Lately, we’ve been talking with clients about the concept of “useful life” of their subscription products. We use the phrase “useful life” to describe the time frame in which a product value is useful to the customer. It is interesting how many companies are enamored by their subscription model and do not see that the model itself does not fit the useful life of their product or service.
We recently heard from an online services retailer who uses a subscription model for access to a database of listings. The useful life of something like this for a customer can vary based on the nature of the research they are doing. For many customers, they have a one-time use of this database, so the subscription model is really misapplied to this customer. Granted, this is appropriate as a time-based access model, but to call it a subscription is really changing the mindset of your customer and expectations of the retention. You can not retain customers after the value is gone, and simply having a subscription model is not going to set up an expectation for them to continue that monthly fee. What the customer feels is entrapment. This is what happens when the customer and product relationship is not in the forefront of the minds of the people making decisions, and models are set up incorrectly.
This company is pulling retention rates for all subscriptions and seeing a high churn rate in the early months. If they were able to separate the pricing models and have a one-month access pass with no expectation of renewal, they could place accurate expectations on their customers. But now, they are experiencing a big churn after 30-60 days, simply because the useful life of this product does not truly fit a subscription model. So the result is an unrealistic expectation that retention would exist beyond that useful life. As Druker said, “What gets measured, gets improved”. So you are setting up a measurement of retention that really can’t be expected to improve if your product does not have a useful life that is relevant to a subscription model.
As a company you have to maintain a firm grasp on the useful life of your product or service. Without it, you might adopt old models, or make decisions on your pricing models that don’t accurately value what your customers need. The subscription model is a powerful pricing model, but its not the center-piece of creating value. Your product’s value and usefulness is the center piece, and your model has to be built around it.