Quarterly Learnings Report: Customer stories and lessons learned, delivered quarterly
Unpacking DTC Subscriptions: Using Psychology to Retain More Customers
Let’s cut straight to it: Customer retention is the new growth. It’s the bedrock of any successful direct-to-consumer business.
For eCommerce subscription businesses in particular, retention and customer LTV should be the north star metric.
Because no matter how many people you are bringing in, at no matter what cost, the businesses who are winning the subscription wars are the ones who have mastered the art of retaining their customers.
They have a crew of raving fans that will come back to them again and again.
But here’s the tricky thing about churn. It’s not clean-cut or straight-forward. What works for one company may not work for yours.
Whether you have hundreds or billions of customers, you’re ultimately trying to keep your product integrated into the lives of people who do not follow some predictable path.
We can set up systems to flag potential churn, but even then, it’s an uphill battle.
Are customers leaving due to price point, too much inventory, loss of interest, loss of engagement, financial situation, or a life-changing event?
There are endless reasons for customers to cancel their subscription.
So it helps to dig a little deeper, look at different types of subscriptions, why customers opt in to them in the first place, and what that psychological decision means in terms of your retention approach.
Categories of DTC Subscriptions:
A 2018 study by McKinsey & Company broke down the subscription box companies into three categories: Replenishment, Access, and Curation.
Within each of these categories there are psychological reasons consumers choose to shop this way (and choose to continue or cancel).
Within each of these categories, customers are making different decisions and following different psychological journeys.
So we’re going to do things a little differently in this post. For the most part, I won’t be looking at the most common reasons for subscription churn (too much inventory and price, specifically).
Instead, I’m going to break down each category of subscriptions, dive into the customer psychology, analyze deeper reasons customer cancel, and provide actionable retention tactics for each.
Ready? Let’s do it.
Replenishment subscriptions leverage convenience and decision fatigue to succeed. Consumers are attracted to the convenience of staple products simply showing up at their door exactly when they need it.
According to the image above, 1/3 of eCommerce subscriptions are Replenishment subscriptions.
When there’s a recurring purchase made that cannot be avoided, the convenience of its natural arrival drives customers to these brands.
Popular examples of this type of subscription include LOLA, Dollar Shave Club, Care/Of, Hims, and Ritual.
The value of these subscriptions is pretty clear, so why would a customer ever leave something so simple and enjoyable?
Let’s start by looking at replenishment-specific “opponents” i.e. factors that tend to drive cancellations.
When we’re looking at retaining replenishment customers, you have to look beyond the standard churn reasons and step into the lives of your customers.
What else in their life could be going on that could spark a psychological change in the way they look at this product? And from there… how can you as a brand and product prepare for that spark and ease the worry?
1. Your customer stops using your product.
This is a high-risk for companies like Care/Of and Ritual where their products aren’t truly necessary for their customers to survive.
This is a big competitor to battle because, for your customer, doing nothing is often easier than doing something.
Combat tactic: Education on the why
To combat our first large opponent (a full-stop on product usage), you need to be continuously educating and supporting your customers why.
Why did they begin taking these vitamins in the first place? Why did they choose your hair products over everything else? And to take it even further, why shouldn’t they stop?
The longer a customer is on a replenishment subscription, the deeper that product becomes integrated into their lives.
Often times, that means they are more educated on the product’s benefits and have come to a conclusion that it is a worthwhile investment, no matter what.
2. Your customer goes back to their old ways
For whatever reason, it could be shockingly simple for customer to simply ghost on your subscription and go back to their old purchasing habits (i.e. buying feminine products from the grocery store vs. LOLA).
Or, they could simply choose they don’t need your product anymore (I haven’t felt any huge improvements in my life, I probably don’t need these vitamins).
Combat tactic: Education on the how
To combat the second opponent, the “I don’t need this anymore” churn, educating on the how can be a big ticket. This goes hand in hand with educating on the why.
If your customer is locked into their why, the next step is giving them everything they need to truly understand how your specific product is helping them achieve their goals.
