COVID-19 was responsible for massive shifts in our society and economy. It has especially increased consumer reliance on subscription-based services for goods, food, and entertainment.
Why the surge in interest? Customers have the flexibility to try out new products and services without commitment. Companies benefit from this popular business model because it allows them to acquire both “recurring and predictable” income from their customers.
Bottom line…it’s a win-win.
What Does A Subscription-Based Model Look Like?
A subscription-based business model charges their customers a recurring fee, usually monthly or annually, in order to access a service or product.
Another plus for this model is that it establishes a “recurring” relationship with customers, which allows businesses to gain valuable insights as to what their customers are willing to pay for. What is clear is that customers who are no longer interested in a product or service will simply quit a subscription.
Data like this is critical in order to forecast revenue growth for the future.
The focal point of these subscriptions is to essentially “monetize” ongoing customer relationships while still utilizing traditional product development and market competition tactics.
Consumer Appetite For Subscription-Based Services Is Growing
Paysafe, an online payments company, compiled its research findings into their report, “Paysafe’s 2020 Lost In Transaction: How COVID-19 is impacting consumer payment trends research.”
When it comes to the adoption of subscription-based services, the U.S. is clearly the leader. As much as 69% had multiple subscriptions, 28% had at least four, and 7% had six. Canada followed closely second with 50% having multiple subscriptions, then it was followed by Germany at 49%, the U.K. at 47%, and Austria at 45%.
What’s telling is that the data points to the fact that these figures are likely to rise. The majority of the respondents expressed that they were likely to increase their subscriptions in the next 12 months. As a whole, as much as 27% said they will increase the number of subscriptions.
Convenience is the preeminent reason why consumers love subscriptions. As many as 53% of respondents said that subscriptions are a more convenient way of paying for goods or services than what they normally use.
As much as 44% find subscriptions to deliver a better value than alternative choices for a comparable product or service.
Clearly, the winners in this game will ultimately be the ones who can strike a perfect balance of offering great value for a great price, all in an impeccable manner.
Challenges To Tackle
The nature of the subscription model is that a subscriber doesn’t “buy ownership” and therefore, it can simply drop the subscription at any time. So this is leading the way to “customer churn”, which means customers will cease payment of a subscription, during a specific period of time.
There are two forms of churn: involuntary and voluntary. Each presents a significant challenge to the subscription economy.
Voluntary churn happens when a customer, based on their experience, chooses to unsubscribe from the subscription. Many do so if they feel they are not receiving their money’s worth. They might even be dissatisfied with the payment process and therefore simply find a better, more competitive alternative.
Involuntary churn happens when a subscription is suspended due to a payments issue. This can happen if a credit card on file has expired, there are insufficient funds in the bank account, or the account number on a debit card has been updated.
There Are Solutions
Thankfully, all the aforementioned roadblocks are preventable. Involuntary churn can be addressed by partnering with payment providers to offer payment reminders and notifications for upcoming payments or when credit cards are about to expire.
For voluntary churn, companies should focus on providing a more personalized, branded, and seamless payment experience among all sorts of channels. Notifications and regular communication about price increases and upgrades should be delivered using their customers’ preferred channel.
The entire payment experience should be fast and easy, personalized as well as informative. Taking this more holistic approach is sure to foster customer retention.
Another powerful tactic to avoid voluntary churn is to allow subscribers to use alternative payment methods such as Zelle and PayPal. Not only will this increase customer choice, but it is bound to improve their overall experience.
Seek The Right Positioning For Long-Term Success
As evidenced in the research results presented by Paysafe, subscription-based business models are here to stay. The key to success in this ecosystem is to incorporate customer flexibility and transparency in their service offering.
By mastering this, they are increasing customer trust, relieving their pain points such as overpaying and the feeling that they are trapped into a never-ending financial commitment.