Where Subscription Marketers Need to Focus Their Energy

In the last decade or more, every industry has dipped into subscription-based business models. From subscription natives like HelloFresh and Spotify to those in the process of transitioning like grocery chains and news/media moguls, reoccurring revenue models sound enticing. But it’s easier said than done. With consumers having limited dollars to place their subscription services, marketers must prove their solution should be a slice of the pie when it comes to consumers’ subscription budgets. Beyond initial purchase (or oftentimes “trial periods,”) marketers must maintain customer engagement to ensure revenue momentum. In our work with a subscription print company, we found that while their retention marketing was a significant driver of renewals, greater than 60% of the contribution came from subscriber engagement, which had a number of different marketing influence points across the customer journey.

Four Stages of Customer Lifecycle Marketing

Where to Focus and What to Measure

To be successful, marketers in subscription-based companies need to focus on four distinct stages of the customer lifecycle to engage and delight consumers. It’s not enough to be good at performance marketing; CEOs are asking CMOs to think about marketing from the perspective of the customer—sometimes called audience-centric marketing. This means different things across the four stages of the customer lifecycle, including:

1. Brand Development
2. Demand Generation / Performance Marketing
3. Expanding Relationships (Cross- and Upsell)
4. Retention

(1) Brand Development / Upper Funnel

Maintaining a strong brand is as or more important for subscription businesses than it is for traditional advertising-heavy companies like consumer package goods firms. Winner-takes-all economics prove that dominating share-of-voice—whether earned or owned—is a key driver of long-run success.

Challenges

Today’s subscription marketers are most worried about the spending arms race. In our soon-to-be-released study, marketers say “competing with larger / higher spend competitors” is their biggest challenge. This is largely due to the winner-take-all economics of many subscription businesses. In addition, the huge number of start-up brands clamoring for attention.

Marketers also worry about creating messaging that breaks through. Today’s media landscape is incredibly noisy, and consumers are getting more and more discerning about what matters to them. Deluged with an ever-expanding universe of quality content, marketers are torn between “thinking big” when it comes to share-of-voice and “thinking small” to break through with ever-pickier customers.

Almost as important is the measurement of upper-funnel impact (brand). CFOs remain skeptical about brand investments. This is particularly true when digital marketers report on daily CPA (cost-per-acquisition) and are laser-focused on efficiency. This can be a race to the bottom; however, as performance marketing can lose large audience segments in its quest for efficiency.

Metrics

Marketers today are using three broad types of metrics to answer CFO’s questions on upper-funnel effectiveness. Each has its pros and cons. The best CMOS use a portfolio measurement approach combining all three.

1. Attitudinal Metrics
   Metrics like awareness, consideration, and affinity, are the gold standards to link what is being spent up-funnel with its effect. While only obtainable by surveys, these metrics offer the best read on how consumers feel (System 1) and think (System 2) about the brand. Measured weekly, they are sensitive enough to pick up the effects of large campaigns. Increasingly, more scalable and affordable brand tracking studies are available, even on a syndicated basis.
2. Behavioral Metrics
   Like GRPs (gross rating points) and impressions, these metrics are also critical to understand. While they don’t take into account the effect of messaging, it’s possible to start to visually or anecdotally link campaign spending with results. GRP and impression data can also be used to feed into share-of-voice calculations. Share-of-voice has also been shown in various meta-studies to be highly predictive of long-run performance. For a great study on this, check out The Long and Short of It, a meta-study of consumer brands in the UK.
3. Upper Funnel Contributions
   The third method to measure is upper funnel contributions. This is a meta-method that ties attitudinal and awareness measurement together through econometric models. Econometric models are commonly known as “media mix models” or “marketing mix models” (MMM). These aren’t really metrics, per se, but they tie together stimulus, intermediate (attitudinal) response, and down-funnel metrics to better understand true ROI from upper funnel activities. About 20% of subscription marketers use econometric models today (vs. 100% for CPG companies). Although, there is anecdotal evidence that more marketing science is coming to the subscription space.

(2) Demand Generation

Demand generation is traditionally the main focus for marketers at subscription companies, for good reason. Without marketing priming the pump of new customers, the subscription flywheel can never get started. Our survey respondents told us that demand generation is and will be their #1 focus today and into the future. However, there are many challenges facing direct acquisition efforts.

Challenges

Similar to the challenges facing up-funnel marketers around media supply, the lack of high-quality digital media inventory haunts performance marketers. Click fraud, junk inventory, and missed promises from bounty-based suppliers continue to strain performance marketers at subscription-based companies. And, as more and more marketers chase the same consumer eyeballs, poor quality impressions and click fraud are bigger issues.

At the same time, pickier consumers increasingly demand content “just for them”—making it imperative that demand gen marketers dice messaging into smaller pieces to drive performance. This isn’t always the case though. Some larger companies told us that they are doubling down on “one size fits all” messaging that proves itself via vigorous test and control methods. There is no clear consensus on whether a small ball or a scale game will win out over the long run. The answer may be a bit of both.

