Understand & Combat Subscription Churn - Wicket Labs

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Understand
   & Combat
Subscription
      Churn

Understand & Combat
              Subscription Churn

T
       here are many key indicators in running a successful
       subscription business, but
       at the core, every successful          churn is
service has a predictable and growing         unequivocally
recurring revenue stream. In any              the number one
business, attracting and converting           problem for most
new customers is essential to growing         SVOD publishers
and expanding reach, but equally
important is ensuring your existing
customer base is happy, engaged and continuing to pay for
the service. This will dictate how profitable your business
can be. In fact, according to research done by Cleeng,
“churn is unequivocally the number one problem for most
SVOD publishers”.

The rate at which subscribers leave your service is called the churn rate. The
churn rate is a primary indicator of the health of your business and how
successful you are at retaining your existing customer base. Most businesses
spend a lot of money and effort recruiting new customers, so retaining
them with a low churn rate is essential to running a successful subscription
service.

                                                                                 2

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

                                           Number of subscribers that have

                      Churn =                cancelled in the last 30 days

                                           Number of total paid subscribers

WHAT ARE THE TYPES OF CHURN?
To better manage your churn rate it is important to understand how customers leave a
service. Typically there are two types of churn; voluntary and involuntary. Voluntary churn
are customers that cancel the service of their own volition. Involuntary churn are customers
that leave through programmatic cancellations such as failed payment methods or credit card
expirations that are not renewed. Understanding the reason cancellations happen will help you
focus retention efforts in the most productive areas, and in parallel may help you avoid payment
vehicles or gateways that are less effective at processing payments or retaining customers.
Below is a graph from the Wicket Scorecard that allows you to view the impact of voluntary and
involuntary churn and identify trend or anomalies that lead to spikes in churn:

                              © 2018 Wicket Labs Inc.   Learn more at www.wicketlabs.com      3

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

Once you have broken down how customers leave your service you can be more targeted in
your retention efforts. High voluntary churn usually reflects a higher dissatisfaction with the
service. It is important to gather feedback from customers as they are active in the service and
as they request to leave.

  •   Is it the price of the service?
  •   The quality or quantity of the content being offered?
  •   Other factors?

Understanding the reasons will allow you to be more predictive and targeted in how you
message and promote content to your subscribers, ensuring they are receiving maximum value
for their subscription fees. It also enables you to be more effective with your save and win-back
campaigns.

It is important to not only look at churn numbers but couple that data with engagement
metrics that will allow you to be more predictive and take action to save customers. The Wicket
Scorecard allows you to look at data through many dimensions. You can look at heartbeat
metrics over time and get a view into the engagement of your subscriber base which will help
find indicators of churn. One such metric to keep an eye on is the percentage of users coming
back on a weekly or monthly basis. If those percentages go down you could be headed for a
problem and will need to take action to re-engage your base.

                                 © 2018 Wicket Labs Inc.   Learn more at www.wicketlabs.com        4

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

HOW TO COMBAT INVOLUNTARY CHURN
While it may seem that involuntary churn is more difficult to combat (and in some ways that is
true) there are tactics at your disposal to reduce the number of people leaving the service in this
manner. In being able to separate the number of voluntary and involuntary and handle them
differently, you are already on the path to lowering your churn rate. Continuing to break down
involuntary churn will also allow your focus to be even more targeted in saving and retaining
these customers. For example, there are different reasons a payment method fails and parsing
out the reasons is very important to how you respond. Essentially there are two categories of
payment decline: hard and soft declines and the type of response should inform your method
for retrying a card or re-engaging the customer.

One way to combat involuntary churn is to develop retry mechanisms that will wait for a given
period of time then attempt to reprocess the credit card without engaging the customers. This
is most effective with a soft declined card where the card could be expired, over the limit, late
in paying the bill, etc. Essentially, the account is in a temporary situation which will be resolved
in a short period of time. Waiting a day or so to retry the payment vehicle will yield approvals
and allow you to retain those customers with minimal financial risk and without interrupting
the customer’s experience. On the other hand, hard declines, when the card is lost or cancelled,
have very little to no chance of being successfully retried. In that event, you are better off
immediately and directly communicating with the customer to let them know of the problem
and have them take action to rectify the situation to maintain their service.

