Subscription fatigue: Why do customers churn in DTC?
Subscription offerings in the direct-to-customer (DTC) framework are steadily rising, enhancing customer experience and simultaneous merchant control. Merchants are turning bullish toward this business model as they’re empowered to eliminate intermediaries from their supply chain, disrupt traditional monopolies, and sell directly to their end consumers. Moreover, with subscriptions, there’s an added benefit of predictable, recurring revenues and the ability to secure a loyal customer base, driving its popularity.
However, as the landscape becomes increasingly crowded, subscription fatigue and resulting churn are emerging as a natural consequence. If you’re an existing DTC subscription brand or are planning to enter into this territory, understanding fatigue, churn, and the ways to reduce customer churn in DTC is critical for your success.
What is subscription fatigue?
Subscription fatigue refers to the potential decline in the interest of consumers towards spending on subscriptions as the number of available subscription choices to them increases.
In a survey conducted byDeloitte, nearly 47% of consumers in the U.S. are overwhelmed by the growing number of subscription choices. This has translated into increased focus among DTC subscription merchants towards customer retention and engagement to reverse churn.
What is customer churn, and why does it happen?
Customer churn, also referred to as subscriber churn or churn, refers to the proportion of customers that stop using a product or service during a particular period. While it is usually monitored monthly, it may be calculated for any customizable duration.
Statistically speaking, research suggests that acquiring a new customer is 5x more expensive than retaining an existing one. Moreover, existing customers are 50% more likely to spend almost 31% more than new customers, making controlling churn critical for all subscription merchants.
What causes customer churn?
Generally, customer churn can be attributed to three reasons:
Low value. If subscribers perceive a lack of value, they don’t shy away from exploring other options. Interestingly, value isn’t restricted to the price tag but the entire experience when transacting with a brand. Statistically, a customer is four times more likely to buy from a competitor if the problem is service-related rather than price or product-related.
Poor customer service. Buyers are spoiled by choice and unwilling to settle for anything below what they consider best. This definition of best is not confined to the quality of product or service but also how they’re treated and communicated. Poor customer service is one of the most prominent causes of churn, and businesses lose over $75 billion worth of business annually to not attending to their customers well enough.
Issue of brand loyalty. The problem of brand loyalty arises whenever a subscriber views the brand as “interchangeable” with that of a competitor. In other words, the subscriber cannot identify a solid reason to stick to a brand and is happy to switch over to a competitor if lured by any of their marketing attempts. Statistically, it has been estimated that as many as 77% of brands could disappear, and nobody would care. This points toward the pressing issue of customer loyalty in today’s marketplace and explains the growing industry concern over churn.
Reasons behind customer churn in DTC and how to reduce it
While churn significantly impacts the bottom line, eliminating it for good is a utopian thought. As a DTC subscription merchant, the appropriate target is to keep the churn rate within a healthy range as per the industry benchmarks.
An ideal approach to fighting churn in DTC lies in identifying the signs of fatigue early on, along with the different drivers of churn, and accordingly undertaking the necessary steps.
Some common causes and actionable solutions in the DTC framework include:
Inability to demonstrate the value
Any customer subscribes to a product or service to achieve a particular outcome. If your DTC subscription fails to make customers feel that it adds significant value to their lives, subscription fatigue and churn can emerge. Sometimes, it can result from customers simply not knowing how to use the key features of your product or service and therefore feeling that it’s not of good value to them.
Solution: As a DTC provider, outline your ideal customer profile and work towards explicitly providing them with a stellar product or service combined with an excellent customer experience. Simultaneously, you must plug in efforts to communicate your value proposition clearly and live up to what you preach. When you’re selling directly, the entire onus is on you. If that implies making your existing onboarding process more robust, you need to do it along with providing excellent after-sales support.
Failure to adapt to changing customer preferences
One of the key advantages of a DTC brand is having direct contact with customers and owning the primary data that explains their purchase behavior. Despite this, many DTC businesses often fail to incorporate that market intelligence into their offerings and suffer the brunt of competitors poaching their customers. For instance, customers may start losing interest in your offering or undergo a lifestyle change that makes it irrelevant to them. In such cases, failure to be attentive and introduce measures on time can leave you vulnerable to avoidable churn.
Solution: To identify and respond to changing customer preferences, you need to collect enough customer data and study it deeply. Leverage that understanding to stay close to them and ensure they’re excited and engaged with interesting campaigns through social media, in-app communication, and emails. Monitor their behavior closely and respond to signs of reducing activity with emotional messaging that re-ignites their aspiration. The idea is to at least make them hit pause instead of canceling the subscription.
Presence of rigid pricing plans
Even though the price is not the sole influencer in driving purchases, it is still a critical one. Unless your DTC business provides meaningful pricing options to customers, they are always at risk of exercising the option to withdraw the subscription at any point in time. Moreover, as consumers turn cost-conscious with the increasing number of overall subscriptions to spend on, offering a competitive deal helps!
Solution: An excellent way to tackle pricing-related churn in your DTC subscriptions is by empowering customers with flexible pricing plans instead of selling one product or service at a flat price. Doing so ensures that they have little reason to drop out or switch to another provider who’s more flexible. Additionally, revisiting your pricing from time to time is also essential to stay relevant.
Factors contributing to involuntary churn
Churn in DTC can be involuntary as a result of payment failure due to an expired credit card, a change in the customer’s banking details, or insufficient funds. Unfortunately, many subscription businesses tend to suffer from little to no know-how on how to control involuntary churn. As a result, they lose the chance to sell directly without engaging intermediaries, even if the end customers are eager to use their products.
Solution: You can effectively arrest involuntary churn by using robust, secure subscription management and billing platforms like Recurly, which has features that allow updating accounts, automatic retries in case of payment failure, and more. Furthermore, by introducing dunning campaigns, you can also request your customers to update their payment methods in a timely manner and cancel out involuntary dropouts by a large fraction.
Like in any subscription framework, customer churn arising out of fatigue is inevitable in DTC subscriptions. The right approach to control it and ensure a growing bottom line lies in maximizing customer retention. Identifying a healthy industry churn rate benchmark is an appropriate starting point. It’s best to leverage data to identify early signs of fatigue and address the causes to control it quickly.