- How can they best leverage your products to get closer to their ideal self?
- How can your products evolve with their evolving growth?
- How can your products encourage and support their goals?
- How is your product better than what they could find elsewhere?
- Sometimes, it’s even simpler than that: How do they properly use your products to get the most out of them (i.e. how many times should I use my CBD and at what time of the day for me to feel better?)
Both the why and the how needs to be consistently, and authentically provided for your customers.
Bring them new ideas, new ways to leverage your products, new (and delightful) reasons to continue (or grow) their subscription.
3. Your customer switches to Amazon
For whatever reason, there was something in the experience that your customer found to be a little iffy.
Maybe it’s a longer shipping time, or a slight price difference. Maybe they have plenty of other amazon subscribe and saves and it would just be easier to bundle them all together.
This is a biggie, because Amazon is the master of ease and convenience.
It can be a frightening competitor because the customer actually isn’t wrong. It would be easier to conglomerate your subscription products into one. One charge per month, all your products delivered together in one package… so how the heck do you fight this?
Combat tactic 1: Create ease and flexibility
First things first you may not be able to match the simplicity of Amazon, but you sure as heck better try.
Can customers skip a month quickly? Can they downgrade their subscription if need be? Can they login and quickly see what’s coming next and when it will be delivered? Is your tracking system quick and reliable? Does the subscription require lots of customer action between boxes? Are you emailing them before and after boxes ship? Are you making the subscription experience outperform customer expectations?
You don’t have to beat Amazon, but you do have to stay in the game. There’s a lot more you can do that Amazon can’t. More on that in a bit…
Combat Tactic 2: Limit obstacles within the subscription
This goes right along with ease and flexibility, but deserves its own call out.
Whenever there’s a possible hiccup in the subscription, are you investing in the tools that will make that obstacle easy for the customer?
A failed payment is a prime example. On average, 5-20% of recurring charges fail per month (and DTC companies land on the higher end of that scale).
If you need your customer to update their card information in order to keep the subscription active, is that process fluid and simple?
This is all Churn Buster does. Failed payment recovery is a beast to tackle on your own, but with the right tool, this your customer will barely notice this bump in the road. Check out how we can help.
Go through the experience of your subscription and pinpoint places where there’s possible interruptions within the subscription.
Remember: the subscription model is based on continuity. When something disrupts that, how do you respond?
These seemingly small points are big make or break points for weary customers. Don’t give them one more reason to back out.
Combat Tactic 3: Build an irreplaceable relationship
And lastly, this is your biggest weapon against the Amazon behemoth.
Yes, their prices can be great. The process simple. The delivery quick. But it’s a cold transaction between business and consumer.
It’s 2019 and trends are showing that customers are wanting more. They expect more than a cold and robotic transaction with companies.
They want to believe in the products and the brand behind them.
To feel a deeper connection with the mission and meaning of their purchases.
As a marketplace, Amazon can only provide so much of this personalized experience. You, on the other hand, have the whole world to play with.
No matter how many DTC companies I look at, massive growth almost always comes down to customer relationships.
Build a brand, a space, and an experience that your customers could never get from Amazon.
Access Subscriptions are subscribe programs that include some sort of membership on top. Customers opt in to become part of a membership or community to get VIP benefits, bonuses, and discounts.
Four Sigmatic is one of the best examples of this type of subscription:
When customers become a member, they gain access to extra perks, one-time-add-ons, and other “shroomtastic savings.”
Setting the most common churn reasons aside (volume and price), let’s look at two specific opponents Access subscriptions face:
1. Your customer loses interest
The membership model lives on customer interest. So long that your customer is still interested and excited by your products (and the benefits/value they provide), the membership remains a no brainer for those customers.
But what if a Four Sigmatic customer loses interest in mushroom coffee and slowly, but surely, starts to transition back to grocery store bought regular coffee? Or if a Thrive Market customer loses the connection to the organic mission?
Exclusivity is a hot commodity, but the subscription’s success relies on your customers staying committed and excited about your products.
