Recurring revenue is a profitable target for many organizations. Here’s some takeaways on understanding the business case for subscriptions—and how to engage subscribers.
What comes first, engagement or subscription? It’s a classic chicken-or-egg scenario. Do users sign up for a paid subscription because they’re already engaged by a service, or because they want to be engaged further? The answer is likely a combination of both.
Research finds that on average, paid subscribers are 34.5% more engaged than people who consume information for free. Subscribers are also more likely to promote their favorite brands than non-subscribers. Clearly, the subscription model, when combined with personalized engagement tactics and genuine value, can be a powerful way to reach consumers.
The subscription economy has quintupled in size since 2012, as consumer preferences shifted from ownership to usership (think: buying an album on iTunes 10 years ago vs. streaming it on Apple Music today). Over 80% of U.S. consumers subscribe to at least one paid video streaming service—though, on average, they subscribe to four.
One of the best examples of a successful subscription-based model is that of the Weather Company. Since launching an app-based, premium subscription offering less than two years ago, the Weather Company has garnered nearly one million paid subscribers. What’s more, in a recent video series called Engage, Sheri Bachstein, the global head of IBM Watson Advertising and CEO of the IBM-owned Weather Company, says they’re experiencing further double-digit growth every quarter.
Of course, pivoting an entire business model is no small task, and one that, frankly, can go wrong if not properly executed. In order to deliver a paid subscription business that drives results, marketers need a granular understanding of their value proposition, access to innovative technology that enables optimization, and an exceptional product that delivers a worthwhile experience.
Research at scientific proportions
Creating a subscription model should be approached like the scientific process: from hypothesis to research to data analyzation and then to end results. You can’t simply launch a subscription service and then go back and second guess what users want, or are willing to pay.
Subscriptions can be an effective way to diversify your monetization strategy when executed correctly. From a financial perspective, you have to look at the threshold of where a subscriber becomes more valuable than an ad-supported user and then decide if it’s the right move for your business. From a UX perspective, you then must cultivate a platform that retains subscribers by personalizing their experience with information that is catered to their needs.
An effective way to research is by getting in the weeds with your users. In the Weather Company’s case, that meant conducting surveys and focus groups with users to listen to what they wanted out of a paid product, allowing them to customize the experience from its inception based on their needs.
The scientific process isn’t linear, and neither is pivoting a business model. Expect experimentation around pricing and experience based on real-time user feedback. And when you feel like you’ve hit your stride, continue to leverage research via growth hacking to strengthen the value exchange between you and subscribers.
With the loss of the third-party cookie and identifiers like IDFA, the digital advertising space is leaning into a more privacy-minded future—but marketers left scratching their heads need not fret. In reality, cookies tell marketers and publishers what has happened in the past, and while historical data can certainly be interesting and useful, more cutting-edge technology like artificial intelligence (AI) can take your strategy to the next level by predicting future user behavior.
“AI technology and ad tech solutions rooted in AI will be a foundational technology to help us move into the next era of advertising,” Bachstein says.
Because paid services owe their users a heightened value exchange compared to free services, they need to have a fine-tuned understanding of what the user needs so they can continually deliver value. Subscription services can (and should) leverage AI to predict what users are likely to want or do next.
Take a dating app subscription, for example. Can you predict if a user will spend extra time swiping through suitors in the lonely lead-up to Valentine’s Day? Or if they’re about to quit the service after not chatting with a match in weeks? Armed with these predictions, how can you better serve them?
Churn butter, not subscribers
Companies who want to explore the world of paid subscriptions must be wary of subscriber churn. As the subscription economy becomes more saturated and an increasing number of players compete for a presence in consumers’ wallets, how can you ensure your service is something in which your users continuously find value?
There are two parts to subscriptions. The first is acquisition, which of course centers around targeted marketing strategies. But the second, retention, is all about the strength of the actual product. The goal should be to always increase the value that you’re asking users to pay for. Are you offering a proprietary experience that couldn’t be accessed for free elsewhere? Utilizing extensive user research and predictive AI will help discern the best path to shape that experience.
But even the best products and services experience some customer churn. In order to take a proactive approach to fortify retention, companies should rally around strategic ways to better predict churn and then use membership perks to entice ambivalent users to stick around.
Discount codes, for example, are an effective way to re-engage customers with the potential to churn—and one that Bachstein recommends after successful runs with the Weather Company app.
“Everyone should be using [discount codes] strategically as a retention driver,” she says. By leaning on the strength of its product and calculated churn prevention, The Weather Company has achieved a 75% retention rate.
Subscriptions can deliver a higher return to your bottom line when executed in a way that leverages research, personalization, predictive technology and retention to engage subscribers. As the digital world eases steadily into privacy-first approaches, the subscription model is a promising territory to glean benefits for companies and users alike.
This post was originally published on PR Daily.