There are, of course, other tactics you can take to combat churn, but it is essential to understand
the rate at which people leave your service and how that compares to industry benchmarks.
Once you have your baseline churn rate, having a deeper understanding of the cause and effect
relationship, you are able to take appropriate action to reduce defections in a more effective
and targeted fashion. This allows you to retain and engage your audience more effectively and
increase satisfaction with your service.

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

VOLUNTARY CHURN
Taking a multi-faceted approach to churn will allow you to reduce rates and therefore grow your
business more effectively. Let’s dive a little deeper into voluntary churn and discuss ways to
combat it. As mentioned above, voluntary churn is user initiated. Meaning, the customer takes
steps to opt out of their service. There can be a variety of reasons a user decides to cancel; the
cost, the quality of content, seasonality, service issues, just to name a few. To have a targeted
approach for lowering your churn rate, it is essential to understand the reasons why customers
are leaving the service and have a plan to combat each of the main customer scenarios.

WHY IS REDUCING CHURN SO IMPORTANT?
Most companies spend a large amount of time, money, and resources just to attract new
customers to give their service a try, then lean in to make sure their first experiences in the
service will help them convert to paid subscribers. Casting a wide net to increase the number of
people entering the top of your acquisition funnel, through advertising, marketing campaigns,
promotions, exclusive access to content can be an expensive proposition and more than half of
companies have little to no system for saving or reactivating lost customers.

It is important to understand the amount of money spent acquiring a new customer and how
long it takes for that customer to become profitable to your business. While you can, and should,
break these numbers down to the specific acquisition channels used to entice a customer into
becoming a subscriber there are top level heartbeat metrics you can look at to get a top level
view into the health of your service offering. The Wicket Scorecard provides key metrics that
show your performance in acquiring and retaining customers. You are able to see the current
view and quickly compare monthly and annual trends. This information is directional to help you
ask the right questions and focus retention efforts.

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

Comparing the Customer Acquisition Cost to the expected Customers Lifetime Value will show
you how profitable your business is at a high level and how that compares over time. A low ratio
would alert you to dig deeper into your channels to understand the campaigns that are not only
bringing in lots of customers but customers that tend to stay in the service for longer periods of
time and direct your spend accordingly. In fact a Harvard Business Review study found that in
subscription models, “the high cost of acquiring customers renders many customer relationships
unprofitable during their early years” and “ increasing customer retention rates by 5% increases
profits by 25% to 95%”. Because in most customer relationships you only get one bite at the
apple in converting customers, once you have them, these numbers illustrate the importance of
understanding their behavior and keeping them happy and engaged.

ENGAGING YOUR CUSTOMERS
Now that we understand the importance of keeping customers, let’s discuss some things you
can do to ensure happiness and increase your retention rates. As stated above, understanding
why customers leave is vital in developing a strategy to keep them engaged. Proactively
engaging with your customers at different points along the customer lifecycle is critical to
understanding their behavior and predicting their propensity to churn. Too often companies
take the easy way out and question customers on their way out the door, or worse, survey
them after they leave the service. Waiting until this point puts you in a reactive position and
dramatically decreases your ability save or win back that customer. In addition, the information
you receive back is skewed to the negative or relies on customer service agents to accurately
categorize the reasons a customers leaves.

Engaging your customers through a variety of channels while they are invested in the service:
in app surveys, emails, special offers, social media, etc will allow you to engage your users,
collect more actionable date, and will have the added benefit of showing your subscribers their
happiness is important to you. People naturally want to provide feedback both good and bad to
help improve their experience. Waiting until they are ready to bolt will help you understand why
customers leave, but will be less helpful in determining a more important question:

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

  •   Why do they stay?
  •   What do they love about the service?

