Taking the subscription model to the next level

Last year, one of my most popular posts was about the subscription model and opportunities for social game companies. I recently read a book, The Membership Economy by Robbie Kellman Baxter, that provided another layer to building and launching a successful subscription model. Baxter’s work provides useful advice for creating a sustainable subscription business.

Look at subscribers as members

Baxter’s book is not solely about subscriptions but about memberships, which can then be applied to the subscription model to make it more powerful. By looking at subscriptions as memberships, you not only generate an ongoing and stable revenue stream but also create value for your customers because membership provides recognition, stability, and convenience while connecting them. This connection is very powerful, as Maslow showed in his hierarchy of needs, after satisfying physiological needs and safety, people focus on needs of belonging and esteem before ultimately moving to self-actualization. Membership as part of a subscription helps people satisfy those needs.

Baxter writes that “membership is an attitude , an emotion. A subscription is a financial arrangement. It’s quite possible for something to be both a subscription and a membership organization…. Members love membership models because they fulfill powerful human drives — like needs for affiliation and prestige…. If you provide individuals with the infrastructure to enable them to connect and help them build behaviors that help themselves and others, there is tremendous potential to enable people to share ideas, content and physical products that otherwise might go underutilized.”

With membership, you are also less likely to churn customers. Members are committed until they cancel, the equivalent of breaking up or getting divorced. That break up is a much more emotional decision than deciding whether they want to make another purchase.

Subscriptions are about access

A key to success with subscriptions, as I discussed in my last post about the model, is to provide access as the core value rather than consumables. As Baxter writes, “too many loyalty programs are commodities, effectively just discounts for volume purchases, and don’t really create authentic loyalty or strengthen membership relationships. Don’t be that kind of loyalty program.” Subscriptions that are about discounts largely cannibalize your existing business and do not appeal to customers looking to build a long-term relationship with your product or game.

Access also takes you beyond the traditional discrete purchase model with customers, even in-app purchases (IAPs). Part of this access is access to a community of like-minded people, hopefully fans of your core offering. Access is so much bigger than ownership, and the subscription model ties customers to organizations in an ongoing relationship with an opportunity for benefits on both sides.

Given that access is probably a different value than you have focused on previously, the question becomes what do you offer subscribers. I cannot answer that question as it is different for different games and products. In the game space there are many types of access that appeals to customers, examples include:

• Games or levels (i.e. Loyalty specific slots, hidden levels)
• Community
• Referral program
• Additional bonus and side games
• High roller features (i.e. higher MaxBet, higher limits)
• Speeding up rewards
• Battle Pass type features (avatars and other vanity items that show your expertise)
• Online events (training, sneak peeks, webinars, etc)
• Physical events for entire tiers (parties, casino visits, et al)
• Individual physical events (personalized experiences for top tier players)
• Additional customer service channels (phone, live chat, etc)
• Charitable contributions

These are some examples but the key is not to offer subscribers a consumable item, you are not trying to replace an individual purchase but grant them access.

Building a strong subscription program

Programs should be tailored to your audience and product, ensuring you are creating something many of your players will enjoy. There are, however, several common steps to creating a successful program for subscribers:

1. Member/benefit alignment. Start with research and analysis of your existing data so you understand your potential subscribers. If you are not certain a customer would love the offering if he or she knew about it, there is no point in investing in anything other than fixing the offer and figuring out whom to target.
2. Remove frictionAnything that slows down a user’s ability to engage with the services offered, especially during the sign – up process.
3. Provide benefits at every stage of the journey, especially immediately. Provide meaningful benefits from the moment a player enrolls (or is automatically enrolled).
4. Make your trial period great.Rather than trying to limit what a customer gets with an initial or free trial, over deliver so they see all the benefits of subscribing. If you provide a minimal experience or create too many gates for the player, rather than convert they will get annoyed and churn.
5. Do not overpromise Simplicity is always critical to success, including with subscriptions. If you promise too many things, customers get confused and might not be able to find the benefit that really matters to them Also, if you promise too many things, it is hard to deliver on all of them.
6. Personalize.People value experiences differently so ensure that you provide a breadth of benefits to appeal to your addressable market. With data and machine learning, you can then surface the benefits specific subscribers would most enjoy so they get the best possible experience from the subscription. You want to personalize so your subscribers feel more connected than non-subscribers.

   Baxter writes about how Caesars Casino uses personalization with its loyalty program, “Caesars sees itself not just as a gaming company, but as an entertainment company . It segments users to provide each group with a differentiated set of benefits and offers. It uses data to determine member preferences for things like favorite wines, room locations, and hotel amenities. Management empowers frontline employees to become ‘local hosts’ who use the data to make members’ visits special. This element is critically important because too many loyalty programs don’t build relationships with members at all — they just provide discounts, thus encouraging people to join all programs across an industry just to collect the points.“

7. Take risks As Howard Schultz, the founder of Starbucks once wrote, “whatever you do, don’t play it safe. Don’t do things the way they’ve always been done. Don’t try to fit the system. If you do what’s expected of you, you’ll never accomplish more than others expect.” Starbucks has made some major advances on traditional loyalty programs with loyalty cards that are great looking. The card is also tied to payments, reducing a major source of friction.
8. Tie loyalty and payments together.As Starbucks shows, there is tremendous value to integrating loyalty and payment. By tying payments to the account, it eases the purchase process, thus increasing purchases.
9. Continue to add value Players needs will evolve and your program will also need to evolve. You need to offer additional value to justify the ongoing costs of membership. As Baxter writes, “Amazon Prime is a paid membership program. Amazon’s approach has been to have members pay something so that they are more…. Amazon has systematically and thoughtfully continued to invest in layering benefits over the core offering of free two – day shipping.”

