As the COVID-19 crisis continued to affect the economy, subscription businesses prove their resilience in this recession by focusing on a set of strategies to retain existing subscribers and grow customer lifetime value (LTV). In working with companies to respond to COVID-19, three common responses emerged as companies assessed the proper business response and did what’s best in the interest of the subscriber.
1. Subscriptions suspended to pause billing increased by more than 4X.
For subscriptions where customers can no longer access the product, companies quickly provided the option to pause billing. By doing this, companies were able to build trust and focus on longer term retention.
Subscriptions related to gyms, restaurants, hotels, transportation, and many other everyday services were no longer accessible because of COVID-19. Given these circumstances, many subscription companies quickly pivoted to pause billing for their subscribers. This gesture was appreciated by customers, and succeeded as a strategy to reduce overall churn for companies. Our research shows that companies offering customers the option to suspend a subscription have a 5% lower annual churn rate compared to peers.In observing Zuora activity over the past few months, the average number of Subscription Suspensions increased by more than 4X. While companies using this capability averaged 90 suspensions per month before COVID-19, that average increased to 375 suspensions in the month of April. Since April, the average has steadily decreased.
EXAMPLE Some gym and travel-related memberships decided to proactively suspend all of their memberships. Rather than fielding individual cancellation requests, they were able to instantly pause billing for all members and keep their membership base intact until their facilities can open up again.
2. Credit memos to provide payment relief increased by 2.5X.
To focus on retaining long-term customers, subscription companies used various strategies to offer short-term payment relief for struggling customers.
Given the COVID-19 economic impact on various industries, a number of subscription companies have seen a spike of subscribers who cannot pay on time. Instead of focusing on maximizing cash to keep the business afloat during these uncertain times, subscription businesses focused on retaining their customers past this pandemic by:
– offering credits to be used at a later time.
– providing discounts for a period of time.
– adjusting payment terms so that certain services can be paid for at a later time.
In observing Zuora activity over the past two months, the average number of Credit Memos increased by 2.5X. While companies using this capability averaged 1400 credit memos per month before COVID-19, that average has increased to 3900 credit memos in April. The average has decreased since.
EXAMPLE With the restaurant industry taking a serious hit these days, the reservation service Resy decided not to charge fees to their customers and refund restaurants that they had already charged for the month of March.
EXAMPLE CarGurus is a research and shopping resource that lets you compare local listings for new and used cars, and puts you in touch with a dealer if you find a car you like. They work with thousands of dealerships across the country that have been affected by the COVID-19 crisis. CarGurus immediately issued a blanket 50% discount to all of their automotive partners in March, and then extended that offer through May.
3. Subscribers on free plans increased by 1.2X.
Subscription companies across many industries quickly updated pricing, launched trials, or introduced new bundles in the past few weeks to help customers adapt to COVID-19.
Because subscription pricing is not tied to any single product, companies have the flexibility to quickly adjust pricing plans, promotions, and packaging to accommodate their customers. Companies with an agile digital strategy were able to quickly pivot pricing in the past month without technology being a bottleneck. Many subscription companies that are essential for an individual’s well-being quickly offered their content for free, or for extended free trials, to help consumers through the pandemic. These include yoga classes, meditation apps, entertainment, OTT video streaming, digital news, and e-Learning. On the other hand, subscription companies that are essential for work were quick to bundle existing products into a new bundle for remote workers. These included internet service providers, remote work tools, and small business software offerings.
In observing Zuora activity over the past two months, the average percentage of Subscribers on a Free Plan increased by 1.2X. Of companies that offered a free plan, the average percentage of subscribers on a free plan was 15% prior to COVID-19, and that average has increased to 18% in April 2020.
EXAMPLE Many subscription companies are taking the opportunity to extend free offers to populations that are being particularly affected by the crisis. The wildly popular meditation app Headspace is offering free access to all US healthcare professionals working in public spaces through 2020. They’ve also opened up a number of guided meditations to everyone called “Weathering the Storm.”
EXAMPLE With shelter-in-place orders issued, Fender decided to oer a free 3-month subscription to their Fender Play tuition app to 100,000 people. The immediate demand was so high that they upped the quota to 500,000. And now, after reaching the half-million mark, the company has extended this oer to 1,000,000 learners.
EXAMPLE As financial advisors are tasked with guiding clients through the current economic slowdown, eMoney Advisors is offering free access to its planning platform, marketing solutions, and educational resources.
To see how other subscription companies have focused on retention amidst COVID-19, you can find more examples at zuora.com/customers-first.