If you have a great offering, don’t be afraid to ask your customers what they love about the
service and reward them for participating. This can help turn someone from a subscriber, to a
fan, to an evangelist.

Engaging your users is an easy way to make them feel special and valued by the service. In
video subscription businesses, many times a customer is attracted by a single piece of content
they chased from an ad or social media post. This will help get them into a trial. Being sure they
are able to find more interesting content quickly and accessing additional content they find
interesting is what will keep them coming back.

Additionally, understanding what people are watching and how much will help you narrow in on
customers that will stick with the service. It is important to quickly demonstrate the breadth of
your offering and monitor the amount of content consumed and how that relates to the lifetime
value of that cohort. The Wicket Scorecard analyzes these trends from multiple data sources and
overlays in easy to interpret graphs to find the sweet spot of an engaged user.

                               © 2018 Wicket Labs Inc.   Learn more at www.wicketlabs.com        8

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

WHY STOP THERE?
Understanding the lifetime value of customers that engage in multiple content types (movies,
additional series, etc) will help engage other users. Getting them to the right content expeditiously
and helping them discover new content is a key factor in creating a “super fan”. Engaging and
learning from your best customers and helping them engage and learn from each other will drive
customer loyalty and content engagement across the whole service.

Furthermore, the Wicket Scorecard allows you to quickly monitor the frequency of both paying
subscribers and trialists to gauge the appeal of your content offering. You can view the ratio
of weekly active subscribers vs. monthly active subscribers (WAU/MAU Ratio) and visit the Lost
Customers tab to analyze correlations to their churn activity.

                                © 2018 Wicket Labs Inc.   Learn more at www.wicketlabs.com              9

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

If you notice churn spikes in either segment, this will help to understand the relationship
and focus retention efforts on a specific churn driver. Lost Customers will also show you the
percent of stalled users, those that have not watched content in the last 30 days, and give you
opportunities to re-engage those users by promoting content that will bring them back to the
service.

CONTENT IS KING
There is a old saying in video services, content is king. This is absolutely true. But in a world
where access to content is changing rapidly, a hyper-competitive landscape of new offerings,
and a growing number of ways to access content, making your service a routine destination is
paramount to long-term success.

TACTICS TO COMBAT CHURN
The SVOD market has become increasingly competitive as users half of paid over-
look for more choice, flexibility and accessibility in their service the-top (OTT) users
options. The landscape is shifting, Broadcasting and Cable
subscribe to two or
reports “a survey of 2,007 U.S. online consumers conducted
by IBB Consulting (recently acquired by Accenture Strategy)
more services
found that half of paid over-the-top (OTT) users subscribe to
two or more services — and nearly a third plan to subscribe to an additional offering within six
months”. Additionally, more and more consumers are accessing content from multiple devices
and distribution channels.

As the market changes, services will need to quickly adapt and customize experiences to keep
users engaged or risk losing them to competitive offerings. Because loyalty can be low and users
fairly transient, it is increasing important for services to leverage data to build loyalty through
personalized experiences and with a breadth of content offerings.

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

KEEP ‘EM COMING BACK WITH THE HITS
Video services are a hit driven business, subscribers will quickly flock to content which appeals
to them. But with little to no barriers for switching between services, building customer loyalty
can be increasingly difficult. Great content offerings will ultimately win the day in this crowded
market space, but the service’s that are leveraging data to inform their customer experience will
likely be the most successful long term.

This is a market worth fighting for, according to Statista, “the The number of
digital video market shows promising figures for the next few
digital video users
years. The number of digital video users worldwide is expected
to rise from nearly 472.5 million in 2015 to over 800 million in
worldwide is
2021. Rentals or subscription-based services are expected to
expected to rise
account for 30 percent of this total, with forecasted revenues of from nearly 472.5
around 16 billion U.S. dollars by 2021. million in 2015 to
over 800 million in
Consumers are more than willing to sign up for a trial if they are 2021.
chasing a specific piece of content. Once in the trial or service it
is important to leverage multiple data points to ensure that customer quickly finds the content
they are after, is able to consume it, and more importantly, be exposed to additional content to
deepen their engagement with your service.

