purchase patterns, and their typical browsing behavior helps customers enjoy their subscriptions to the fullest and lowers the chance of customer churn.

Another study showed that subscription services that made the most money, as well as retained customers best in the long term were those that offered a “freemium” option.

Freemium products for subscription business

A freemium option is a great way to lure users in the door and then entice them with superior features and services to become paying members. Spotify demonstrates how a solid freemium model helps subscription-based businesses compete with giants like Apple Music with deep pockets and an already entrenched user base.

#2. Products – Unique or bust

In July of this year, Netflix reported a loss in net subscriber numbers in the US for the first time since 2011. This development from the largest streaming service in the world, on their home turf, throws into the spotlight the state of the subscription industry.

Besides the strong competition in streaming services, Netflix itself blames its content slate for the drop in subscriber numbers. As media giants like Disney prepare to launch their own streaming services, key content pieces like the Star Wars franchise, the Marvel franchise and more are all set to disappear from Netflix.

Keeping one’s product fresh and services unique may be a best practice for all businesses. But for subscription businesses, it’s a matter of survival. At the end of 2018, Netflix boasted 700 original shows, exclusive to its platform, including award-winning ones like Orange is the New Black and The Crown.

#3. Technology – Too many options

While the fundamentals of technology used by a regular eCommerce site are the same as those used by online subscription businesses, there are a number of technical nuances that are unique to the subscription economy.

One of the foremost ones is the ability to charge a fixed recurring fee for services provided – whether monthly, quarterly or annually as the case may be. Typically, subscription businesses capture and store the payment and personal information used by customers on their first transaction, only to reuse this information for future billing cycles.

This trove of personally identifiable information for all customers brings with it major security implications. Not only does the payment processing technology need to be PCI compliant, the way this data is stored and managed also needs to be handled with kid gloves.

Even when data security is taken care of, not all marketing automation platforms have the capabilities for setting up recurring payments. What if you want to expand the business into new countries? Does your subscription management platform help you navigate different currencies and exchange rates as well as local regulations regarding payment processing and data compliance? Another tech headache is the issue of expiring or old payment information. What happens to recurring payments when a customer’s credit card expires?

All these take on a whole new dimension when you have customer stickiness issues or even buyer’s remorse, especially in hyper-niche, time-limited subscription models like an online course or coaching/mentoring sessions.

In such cases, professional service providers can turn to platforms like Kajabi, which offers integrated solutions to securely set up, promote and grow a subscription business around information products. Using this easy, all-in-one platform, you can sell memberships to premium content sections of your website, which can include video courses, ebooks, and community forums.

Kajabi Platform for subscription business

Kajabi also takes care of payment gateways, makes it easy to build custom offers or affiliate promotions, and automate email drips to help subscription businesses acquire and retain customers.

#4. Customer service – Just not enough

No matter how big or small the purchase, every customer today expects stellar customer service. With a subscription service, the expectations become doubled. The customer, in this case, has a long-standing relationship with the company, they have paid them multiple times for the same product or service and feel entitled to be treated with honesty, respect, and in some cases, gratitude for their continued patronage.

The McKinsey study referenced earlier spoke about this sense of entitlement among subscription service customers. While recommendations from friends and family are often key motivators to start a new subscription service, a poor customer experience is one of the biggest reasons behind cancelling subscriptions.

There are a number of factors unique to membership type services that impact a good customer experience. For instance, complete transparency about all fees and charges are a must. Many online sellers save ancillary fees like shipping or insurance for the final checkout step to avoid sticker shock. This tactic goes out of the window with an automated payment driven, periodic, recurring model. In this case, the customer needs to know upfront the exact figure that’ll go out of their pockets before they sign up.

Another reason for poor customer experience is when customers get blindsided by auto-renewals. While this is essential to maintain a predictable revenue flow for the subscription business, it’s important to let the customer know loud and clear that they will be charged automatically for future billing cycles. The trust you gain by being transparent to the vast majority of your customers is worth the handful of skittish buyers you might lose out on.

Making it difficult to switch between membership levels or even to cancel the membership is another surefire way of ending up with unhappy customers who are likely to badmouth your business in front of family and friends. That’s a big no-no.

Online businesses have a great advantage when it comes to customer service, with the prevalence (and acceptance) of live chat as a channel for interaction. Chatbots that leverage AI to customize their responses to user queries are easy to deploy. Instead of FAQ-style, formulaic answers, you can build your own chatbot from scratch using a chatbot development platform like MobileMonkey, which piggybacks on Facebook Messenger, “learns” on its feet, and develops personalized responses when interacting with different types of customers.

Mobile Monkey Chatbot Development Platform for subscription business

MobileMonkey’s drag-and-drop simplicity makes it easy for subscription businesses to integrate their support system with an eCommerce platform while applying enterprise-level marketing techniques to get more sign-ups.

To subscribe or not to subscribe?

The subscription business model holds the key to solving one of the biggest issues with online sales – customer retention and long term profitability. With a superlative customer experience that treats the customer with respect, understands the customer’s personal preferences, and molds itself around their tastes, any subscription business has a real shot at the big prize. Are you game?

Guest author: Rohan is an experienced digital marketer who has worked both agency and in-house, developing data-driven strategies for SEO, PPC, social media and content marketing. He is also an avid business and tech blogger; his insights are frequently published in publications like Fast Company, Fortune, and Adweek.

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