Finally, demand generation marketers are struggling with building actionable segments and personas. In the era of machine learning, models are being confused for audiences, and vice versa. Marketers struggle with creating segments that persist over time and are “findable” across the marketing funnel. One concrete example arises when working with marketing automation tools, such as Salesforce or Oracle. Picklists and taxonomies are still at the core of automation software. If audiences change yearly (or more often), measurement and optimization become impossible.

Metrics

The metrics of demand generation haven’t changed much since the days of direct mail dominance. Response rate and cost per acquisition still dominate—but customer lifetime value is increasingly in the mix.

63% of marketers we polled focus on cost per click or cost per response to measure acquisition. This metric has remained the same across insurance, media, and telecommunications marketing for 30 years. However, customer lifetime value is gaining traction to work hand-in-hand with traditional demand generation metrics. This is particularly for more mature businesses or those with longer customer histories.

(3) Expanding Relationships (Cross- and Upsell)

When it comes to expanding relationships, successful subscription marketers are working together with product teams. Increasingly, these experiences lived online or in apps are subscriptions. Cross-selling thus happened naturally in the flow of consumption—either when hitting paywalls, searching for new content, or running into metering limits. However, product feature-driven upgrading can’t do it all. Marketers play a key role in customer insight, segmentation, and targeting, as well as in building communication flows that anticipate—rather than react to—needs.

Challenges

The biggest challenge faced by marketers—and by their product manager cousins—is clearly understanding existing customers’ attitudes, wants, and needs. This is more than just generally knowing the customer base. It’s critical to build knowable, discrete, and actionable audience segments that can be messaged differently.

A more advanced task is building on these customer insights with real-time monitoring and prediction of customer behavior. Paywalls and limits can drive upsell, but they can also drive dissatisfaction and even cancellation. It’s up to marketing to develop an audience-centric perspective.

Metrics

Product-focused metrics dominate KPIs for cross- and upsell. In-app click-through rates and feature usage rates continue to be important to subscription marketers. More important than traditional marketing metrics, such as response rate and trial conversion rate. The differences aren’t huge, however, illustrate the linkage between marketing and product when it comes to cross/upsell.

Interestingly, “subscription native” companies are paying more attention to traditional marketing metrics than non-native firms. This could be due to the fact that subscription native companies are still in the new product launch phase and are more reliant on marketing for driving revenue.

(4) Retention

Retention is perhaps the hardest job for marketers. More than any other stage of the funnel, retention is a customer-driven event. Subscription customers choose to leave due to either (1) a negative experience or (2) mounting credit card bills (normally arising from auto-pay services). Especially for subscription-native firms. So, what can marketing do?

Challenges

Marketers have typically struggled with retention. However, this could be a framing issue. When “marketing” means “communications” or “sending stuff to members,” it will never perform well as a retention vehicle. It’s not possible to communicate your way out of customer losses. Our respondents told us that their #1 challenge is finding effective marketing tactics that drive retention. This implies that marketers might still be barking up the wrong tree when it comes to retention.

Predicting at-risk customers—and understanding the drivers of churn—is a more useful exercise. By leveraging techniques such as survival modeling, it becomes possible to find likely defectors before they leave. Subsequently, address the causes of their dissatisfaction.

Marketing also has a key role to play in last-ditch stop-loss efforts. Preventing customers from leaving in the call center or online remains one of the most effective ways to drive customer lifetime value. While there is some risk of “training” customers to expect better deals by calling to cancel, this tried-and-true tactic remains powerful, particularly for more mature firms. This is one area where newer, subscription-native firms can take a page from veteran marketers and think more specifically about what they are willing to do to prevent cancellations in real-time.

Metrics

Not surprisingly, churn rate is the most useful metric for understanding customer retention. A more sophisticated, heavily used predictive metric is customer lifetime value. It can be especially useful when understanding how much to spend to keep a canceling customer.

Truly predictive metrics for cancellation are most useful when building loss prevention campaigns. Customer engagement is a key predictor of cancellation when that “purge event” rolls around. By re-engaging the customer before the event, marketing can prevent losses that would have otherwise happened. Newsletters and customized emails are particularly effective to reengage low-use customers.

Common Themes Emerging for Subscription Marketers

Across the four jobs-to-be-done for subscription marketers, common themes emerge. First, measurement is critical. Foremost, for upper funnel activities, which are harder to measure, but critical to long-run success. Second, integration with the product team is even more critical for subscription-based businesses. Especially in the cross- / upsell and retention spaces. Finally, marketing is not just about communication. For subscription companies, marketing should own the audience segmentation and insight space. By acting as the lens through which customers are understood and anticipated, marketing can more successfully expand and retain customer relationships.