At a service level, it is important to know how they consume content. The Wicket Scorecard looks
at a few such metrics to understand the viewing habits of your subscribers:

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

Video Views Per Session shows the number of shows accessed in a single session. Are they here
for just a show or movie? Are they binge watching content? A second view, Number of Series
Watched, will help you understand the different number of shows your users are watching and
help answer the question of when they are engaged with the deeper content catalogue. Both of
these views overlay the lifetime value of these customer cohorts and find the sweet spot
correlation between usage stats and value of those customers to help focus your marketing and
retention efforts.

CONTENT ENGAGEMENT
Engagement data will help you understand how subscribers use the service and will provide you
with baseline success rates for encouraging customers to keep coming back. But getting them
to the shows they want and helping them discover the next great show is what is going to keep
them using the service.

Understanding the relationship between the user Your ultimate success with
and the content they consume is fundamental retaining customers will be
to building a customized experience and will
your ability to predict and
help validate your overall content strategy. As
recommend the next series
engagement data shows, there is a high correlation
between the number of series a user watches and
or movie that customers
the lifetime value of that subscriber. The more want to watch.
shows they watch, the more value they see in the service which, in turn, reduces their propensity
to churn.

Content engagement data will not only help build a better experience and help users find
the content they love, it will help inform your content acquisition strategy to make sure your
service is delivering content people want to see. Key heartbeat metrics will allow you to see the
percentage of your content library that has been viewed, who is watching new content, how
many of your users are fans, and who is actively binge watching content.

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

Your ultimate success with retaining customers will be your ability to predict and recommend
the next series or movie that customers want to watch. Using your own user data is helpful to
understanding the correlations between users and the content offering in your catalogue.

In the Wicket Scorecard you quickly get a view of the top performing shows in your catalogue by
audience size and completion rate. You can also see which shows are driving new trials in
addition to ones that have raving fans driving subscribers to stay in the service longer and have
a much higher lifetime value.

As discussed earlier, there is a high correlation to the numbers of shows a subscriber consumes and
your ability to retain them for longer periods of time. Understanding the shows that have the highest
crossover appeal will allow you to target specific shows to different cohorts of users delivering a
higher propensity to find another show they will love. The Wicket Scorecard has interactive tools that
allow you to dig into the relationships between content selections and their respective audiences.

                                © 2018 Wicket Labs Inc.   Learn more at www.wicketlabs.com         13

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

Sometimes these connections are not always obvious at first there is a high
glance. While hits will always drive new trials, subscribers, and correlation
keep people loyal to the service; finding that next show or two
between the
is how you create raving fans. Discovering shows with high
viewership correlations is only part of battle, marry that data to
number of series a
additional user data or third party data like reviews and soon user watches and
you will be able to understand which content is delivering the the lifetime value
highest impact. of that subscriber.

• Which shows are the blockbusters?
• How do you help subscribers find the hidden gems, guilty pleasures, and avoid the duds?

The Wicket Scorecard allows you to break down your content offering and direct your users to
the content most appealing to their tastes and will help you avoid spending on content that does
not move the needle.

The Wicket Scorecard levels the playing field. Increasing competitiveness of SVOD service
offerings, leveraging data to deliver a greater, customized experience, and get predictive in
customer retention efforts. Turn your data into an effective retention tool, reduce churn rates,
and create raving fans of your service.

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

THE BATTLE TO KEEP CUSTOMERS
Many of the tactics used to reduce churn focus on how to keep customers subscribed once they
become a paying customer. While tactics such as credit card updater services, and save/win-back
campaigns are effective and vital to keeping churn numbers down, they are reactionary. When
you are in the position of saving a customer, you are already in an uphill battle to keep them
long-term. The battle to keep customers in a content subscription service can start before they
even make it to your site.

