Fixing the holes in your boat — Retention Management as a core strategy in subscription-based media.

image by pikrepo.com

April 2022

By Markus Schäfer,
Industry Solutions & Strategy Director, Media & Entertainment at Salesforce
and Tim Krieger,
Senior Solution Engineer, Media & Entertainment at Salesforce

Paid subscription is the business model of choice for many media companies. Still, they are in increasing competition for the attention of their customers as the sheer number of opportunities for being entertained or informed grows exponentially.

In the past, winning new subscribers was everything that counted in that business, no matter what the cost. Today, Wallstreet shifted its evaluation of media companies from growth to profitability. To make paid subscriptions a sustainable business model in this competitive landscape, media companies need to increasingly focus on retaining paying subscribers while continuing to drive acquisition.

As summarised in a recent INMA report,

“Retention is key to growth. […] Spending money on acquisition without fixing the retention is like sailing a boat with holes in the bottom: You won’t go far regardless of how fast you row.”

That’s easier said than done. What does it take to retain paying subscribers? What are the challenges? What are the solutions at hand?

Retention is the new Winning

One way to look at the health of your subscriber business is to use the ratio between Customer Lifetime Value (CLTV) and the Customer Acquisition Cost (CAC). CLTV/CAC tells you how much value you get from your investments in subscriber acquisition, so a return-on-investment (ROI) consideration for your sales and marketing cost to win new paying subscribers. The higher CLTV/CAC, the better. CLTV/CAC can also be used to benchmark your subscription business. The rule of thumb is that it should be greater than 3, but it highly depends on your overall cost structure, including your Cost to Serve (CTS). To improve this ratio, you can do two things:

1. reduce your sales and marketing costs (CAC) by spending your marketing budget more wisely and enhancing efficiency through marketing and sales automation
2. increase Customer Lifetime Value (CLTV) by increasing the revenue per subscriber by up and cross-selling or retaining a paying subscriber longer.

Traditionally, many media companies focused on winning new subscribers, which blew up their CAC. But putting more focus on retaining already paying subscribers can significantly impact the profitability and sustainability of the business. And many factors are driving the need for shifting focus on retention in media and publishing:

• The rise and churn of subscriptions during the Covid pandemic:
  The Covid-19 pandemic led to a worldwide rise in digital subscriptions. Major players like Spotify, Netflix, Disney+, and many traditional publishers massively grew their subscriber base during 2020 and 2021. However, their customers often subscribed to multiple brands in parallel, and 20% reported that they are actively considering cancelling one or more services in the next 12 months. Additionally, in 2021 subscriber growth seemed to flatten for some services (e.g. Netflix), especially looking at territories where they have been present for a longer time (e.g. US).
• Cost and Sustainability:
  According to the Harvard Business Review, the cost to acquire a new subscriber can be up to 5–25 times higher than the cost to retain an existing subscriber. Churn is primarily an issue of sustainable growth in local language markets since the relevant target audiences are limited.
• Publishers shift from advertisement revenue to subscriptions:
  For years, the publishing industry has grappled with declining advertisement revenue. According to PwC’s Media Outlook report, global newspaper advertising (print and online) will decrease by more than a quarter (27%) over five years.
  As a reaction, many publishers are shifting from a free, ad-supported business model to a subscription-based b2c model. However, according to the Reuters Institute, their audience is not easily converted and tends to churn at high rates within the first 2 to 3 billing periods.
• Seasonality of subscriptions:
  Especially in the streaming market, subscribers are attracted by blockbuster content but often cancel their subscriptions soon after they have watched it, as the WSJ reports. Since most streaming services don’t require a contract, customers constantly churn out right after binge-watching their favourite show (see OMDIA study). The remedy, creating a constant stream of engaging original content, is costly. Only companies like Disney can hold or win back subscribers with their evergreen franchises.

Retention is a team sport

To respond to the challenge of subscriber churn, media companies need to establish a Subscriber Retention Management capability.

Subscriber Retention Management encompasses all activities of a Subscription Business to prevent paying subscribers from cancelling their subscription to improve Customer Lifetime Value (CLTV).

The retention of paying subscribers is a team sport! It requires the power of the whole organisation: Marketing, Sales, Customer Service, really all hands on deck.

The core of Retention Management is to foresee a subscriber’s potential churn and take proactive measures to prevent this, called Churn Prediction and Prevention.

Churn Prediction and Prevention can be operationalised with a concept we call the SADA loop (SENSE-ANALYSE-DECIDE-ACT), which is an adaptation of the idea of the OODA loop:

• SENSE: observe all signals that indicate the likely churn of a subscriber
• ANALYSE: analyse all observed signals of a subscriber to determine the likelihood of a subscriber’s churn
• DECIDE: decide if and how to respond to a likely churn (you might decide to do nothing about the potential churn of a low-value customer)
• ACT: take action to prevent the subscriber from churning.

