The right way to reduce cancellations and churn rate

Today almost everything is a subscription. Things that were once purchases, like software, music, and even food, are commonly sold today as subscriptions.

But, there is a problem with these recurring transactions: customers can cancel, creating a dreaded “churn”. The more churns, the more businesses have to spend on acquiring new customers. High churn businesses depend on new customers not only for their growth, but also to avoid declining revenues.

The Wrong Way to Reduce Churn Rate

Unfortunately, some companies discourage cancellations by adding friction to the process – that is, making it harder and longer.

If you’re trying to cancel your cable subscription, for example, there’s a good chance you won’t be able to do so through the company’s website or mobile app. Instead, you’ll need to call their customer service line, interact with voice menus and at least one human, and finally speak with what is commonly referred to as a “retention specialist.” This person will do their best to keep you from canceling – usually offering discounts or other incentives to stay.

Things haven’t changed much since I described a frustrating interaction eight years ago. By making the cancellation process easier and employing a human negotiator, these companies can effectively reduce the churn rate. But in doing so, they greatly affect their customer experience.

Dark grounds and Roach motels

It’s not just cable, satellite, and internet providers that are using this approach to reducing cancellations. Behavioral design expert Nir Eyal, author of Hooked, underlines the irony in the New York Times editorial criticism of companies that make terminating subscriptions confusing and difficult. the Time himself, he points out, uses these same techniques.

Applications of behavioral design principles in a way that benefits the business but hinders the customer are often referred to as “dark models”. The peculiar practice of subscribing with very little effort and unsubscribing is confusing and laborious is colorfully described as a “roach motel”. (It’s easy to check into the famous pest control device, but impossible to check!)

Eyal notes that he could subscribe to the Time in a few clicks and without human interaction. Unsubscribing, on the other hand, involved multiple screens and the obligation to cancel either by phone (but only during specified hours!) Or via online chat. The chat interaction required an exchange with a representative who tried different approaches and offers to discourage cancellation. It took several minutes before Eyal could finally cancel.

It’s not just the Time which uses the motel roach technique to reduce cancellations. On several occasions, I have subscribed to the the Wall Street newspaper and their WSJ Wine Club. Both have equally torturous processes for canceling a subscription or even turning off auto-renewal.

Friction, the quick fix

I have sympathy for otherwise reputable news agencies that resort to dark schemes like these. It is likely that at some point a manager was given the goal of reducing the churn rate. This manager could not improve the editorial product and could not lower the price of the standard subscription. The only interventions that seemed likely to work are human interaction with the unsubscribed and delivery as a last resort. The result of these interventions is the kind of time consuming process that Eyal and I went through.

Indeed, the primary design goal may not have been to add large amounts of friction to the undo process. The extra effort could have been a by-product of requiring a human negotiator to approve the cancellation.

Whether intentional or not, the end result is the same. The confusing and tedious process produces an improvement, at least temporarily, in the churn rate.

Significantly, I don’t recall being asked a Net Promoter Score type question, for example, “How likely are you to recommend this company …” after running any of these cancellation challenges. Brands that use these tactics rarely want to know what their departing customer’s experience was like.

Better churn reduction more ethical

Ideally, canceling a subscription should be as simple and easy as signing up. Lots of good brands do. A trivially straightforward approach to unsubscribes won’t reduce them, but it will make customers feel good about engaging with the brand in the future.

There is another avenue which is ethical, even beneficial, but which can also reduce the churn rate. What happens if you automatically extend the subscription for a short but significant period? In other words, to give the customer the possibility of continuing to cancel immediately, but also the possibility of a free extension.

Matej Sucha of Mindworx Behavioral Consulting suggests that postponement of the cancellation decision should be a key goal. It may seem like just delaying the inevitable, but it can have beneficial effects.

1. If the cancellation decision was impulsive, the extra time allows the customer to rethink it.
2. Deferral provides additional time for the product or service to become a habit or part of the customer’s routine.
3. Circumstances may change, for example, a budget crisis may improve during the extension period.
4. In the case of more complex products, the company has time to resolve the issues that have kept the customer from getting the value they expect.

It goes without saying that the postponement process should not add confusion or undue friction. The goal is not to trick the customer into forgetting to cancel later, or to add undue effort to the cancellation process. On the contrary, the postponement offers an opportunity for both parties to benefit from it.

Postponement is not a panacea. In some cases, continuing to provide the benefit for free, even for a short time, can be too costly. And some, perhaps most, of the scheduled cancellations will still occur at the end of the extension period.

Still, an extension offer can be a very positive thing. Instead of a roach motel, it’s more of an accommodating hotelier that gives you an extra night – for free! Whether the customer stays or not, the lasting impression will be favorable.