People make resolutions in the new year and companies, including subscription-based firms, review their prices.
Amazon Prime, Disney+ and Netflix, for example, either increased their prices in late 2023 or are about to increase them in early 2024. This will test the loyalty of some members. The same applies at the retail level for lesser-known companies, and it is paramount for them to make sure their subscribers are in the “loyalty” bucket, rather than in the “short-timer” or “persuadable” bucket.
Merchants generate most of their subscription revenues from loyalists, a subgroup of consumers who have the highest lifetime value (LTV) and represent the cornerstone of retail subscription commerce. “How Retail Subscription Merchants Can Win and Retain High LTV Customers,” a PYMNTS study, found that loyal customers make up 30% of consumers and almost 80% of their revenues. The study, which drew on a survey of 2,094 U.S. customers, examined the relationship between loyal customers and merchant revenues and the best practices to expand this lucrative group of subscribers.
It found that a loyal customer is not created from one day to another. Merchants must redouble their focus on customers who have tried their subscriptions and receive them sporadically. Gaining their confidence and attracting them through providing certain features is key to converting them into high-value loyalists who spend more and churn less.
As the name suggests, short-timer subscribers have the lowest LTV, with less than $1,000. Specifically, they spend an average of $30 monthly and have a subscription lifespan of 14 months. They are, however, the largest group, accounting for nearly 48% of all subscribers.
On the other hand, loyalists stay with retail subscriptions for over 30 months and spend $65 monthly on average, making a total LTV that exceeds $2,500. This segment represents 30% of all subscribers.
Finally, there are persuadable subscribers. They spend $42 on average on retail subscriptions and have a lifespan of 25 months, making a total LTV between $1,000 and $2,500. This group accounts for nearly 22% of all subscribers, meaning that nearly 1 in 2 short-time subscribers have the potential to become persuadable subscribers.
The study found that with the right treatment and service, merchants can convert persuadable customers to loyalists. The best ways to foster subscriber loyalty include offering free shipping, accepting returns, and limiting promotional material. By offering these features, merchants can differentiate themselves from competitors, enhance customer satisfaction and minimize churn. By contrast, not offering free shipping, refusing product returns, and providing excessive promotional material can be perceived as a bad shopping experience and make customers abandon the subscription.
To attract and retain customers and convert them to loyalists, retail subscription merchants will need to take these issues into account and focus on providing essential features that matter most to this customer segment.
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