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Posted September 4, 2015

subscription

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Dollar Shave Club has razors, Graze has snacks, Trunk Club has clothes, and Amazon offers a bit of everything. People love the subscription box economy, and there are a plethora of startups and established businesses jumping on the trend.

What’s not to love? Consumers have one less thing to think about every month, and the idea of recurring revenue is irresistible for business.

Driven by millennials, a demographic that is more likely to try new business models, less car-dependent, and consistently seeking convenience, the subscription economy has been on the rise and will continue to take hold as this generation becomes more affluent.

This is a very promising industry. Subscription retailers averaged 7.7 orders per customer over a 12-month period, compared with 2.4 for e-commerce retailers, according to a Retention Science study of 2.5 million customers and 10 million transactions.

The biggest challenges? Ensuring retention, minimizing churn and maximizing lifetime customer value.
Failure to accomplish these goals is a concern for everyone in the chain, from the card issuer to the bank to the company providing the products and services, notes Paul Larsen of Paul Larsen Consulting. “Because subscriptions have become so ubiquitous, they are now important to everyone in the revenue chain, […] when a subscription blows up, everyone loses.”

Yet one of the biggest problems in this is involuntary churn, which occurs when a transaction is denied due to credit limit, account delinquency, reissued cards, and zero-balance prepaid cards.
Subscription retailers need to understand this and adapt. Knowing when cards expire, knowing why transactions are declined, and stopping involuntary churn before it occurs all affect the bottom line of a subscription business.

Proactivity and proper data use is much easier than having to re-sell a customer on products or services, and could greatly benefit a company’s revenue.

According to a recent N>genuity article, one key element to have is an account updater, made available by the card networks through the processors. These updaters take the new account information from the issuers and feed it to the merchants. “This allows for a seamless transition to the new card to take place and prevent the subscription from coming to an end.”

Subscription retailers must also take the time to know the customer, says Jerry Jao, chief executive officer of Retention Science.

Businesses need to figure out how consumers want their products and anticipate their changing needs – such as a baby going to a bigger diaper or a user needing to reduce the frequency of the delivery of razors – automatically. In this process, analysis of data is everything, and documentation is critical. “It’s still about listening to what customers want and how they want it,” he says.

As we move forward into the subscription economy, use of data will continue to gain importance in order to make the most of customer relationships.

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Corporate Payments Insights