When it comes to acquiring new customers, the first step for subscription-based companies is to get people to actually sign up. Our recent blog highlighted the challenges of acquiring new subscribers, and explored how companies like Comcast are motivating consumers to overcome their resistance and sign up.
But adoption is just the first hurdle. The next step is even harder: How do you get them to stay?
High CAC Can Stop You Dead in Your Tracks
In the face of rising customer acquisition costs (CAC), you can’t afford to lose customers. It costs five times as much to attract a new customer as it does to keep an existing one. The more you pay to bring in a new customer, the more you lose when they leave.
Whether you’re delivering products or streaming music or video, signing up new customers isn’t cheap. Netflix spends around $90 to acquire each new subscriber. Stitch Fix’s blended customer acquisition cost comes in at an estimated $280. And Blue Apron is investing roughly $460 for every new customer, even though by some reports, they’re only making $236 a customer per quarter.
Lowering CAC is a necessary piece of the puzzle to drive improved net revenue per customer. But it doesn’t stand alone. If you want to play in the subscription economy, your survival depends on retaining those precious customers.
Churn is Rampant
No matter the type of subscription business, customers are leaving in droves. According to McKinsey, nearly 40% of e-commerce subscribers have cancelled a subscription. That percentage climbs even higher for gourmet meal kit providers; an estimated 72% of Blue Apron’s subscribers churn after six months.
The current retention rates for other types of businesses are equally unsustainable. Gyms typically experience 40% churn, while media companies are seeing an average of 33%.
The Subscription Model is Fraught with Inherent Obstacles
The subscription market is crowded and competition is fierce. The e-commerce market has grown by more than 100% percent a year over the past five years.
Many companies fight back with free trials and one-time discounts to entice people to join. The problem is, those same incentives make it just as easy for subscribers to bounce to the next brand.
Also, people can lose interest over time as they grow tired of the programming or products a subscription provides. And their perception of value can easily diminish as other offerings compete for their attention. Keeping customers engaged is difficult for any business, but subscription services have a big handicap: when your touch points are strictly digital, you can’t rely on in-person interactions that endear people to your brand and generate deep loyalty. This makes customer engagement more sterile and can make your brand easier to forget – or even dismiss.
Some subscription services think a strict cancellation policy will keep customers from leaving, but those efforts often backfire when subscribers’ frustration with the process results in a poor customer experience.
To make your subscription company a “keeper,” you need to build a new kind of relationship with your subscribers that overcomes their trial mindset and proves your ongoing value. But how?
There’s Hope – And CBS Is Leading the Way
Earlier this month, CBS All Access launched a gated offer for college students: 25% off ($4.49 per month) a limited commercials monthly subscription. The discount is exclusively for students, and redeeming it is fast, easy and secure. College students complete a simple verification form by entering minimal information, and their eligibility is instantly verified.
CBS knows that when customers subscribe to CBS All Access, it’s not simply a transaction; it’s the beginning of a relationship. And gated offers that make services available at a deep discount are a smart strategy to kick off that relationship. By giving students an exclusive discount, CBS is attracting new customers now, while creating brand preference that will lead to lifetime loyalty.
Gated Offers Are a Smart Move for CBS
Analysts estimate that traditional pay-TV lost 3.3 million subscribers last year – a significant acceleration over the 1.9 million who abandoned the sector in 2016. By adding gated offers to its digital marketing mix, CBS has found a way to differentiate its services and tap into the tremendous revenue potential of over-the-top (OTT) media services – a market expected to be worth $62 billion.
And student subscribers are the right audience for CBS to pursue. Sixty-one percent of young adults ages 18 to 29 say the primary way they watch television now is with streaming services on the Internet.
Gated Offers Boost Retention
CBS understands that the exclusive nature of gated offers make a powerful tool for generating long term customer loyalty.
- Gated offers make buyers feel special by recognizing their unique status. The feeling of being part of an exclusive community creates an emotional and psychological bond that facilitates stickiness. A personal invitation to participate in this kind of offer is key to maximizing recurring revenue.
- Gated offers eliminate the desire to discount hop. A long-term discount delivers long-term value.
- Gated offers transcend the discount paradigm. When gated offers go beyond a simple discount to include VIP experiences and offerings that reflect a broader brand value, that’s when the magic happens. T-Mobile’s extensive program for military, veterans and families includes not only half off family lines and phones, but investments that support military and veteran career development and improved LTE coverage around military bases.
- Gated offers can tap into lucrative markets. Subscription companies can use them to target segments with enormous spending power, including students ($523 billion), military ($1 trillion), teachers ($2.2 billion) and seniors ($3.2 trillion).
Verify Eligible Students with Confidence
SheerID’s Digital Verification Solution gives CBS a competitive edge in the OTT market to entice student subscribers. The platform allows the company to promote their gated offer broadly and with confidence, knowing that digital verification will ensure that only eligible college students can redeem the offer. By using authoritative data sources to instantly verify eligibility, digital verification protects the consumer, maintains the integrity of the offer, and protects margins – a top priority with discount abuse reaching as high as 35% for some brands.
A seamless part of the in-brand experience, digital verification is quickly becoming an essential tool for digital marketers fighting churn in the subscription era. Digital verification impacts customer acquisition, increasing conversions as much as 3x and doubling repeat purchases.
SheerID customers also see an average retention rate of 90%. That’s a tremendous accomplishment, but it’s not surprising. Gated offers prevent cancellations because the ongoing savings provide value that endures well beyond a free trial or short-term discount.