The first time subscriber experience

As discussed above, one of the critical elements in creating a loyalty program is the early user experience. According to Baxter, “onboarding done correctly dramatically reduces the number of people who sign up for trial or become full members and then cancel within the first month or two. It also increases the number of people who become long-term members. Members who participate heavily in the first few months of the membership are much ore likely to become long-term customers.”

To ease on-boarding, you need to keep the offering simple and easy to use. Provide a very straightforward experience and quickly reward your subscribers.

Also, try to turn the subscription into a two way street. In most membership organizations, the members have a responsibility to provide something — membership dues to an association or country club, content as with Snapchat or Twitter, or even just personal information as with Groupon — in exchange for access to the membership benefits. By having your customers contribute, they feel more invested in the offering and are less likely to churn. The contribution also should be very easy, let the subscriber contribute easily and quickly without having to jump through hoops. Then reward them for the contribution, to build a positive reinforcement cycle.

Determining pricing

Once you have designed your subscription program, you need to determine pricing. As with other elements of the program, remember the value of simplicity. While a program’s designer may feel multiple options allow players to find the optimal program, it actually confuses and overwhelms customers (just as retailers understand people buy more tomato sauce when there are 3-5 options rather than 30 options). In addition to simplicity, successful subscription programs are transparent. Customers need to understand clearly the value and benefits, the costs and how to cancel.

According to Baxter, the optimal number of subscription options is three, and this number is consistent with consumer behavior research. Baxter writes, “Most people prefer to have multiple options, that three is the right number of choices, and that the majority prefers the middle option.” You can then layer a la carte services on to these three options (as satellite TV companies frequently do).

These a la carte options allow customers to personalize their experience while not creating confusion (they also can be introduced once the subscriber is comfortable with the core offering). According to Baxter, “À la carte services are out-of-the-ordinary services members do not require on an ongoing basis — for example, a one-time indexing of your content, or an on-boarding fee, or a health audit at the gym. A mistake many organizations make is to put this type of one-time service into a higher-level, ongoing pricing tier.” Ancillary products can also be offered on an a la carte basis, such as headsets for Skype or exercise shorts sold by fitness centers.

Also look at offering different subscription terms. SurveyMonkey found that annual subscribers were more loyal customers than monthly payers. They were committed to the platform and used it in multiple ways. While you may have three tiers, you can also offer monthly and annual subscriptions or fewer tiers but vary the length. The key, though, is keep it simple and easy to understand for subscribers.

Change your thinking

Once your pricing is determined, you then need to change your company’s culture to support a successful subscription business. The subscription model relies on long-term customer retention and thus the entire organization needs to be focused on retention rather than discrete purchases.

This new attitude needs not only to be reflected in the product but also with your marketing and customer support (CS) teams. According to Baxter, “marketing is more than campaigns — it’s about focusing on the market. This is always true, but especially in the Membership Economy, where retention matters more than acquisition. Marketing should ensure that the offerings the organizations create meet the ongoing requirements of the target buyers and that those prospective buyers know about the benefits of the offering, sign up, and become loyal….Good marketing is honest. Sometimes people have the idea that good marketing is about tricking people into buying things they don’t need. Not only is this approach unethical, but in the Membership Economy, with the need for ongoing relationships, it simply doesn’t work.”

In addition to marketing, your customer support team needs to become agents for your subscribers. At its core, CS in a subscription model needs to focus on building loyalty, not reducing anger. Baxter writes, “In an ownership economy business, the support staff’s goal is to minimize customer anger. In the Membership Economy, the goal is to maximize loyalty …Their task is to help callers use the product — more effectively, more efficiently — so that they will be increasingly loyal.” Wwhen you launch your program, ensure all your customer facing teams are focused on retaining your customers.

KPIs, analysis and avoiding churn

The final key to a successful subscription program is measuring the right metrics and using them to prevent churn. There are several elements of churn to monitor:

• Passive churn. Passive churn is the number of subscribers who churn by not updating their payment method. This churn is a good indicator of problems with your payment platform. To mitigate this situation, give good customers the benefit of the doubt when there is a payment problem (which requires knowing who your best customers are) and reach out to them (phone or their preferred communication platform) to update the information while not suspending service in the interim.
• Active churn. Active churn is when a subscriber proactively decides to cancel. Minimizing active churn requires understanding the reasons someone might want to cancel and creating options and incentives for them to stay (while not forcing the to stay). Below are some areas that Baxter recommends you review to determine the root cause of active churn:
  1. Date cohorts. Measure elapsed time from the day they signed up to see if certain things happen after a certain fixed time.
  2. Utilization cohorts. Do people tend to cancel after a certain amount of time of low usage or engagement?
  3. Original lead source cohorts. Do certain ads or partnerships bring in subscribers who behave differently from established members

Once you measure and understand your churn, there are several ways to reduce it. You need to build a system that makes leaving a difficult decision to make. You do this by ensuring people are using your product regularly and are very engaged. People are more likely to perceive value in memberships that they use frequently and for extended durations, so many subscription companies devotedly track visits and lengths of visits of members.

Subscribers are also more reluctant to cancel memberships when they have achieved status, customized their experience, scheduled regular activities, or built personal spaces. Finally, Baxter points out that if “someone simply wants to stop paying , offering a free subscription — something that allows the member to remain part of the family — is a best practice.”

Key takeaways

• Treat your subscription service as a membership service. By looking at subscriptions as memberships, you not only generate an ongoing and stable revenue stream but also create value for your customers because membership provides recognition, stability, and convenience for your players while connecting them.
• The core value to subscribers from the subscription should be additional access, features or games or community not available to non-subscribers.
• Focus on the early experience. Onboarding done correctly dramatically reduces the number of people who sign up for trial or become full members and then cancel within the first month or two.