With inflation continuing to break records and whispers of recession spreading, you can expect customers will start cutting all sorts of costs. In economic down cycles, customers tend to forego long car vacations for local outings, they buy off-brand products and they cut premium subscriptions.
“Subscription-based services,” says Larry Chiagouris, a professor of marketing at Pace University, “tend to be premium priced, because they save people time. But if people don’t have the money to pay for the savings in time …They’re going to do some of these things for themselves.”
Subscription services that are predominantly for “discovery and delight” should already be preparing for a recession, says Paul Chambers, CEO of the Subscription Trade Association, a Troy, Michigan-based association dedicated to providing a network for the DTC subscription community. He notes that an increase in churn rates is more probable than not for some subscription services. The rate of customer attrition, or churn, had been dropping during the pandemic, as consumers flocked to subscription services. It dropped to 5.4 percent in 2021, from 6.3 percent a year earlier, according to a 2021 subscription economy index report from Zoura, a subscription management platform based in Redwood City, California.
But that doesn’t mean all is lost if your business’ primary revenue model involves subscriptions. Here are some tactics Chambers and Chiagouris suggest for evaluating your subscription business and priming it for a downturn:
Add tiered subscription offerings
While not ideal, an inflationary period can be ideal for some businesses, says Chambers. “It’s an opportunity for companies to leverage subscriptions where consumers are looking to save.” A subscribe and save model may be a great way for brands to capitalize on the tightening of wallets as people look to save where they can. For streaming services, tweaking mainstream models may help lower the churn rate of consumers. Creating leveled tiers of subscription is a strategy gaining traction as companies like Netflix look to curb its cost to consumers. For example, instead of canceling, a customer may tap a lower-cost tier or key into the company’s forthcoming ad-supported offering.
Let them hit the ‘pause’ button
Some consumers will cancel subscriptions. However, others would choose to halt them temporarily if given the option, says Chiagouris. While a delay option may not be what businesses want to do–because it means lower revenue in the meantime–doing so may make getting those customers back into the fold, and paying for your service, easier.
Put yourself in your customers’ shoes, says Chambers. “The companies that choose to engage their consumers and enrich their experiences are going to be the ones that see reduced churn, because they’re going to be the companies that are providing consistent value.” After all, he adds: retention isn’t about retaining and locking consumers into their subscription and hoping they never leave. “It’s about providing value and reasons for them to continue to stay.”
Brining on ads is something the streaming services are doing, but Chiagouris says companies should look to utilize ads in other ways as well. “Every subscription-based service has the ability to incorporate some form of advertising support,” Chiagouris says. This could include running advertisements on a website to highlight unrelated products and services with the purchase of something else. That generates revenue, too.
Lock in your subscribers
While Chambers emphasizes the importance of keeping consumers by creating product and service value, Chiagouris still anticipates “lock-in” deals will increase. He notes that companies need to overcome the brief inflationary period, and may find lock-in methods stabilizing. “What they’re going to try to do is try to lower their price a little bit, or maintain their price and not increase it… but on one condition: They’re going to attempt to lock in the number of orders or the length of the relationship with penalties, pre-identified and pre-documented penalties if someone terminates the relationship before the lock in period.” That’s right out of the cell phone carriers’ playbook, he adds. But it’s something other brands can try, too. Ultimately, this may not be the most consumer-positive method, but it can help a brand bridge a downturn.