Before implementing the SADA loop for Churn Prediction and Prevention, you need to understand why and when paying subscribers are cancelling their subscriptions and at which stages the chances are high to win back a subscriber.

First, the when. The following diagram illustrates the stages in a Subscribers Lifecycle:

Subscriber Lifecycle

The stage of the subscriber in this lifecycle determines the right conclusions from the subscriber’s signals and the most effective actions to prevent a potential churn. According to Studies from INMA and Reuters, it is essential to form a habit with users within the first 100 days of their subscription. These first three months are the most crucial time in the subscriber’s lifetime. The average churn rate is the highest in this period and falls steeply afterwards. So, instead of sealing the whole hull of your boat, seal the leaks.

Second, the why:

• Is it the content?
• Is the relevance of the content for their time and money?
• Is it the experience of consuming the content?
• The cost?
• Do they find something similar or better elsewhere for less money?
• Has it been a single bad experience or a series of bad experiences?

Once you understand why and when your paying subscribers cancel or decide not to renew, you can define a conceptual model for the SADA loop, which will be your secret sauce for successful Retention Management:

• the signal model: which signals to look for, how to sense them, which data to collect? Be aware that the absence of events, e.g. due to the inactivity of a subscriber, is also an important signal. Consumption tracking, for example, is an essential sensing activity in this context.
• The prediction model: from the stage in the lifecycle, the signals and patterns of signals determine how likely the subscriber will churn.
• The decision model: based on the prediction and the signals, what is the best response to prevent the subscriber from churning, when is the best time to respond and is it even appropriate at this stage?

Here are a few considerations for your SADA model to address critical spots in the Subscriber Lifecycle:

1. Acquisition Phase:
   This phase is less about preventing churn but about actually winning a paying subscriber.
   Collect signals from “unknown” users such as channel, device, location, time, and free content consumed.
   Use those signals to perform segmentation of unknown users and match them with your know user base (“lookalike” analysis), which assumes that what worked for winning your know users will probably also work for “lookalike” unknown users. Try to get them registered, e.g. for a free newsletter and nurture those leads based on what you learned from their signals.
2. Trial Phase:
   Once you’ve onboarded a new subscriber to a trial phase, enhance their “unknown” profile with more data they provide: name, address and payment information, but you might also ask for content preferences and other demographic data in the onboarding process. This phase is crucial to forming habits with new subscribers in the first 100 days. Try to encourage “sticky” behaviours like app installs, notification enablements, email newsletters or podcast subscriptions. Experiment with the content mix or even gamification elements here. Track signals of their engagement and provide individual content recommendations.
3. Full Price Subscription:
   While you continue to track consumption signals, you may ask your subscribers how satisfied they are with your service from time to time. Make it seamless and with the least effort possible. Consider simple star ratings or thumb-up reactions with options to provide comments rather than letting them fill out lengthy survey forms.
   Use your prediction model to calculate churn risk scores. If you sense a churn risk with your prediction model, use pro-active customer service or dedicated churn-prevention campaigns or journeys to address the risk. One of the strongest signals for churn risk is declining user activity, so monitor this metric closely and re-activate inactive users regularly with specialised campaigns. Awarding loyalty is another powerful means to keep paying subscribers.
4. During Cancellation:
   You won’t like it, but subscribers will cancel their subscriptions. Make it as easy to cancel as to subscribe! Usually, we memorise the first and the last moment of a relationship, be it your job or your news subscription. There is no point in sucking when the subscriber wants to cancel.
   As personal interactions have a high chance of turning the wheel, encourage the use of personal communication channels (phone etc.). If there was an issue and you did not figure it out before the subscriber cancelled (shame on your SADA model), enable your service agents to fix root causes quickly and communicate your product value. Offering more granular subscription options might help; discounts or free months often work with unhappy subscribers.
5. After Cancellation:
   Ok, you’ve done your best but could not convince the subscriber to stay. Don’t be desperate! There is still a chance to win her or him back. Run post-cancellation surveys to identify the most common pain points and target lost subscribers with specific advertisement campaigns. From time to time, present compelling re-engagement discounts and offers (“We miss you!”).

The conceptual model for the SADA loop is an essential first step. But this model will not be set in stone because it is prone to creeping model drift or tipping points. You will constantly have to re-evaluate and question it as market conditions change and significantly impact your SADA model. Take the Covid pandemic, for example. Media consumption changed dramatically at the beginning of the pandemic. People were using less audio streaming because many did this on their daily commute to and from work. Many subscribed to video streaming, and after binge-watching the streamer’s catalogues, they cancelled or will consider cancelling after returning to the new normal we are in right now. So signals for churn might change. The interpretation of those signals might change, and the best response might change, creep over time or be triggered by big events like the pandemic.

Crawl — Walk — Run — Fly

Building a Retention Management capability does not happen overnight.