Combat tactic 1: Keep your customers close
The longer a customer is subscribed, the less those products feel like an exciting new discovery, and the more they begin to feel like an expected piece of your customer’s life.
On the surface this sounds great. And on the surface level, it is.
Once your products become integrated into your customer’s daily routine and life, they’re a lot less likely to churn.
But if we look a little deeper into that, as something becomes more regular and expected, it also becomes less interesting.
So to combat potential loss of interest, you need to keep your customers close and engaged.
Not only with your brand and the products, but with the mission and main drivers that brought them to you in the first place.
Thrive Market’s customers believe in choosing organic, healthy foods made by brands they trust. For Thrive, it’s critical to keep that belief and connection to the why strong.
Which, they do really well on Instagram.
There are millions of creative ways to engage your customers. From social channels to retention emails and beyond, the #1 way to prevent this kind of churn is to keep those customers engaged and excited.
Combat tactic 2: Lean into the membership
Access subscriptions have one massive churn-reducing factor baked right in, and that’s the exclusivity factor.
The membership model stacked atop the subscription gives your business an extra layer of trust and experience. Plus, it opens up to the one-time purchase model, add-on products, and so much more. So you need customers to dig in.
Here’s how Katilin Holliday, Retention Lead at Four Sigmatic explained this benefit:
“We decided to create the Mushroom Membership instead of a Subscribe + Save program because we wanted to convey that it was about more than just a discount and free shipping. We give our members awesome perks like early access to new products, gifts and are launching new perks frequently.
Ultimately, the Mushroom Membership’s purpose is to create a long term relationship with our customers and provide them with value, consistently. This makes for loyal customers and low churn.”
She continued, “The commitment that 'membership' evokes is also a subtle nudge for the customer that consistent use over time is the best way to get the full benefits of our products.”
The exclusivity of Access subscriptions is your super power. Lean into it.
2. Your customer stops using the product
Similar to Replenishment subscriptions, Access subscriptions also fall victim to customer inaction.
Whether it’s due to a lack of engagement (see above), a lack of knowledge, too much volume, decision fatigue, or any of the million reasons why a customer could halt usage, if a customer is not using the products you’re sending, they’re headed right towards cancellation.
Aside from the tactics we discussed in the Replenishment section, a great tactic for Access subscriptions in particular is to automate some churn prevention work.
Combat tactic: Flag customer inactivity
Take a look at the journey your membership customers are experiencing, and highlight places where customers could choose inactivity over engagement.
Even better, take a look at the behavior of previously churned customers and note any patterns.
i.e. what customer behavior could you flag as risky?
- Your customer hasn’t opened or clicked recent emails
- Your customer has skipped multiple shipments in a row
- Your customer has downgraded their subscription recently
- Your customer has visited the cancellation page
- Your customer hasn’t visited your site in 30+ days
- Your customer hasn’t updated their card after a failed payment
- Your customer hasn’t looked at new products or membership bonuses
Set up your systems to automatically highlight risky behavior in the customer journey.
From there, you can use tools to tag or highlight unengaged customers and trigger re-engagement campaigns (i.e. discount offers, informational posts, prizes, competitions, education on the why, etc.).
Last, but far from the least, are Curation subscriptions. These are by and large the most popular type of subscription boxes.
These are the Christmas experience-type boxes. Think Barkbox, Cause Box, or Yoga Club Box.
Customers opt into this type of subscriptions for delight and surprise. The products are important, but the experience is really what they signed up for.
For these subscriptions, it’s the surprise, anticipation, and yes, unboxing experience, that the customer is looking for.
Even for the low-key “replenishment” category, which includes Dollar Shave Club and Ritual, consumers ranked the novelty-seeking aspect of “personalized experiences” as one of the top three most important considerations in choosing a subscription box service. For the “curation” category, it was the most important aspect. — Pitchbook.com
Your job is to get your customers eagerly expecting your box each month or quarter. Do that well and you’re set up for long-term success.
Let’s look at three specific opponents Curation boxes face the most.
