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What Endangers Customer Retention in Subscription-based Businesses?

For a few years, there has been an exponential increase in the demand for exceptional and innovative content to be produced. People have begun to consume content rather than watch it because it is no longer only a source of entertainment but has evolved into a way to pass the time and, more significantly, an addiction. However hooked one may grow to watch more and more content, it should be noted that owing to many platforms, it has become simpler for the audience to enjoy great pieces of content from the comfort of their own homes. Furthermore, subscriptions have made it nearly impossible to avoid using one of the content platforms. However, one important factor that may jeopardize customer retention in subscription-based businesses is discussed in this article on the Chicago Booth Review’s website after citing facts from research conducted by HEC Paris’ Klaus M. Miller, Stanford’s Navdeep S. Sahni, and Chicago Booth’s Avner Strulov-Shlain.

The article emphasizes the fact that most subscription-based businesses frequently give interesting deals with steep discounts in order to persuade potential consumers to subscribe to the platform. However, if the membership is not canceled on time, it will automatically renew at the full price, which is sometimes considerably more than the basic price. As a result, users may unknowingly pay a recurrent membership fee for something they may not fully utilize or want. According to the article, many consumers are either too busy or forgetful to unsubscribe, therefore businesses are taking advantage of this inertia and profiting from it. However, according to studies conducted by HEC Paris’ Klaus M. Miller, Stanford’s Navdeep S. Sahni, and Chicago Booth’s Avner Strulov-Shlain, this may create a troublesome situation for them because it has a significant impact on customer retention. Throughout their research, they attempted to identify trends in the behaviors of the majority of the members by providing them with a variety of promos that culminated in either an automatic full-priced subscription or automatic cancellation. The researchers discovered that promotions that automatically enrolled website visitors in an ongoing subscription at regular costs were significantly less successful in the long term than those that were obligation free or simply ceased upon cancellation. According to the report, the majority of consumers who did not purchase the subscription did so because they did not want to put themselves in a scenario where their own inertia would make it difficult to break. In other words, buyers were well aware that they would end up paying for the full-priced subscription if they did not cancel it on time. As a result, they did not enroll in one in the first place. The researchers discovered that any short-term income benefits attributable to the inertia of subscribers who were automatically enrolled were exceeded by the longer-term effect, as locked-in consumers progressively withdrew. As a result, the study indicated that leveraging consumer inertia leads to a significant decrease in customer retention in the long term and that firms must recognize that they must not impose a subscription on their customers and profit from it.

Not only does profiting off client inertia damage customer retention, but it also causes your customers to lose faith and interest in the platform. According to the report, firms must address the issue immediately and make their platforms user-friendly for their customers.

To learn business insights just as paramount, if not more, visit, Chicago Booth Accelerated Development Program (Chicago Booth ADP) offered by the University of Chicago Booth School of Business.

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