Start with defining a set of guiding principles, so you don’t get lost in details or move in the wrong direction. Referring to what we said about the constant changes, examples of proven principles for Retention Management are:

• stay agile, enable an “always be experimenting” mindset and ability
• when automating, always provide means for manual intervention
• 80/20 mindset: if you need to increase complexity disproportionally to achieve the last 20 % of efficiency, then lean towards simplicity

Your roadmap towards effective and efficient Retention Management depends on your maturity in data management, data analytics, IT architecture management and process automation. So, take a learning Crawl-Walk-Run-Fly approach:

Crawl

Crawl is mainly manual work. You develop your Data Literacy, learn how to analyse data and get insights. Tools like Tableau help you make sense of your data through visualisation and advanced analytics.

You need to figure out what and how to SENSE.

• User activity data from all available touchpoints (website, app, newsletter etc.)
• CRM data
• Subscription origin context (campaign, gift, self-subscribed, etc.)
• Transactional data
• Payment & Billing data
• Content preferences
• Surveys
• Cancellation reasons
• User satisfaction

Use Salesforce Surveys and Feedback Management to gather feedback from every churned subscriber.

Then start to test your hypothesises in your SADA model and build the ANALYSE step. From the data you have identified for the SENSE phase, identify the most common churn segments. Use survey results as a starting point.

Again, data visualisation and advanced analytics with Tableau help you to gain these valuable insights and discover previously unknown patterns.

Then find rules on how to DECIDE from ANALYSIS results based on how you think you need to ACT given what you have learned along the way.

Test countermeasures in the most common churn segments. Use Salesforce Marketing Cloud to send subscribers on a prevention or win-back journey. Automate A/B testing to find the most effective journeys.

Test user engagement strategies. Salesforce Interaction Studio helps to build and test personalised digital subscriber experiences.

Walk

Build the required data pipelines and start to automate parts of the SADA loop based on rules.

Salesforce CDP brings together all data about your subscriber and condenses this data into actionable subscriber segments. Mulesoft can help you to unlock the potentially siloed data sources.

But technology is only one aspect of unlocking your data. Most of the time, that lack of information sharing is deeply rooted in an organisation’s structure and culture. Especially when Marketing and Customer Service are acting on different sets of customer data, it can become ugly: remember when you’ve sent out this Happy Birthday card to your loyal, long-time subscriber just three weeks after his widow called the customer service centre to cancel the subscription because he had passed away the other week?
You have to break the information silos and create a sharing culture!

Run

Once you master the Walk, you can start to automate the data pipeline fully. Running a sustainable Subscription business at scale requires an appropriate level of automation of Retention Management activities. But remember the “stay agile” principle: don’t assume you’ve fully nailed it forever; keep experimenting.

For complete automation of the SADA loop, there are two different architectural approaches:

• asynchronous: run the SADA loop on a regular schedule for all subscribers (batch-driven processing)
• synchronous: feed every sensed subscriber signal into a SADA processing pipeline (event-driven processing)

The asynchronous approach is technically simpler but does not allow responding to severe events in real-time.

The synchronous approach is technically more challenging. It requires the pervasive implementation of an Event-Driven Architecture and a Complex Event Processing capability across the subscription business’ IT landscape to respond to a series of events or event patterns.

A compromise combines the two approaches where you’re default is the asynchronous approach. At the same time, you define a small set of events that indicate a high risk of churn and immediate response to those events (e.g. severe break-up of video stream automatically triggers apology email).
The Salesforce Customer 360 for Media with Media Cloud, CDP, Analytics and Mulesoft is the platform for successful and efficient Retention Management in media subscriptions.

Fly

Take the automation and effectiveness of your Retention SADA loop even one step further and apply Machine Learning (ML) and Artificial Intelligence (AI). Use AI technologies like Einstein Next Best Action and Prediction Builder to automatically generate insights and actions from the stream of big data in your SADA loop.

Subscriber loyalty is the ultimate goal

Churn Prediction and Prevention are not the only activities within Retention Management.

How often did you ask yourself: “Why do I need to cancel my subscription to get a discount, free months, or other benefits while I am the fool paying the full price if I remain a loyal subscriber?”. So Loyalty Management, rewarding customer loyalty and driving engagement can play a vital role in driving customer satisfaction and CLTV.

And not to forget about improving content relevance by personalising the content experience. Content Recommendation makes the subscriber experience more convenient and is a significant driver for Retention.

Fix your leaks for a sustainable business

Steve Jobs once joked about Jil Amelio, the last Apple CEO before Jobs returned to Apple, that Amelio said to him, “Apple is like a ship with a hole in the bottom, leaking water, and my job is to get the ship pointed in the right direction”. A good captain fixes leaks first!

Retaining paying subscribers is like fixing the leaks of your boat. So, Retention Management should be on the top of every subscription business’ executive management, like detecting and fixing leaks on every ship’s captain.