Many consumers first engage with a subscription service because they are chasing a piece of
content that intrigues them. They may be introduced to your service from an ad campaign, a
social post, an email, etc. In many cases, their awareness is centered on the content and less
on the content provider. As we discussed earlier, having a deep content offering is critical to
keeping customers long-term. A single piece of content could be what grabs their attention.

The goal of marketing outreach is to bring a customer in the The goal of
door, it’s the job of the service to make them want to stay.
marketing outreach
Targeting the right customers at the right time, providing
is to bring a
a wide variety of compelling content, creating an intuitive
product, and building a community within the service are all
customer in the
measures of churn reduction. To put it in real terms, I may first door, it’s the job of
go to a news service because I am interested in a story a friend the service to make
shared about gun control, but once I am there my interest them want to stay.
could be piqued by the latest thoughts on the blockchain
phenomenon.

There are many trigger points in the decision to subscribe.

• How did I find the site?
• Was it easy to find the content I am after?
• Is the app or site compelling and easy to use?

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

With little information can you present additional content that is compelling? Is it a good price
point? You get the idea. Like a great sports team, the customer experience is made up of many
parts that have a specific role supporting the star players, in this case, the content.

One of the most important factors in having a low churn number is attracting the right
customers. It is an expensive process to attract and cultivate profitable users. Many marketing
professionals fall into the trap of overspending to fill up the top of the funnel. However, bringing
in users that don’t convert from a trial or leave quickly can be detrimental to your service. You
will spend a disproportionate amount of time reacting to attract customers you have already
lost. In fact, according to Localytics research, “Some 58% of mobile app users will become
inactive within the first 30 days after downloading an app, and three-quarters will churn within
the first 3 months. But churn rates are significantly lower among users who log more sessions
in the first days post-download, down to 29% among those who use an app 3 times in the first 3
days after download.”

The Wicket Scorecard pulls data from all of your campaigns and correlates that to your other key
metrics and helps you understand which campaigns are driving users that convert, stick around,
and ultimately become your most profitable subscribers.

In this graph, you can see which are your most effective acquisition campaigns. You can see
which campaigns drive the most trials and conversion, but also which tend to stick around. You
are able to break this down by campaign source, channel or device type.

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

To take this even deeper, you are able to look deeper and understand:

  •   How different activities are performing across the customer lifecycle
  •   What drives traffic to your site
  •   Which delivers a higher yield of trials and ultimately paying users

As you can see, you can start to get a quick view of which channels provide the highest
conversions to paying customers, and ultimately lower trial breakage and churn numbers. The
Wicket Scorecard goes even deeper to provide yield results for each specific campaign you are
running.

This gives you the power to focus your very important acquisition dollars on the specific content,
device, and campaign that drive the highest lifetime value and profit for your business.

                               © 2018 Wicket Labs Inc.   Learn more at www.wicketlabs.com       17

UNDERSTAND AND COMBAT SUBSCRIPTION CHURN

Getting back to content, with the Wicket Scorecard, you can also dive into the specific content
that drives user activity and new trials, raving fans, binge watchers, but most importantly you
can jump right to bringing in the customers that deliver the highest lifetime value.

Leveraging the tools in the Wicket Scorecard allows you to leverage the content with the widest
appeal and target in the specific acquisition channels that deliver the best yield and rope in
customers that are likely to stay for the long-term.

This doesn’t mean that you shouldn’t employ every tactic at your disposal to combat your churn
numbers. We work with all of our customers to help save and win-back lost customers, but it
does help to grow and keep a subscriber base happy and engaged.

As we said at the beginning, there are many key indicators for running a successful subscription
business. But at the core, every successful service has a predictable and growing recurring
revenue stream. Understanding and combating subscription churn is key to achieving this and
will dictate how profitable your business can be.

                              © 2018 Wicket Labs Inc.   Learn more at www.wicketlabs.com          18

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