Optimizing customer retention will be a priority in 2020

We’ve seen our fair share of shocking headlines recently: tenuous IPOs, the “retailpocalypse” and a fickle market have reset the way we size up subscription businesses. Recurring revenue models have their pitfalls, and 2019 has certainly taught the industry a few lessons.

Next year, retention is set to be a top priority for companies looking to keep customers engaged and drive growth. From niche products to personalization, how companies deliver on and measure the success of their customer experience will separate successful subscription businesses from the next unflattering news story.

These seven trends will emerge to shape the way companies delight and retain customers in 2020.

1. To meet consumer demand, more mainstream brands will experiment with subscriptions

We’ve all seen articles detailing the financial fall of many brick-and-mortar stores. The retail crunch predicted years ago is coming to fruition as we’ve watched household names like Sears, Toys R Us and Barney’s consider bankruptcy or go up for sale.

Consumers aren’t letting up in their preference for convenience; they want easier ways to buy, and that means stores must develop better online experiences and offer subscription options or risk losing revenue. We’ll see big brands like Nike and Ikea continue to experiment and expand innovative subscription offerings.

For struggling brick-and-mortar businesses, subscription services could very well be a lifeline to retain a dwindling customer base. The shifting retail industry presents an opportunity for traditional companies to fully embrace recurring revenue models next year — smart organizations will do so.

2. The golden age of niche subscriptions is gone, so fatigue will settle in

We’ve experienced a rapid period of subscription adoption, with more options launching everyday. And that’s led us to a point of max fragmentation where companies and consumers alike are subscribed to so many niche products and services, they can no longer manage or afford new offerings.

Because the proliferation of subscriptions are so vast, specialized products and services will need to do prove their worth or risk being replaced. B2B (project management, martech, ecommerce) and B2C (clothing, streaming, meal delivery) companies alike must offer far better experiences in 2020 than in years past. For B2B organizations, products must be integrated with larger systems to justify their existence. One-off point solutions that silo information and create broken customer experiences will no longer be accepted. And for B2C companies, pricing will have to be spot on as more competition vies for the budgets of consumers who haven’t budgeted for increased spending.

Ultimately, not every company will be able to compete in the age of subscription fatigue, so we’ll see more consolidation, partnerships and mergers occur in the coming year.

3. Customer retention will become the new frontier for marketers

It’s impossible to ignore the IPO press around WeWork, Blue Apron, Uber, Peloton and others. If 2020’s tech and consumer unicorns have poor unit economics and aren’t turning a profit, they need to prepare to be the next ugly headline. Marketers can be a force for change by focusing on the long-term retention of the customers they acquire. And I believe they’ll do so happily. Why?

First, customer acquisition costs are rising and marketing channels are becoming more saturated. Marketers are looking for new, low-risk channels to increase revenue and retention is a clear opportunity. Second, as marketers learn what works in customer retention, best practices will start to emerge and increase the confidence of new marketers starting retention initiatives. And third, marketers want to be part of the full customer lifecycle. They know customers who have the best experience become repeat purchasers and refer more business, and those are easy wins for marketing teams.

The days of marketers leading with growth vanity metrics are over. Retention is set to become a top growth strategy for subscription companies and their marketing teams. Should that have been the case much sooner? Yes, but organizations like Zoom, Datadog and PagerDuty had well-reviewed IPOs thanks in part to their killer retention metrics. Marketers have a big role to play in making this the new standard of success.

4. Metrics will shift to reflect a retention-first mindset

The industry is calling on subscription companies to be more sustainable in their growth and have clearer (and shorter) roads to profitability. To deliver this sustainable growth, changes must take place at an organizational level. The teams responsible for acquisition efforts will also be held to those acquired customers’ LTV more so than in years past.

This shift will also usher in a new partnership between marketers and product teams as they work together to onboard, activate and collect feedback from customers. Of course, the acquisition-at-all-costs mentality isn’t a problem that originates solely within a marketing organization, but changing the focus of marketing teams to be retention-minded will be a common theme next year. A public and shared churn goal will help keep these teams aligned on their retention efforts.

5. Personalization will mean more than creepy ads and <first name> in an email

Personalization has been a big buzzword this past decade. But it’s time to go well beyond personalized variables delivered en masse. Today, customers are smarter and they see through cold outreach and shallow attempts at customizing experiences. That said, they’re more responsive to experiences that resonate with them.

We need to look at interaction with our customers as a 1:1 event. That means taking more of the known factors of customers, segmenting them into groups and personalizing their web and product experiences to the point where it’s an entirely custom journey.

Personalization must be about seeing your customers as people and understanding their problems. This approach is going to be essential for retention in the very near future. Salesforce Research found that customers are 2.1x more likely to view personalized offers as important vs. unimportant. And 84% say being treated like a person, not a number, is very important to winning their business. These numbers are only set to rise.

6. New legislation will help online buyers become online bye-ers

Some companies are going to rise to the occasion of changing customer expectations. They’ll personalize more experiences and offer better support. But are they willing to make it easier to cancel? They may not have a choice. Past and forthcoming legislation (specifically in California) is doing more to protect consumer rights and safeguard data. This includes making it illegal to create inconvenient cancel processes.

In 2018, a California law went into effect that stipulated if subscriptions that were entered into online, they must able be available to cancel online. That means no customer support call queues. This is a big win for consumers, and we’ll see more legislation like it in other states. So, if you don’t have an easy online cancellation process, 2020 is your year to invest.

7. Predictive models for customer retention will remain in the R&D lab

Our 2019 State of Customer Retention Survey Report shows that both subscription business leaders are interested in developing predictive models to forecast customer churn. It’s understandable: predictive capabilities are a popular topic of discussion thanks to the increasing desire to leverage AI and machine learning. But predictive retention solutions can’t and won’t take the place of best practices for the customer experience. In other words, seeing predictive models as a shortcut for customer retention is a dangerous perspective.

Let’s say you have a predictive model that shows you what accounts will churn. Not many leaders could confidently explain what happens after they’re informed about the possibility of churn. They may see a signal from a customer, but do they have all the context on the customer’s journey? And can the right teams alerted and given the correct information to reach out in a timely and informed way? This complexity is the reality of customer retention and predictive models won’t undo the reality of today.

More powerful algorithms and reporting capabilities means the future is bright for predictive retention solutions. But for now, predictive models lack the ability to deliver the ‘why’ behind churn, and that’s what you need to be successful.