1. The subscription becomes a financial burden
Okay, I know I said I would avoid the most obvious churn reasons to dig into sneakier ones, but for Curation boxes, this is such a big part of the game, we have to talk about it.
Because curation products are often novelty purchases, when your customer faces a financial challenge, your subscription will likely be the one of the first expenses on the chopping block.
Unfortunately, no amount of engagement can completely eradicate this issue (although it helps a ton). When push comes to shove, a financial issue can be a quick demise to a subscription.
However, the solution isn’t in discounts. Over discounting your products can subtly reduce the value of your offering (if I can get it at 30% off because I emailed asking to cancel, is it really worth what I’m paying every month?)
So instead of discounting, make it as easy as possible for customers to adjust their subscription.
Combat tactic: Keep the subscription flexible
Keeping your customers’ subscription active, even if they’re not paying every month, should be your top priority. It’s a lot easier to re-engage customers who haven’t fully cancelled than it is to start from scratch and bring in brand new ones.
To do this, you need to build in easy and clear options for customers to downgrade, skip, or delay shipments.
Even if a customer ends up skipping three months in a row, they still haven’t cancelled. Meaning their LTV is not dead, it’s simply stalled.
Because your products likely aren’t necessary items, you have to be flexible with your customers. Life happens, allow them to adjust their subscription as necessary so you can keep them around for longer.
2. Your customer has a lifestyle change
Life ebbs and flows for everyone, meaning your customer’s lifestyle can change at any point in the subscription.
Sometimes these changes can be small and temporary (I’m traveling a lot this month, so my dog will be at his kennel, therefore I probably don’t need my Barkbox subscription this month)…
Or they can be pretty big and dramatic (I got really into Crossfit and haven’t gone to a yoga class, so I don’t need my Yoga Club deliveries anymore).
By looking at those two examples, you can see how a simple lifestyle change can completely alter the relationship between your products and your customer.
Combat tactic: Reinforce the aspirational
You can’t control what happens in your customers’ lives, but you can work to keep your products engaged with their goals.
In order to do this, you want to hone in on the emotion behind your offering. The aspiration your customer came to you with.
For this, you need to think deeply into the emotional and aspirational triggers of potential customers.
For Barkbox, a big part of this would be the desire to be the best dog-mom. Or even simpler, the desire to see their dog excited.
For Yoga Club, it could be the lifestyle that comes along with yoga. The customers’ aspirations to be calm, centered, hip, and trendy.
Yoga Club does this really well by leveraging their Facebook group. This 30-day challenge is a great example of aspirational marketing.
Through your social channels and content, continually reinforce this aspirational and emotional motive behind your products.
What are your customers really looking for? What are their hopes and dreams? And how does your subscription help them get closer to those goals?
3. Your customer gets bored
Remember: The main reason people subscribe to a Curation box is to gain an experience.
If it’s simply products in a box, they will go to Amazon. Give your customers a story. Make it experiential so they feel the mission of your business.
Make every delivery feel like Christmas
Combat tactic: Don’t be boring ¯\_(ツ)_/¯
This one is pretty simple, and should be where your team has the most fun in their work. How can you make your subscription even more exciting and fun?
Check your pre-shipment communications and your unboxing experience first. From there, you can get creative and find fun ways to surprise your customers.
Here are some ideas:
- Organize and host community events
- Create ambassador programs
- Send surprise shipments with personalized gifts (example: For Yoga Club, between month 2-3 *high churn-risk time, they send a mini-box with a certificate to a local yoga shop, bath bomb, etc.)
- Open a pop-up shop (make it *really* instagrammable)
Simply put, don’t be boring.
No matter what category your subscription falls into, reducing churn and extending customer LTV’s is your one-way ticket to success.
Shift your perspective over to your customers, and you’re on a great path.
Many DTC subscriptions need to use similar retention tactics (like recovering failed payments and engaging with customers). But if you take a closer look at the psychology behind your offering, you can customize and personalize those efforts even further.
Get to know your customers and their motives, and you’ll unlock a whole new level of retention.