This is the first in our new ‘HEARTtruths’ series, designed for senior growth and insights leaders at subscription and digital services brands. HEART by MTM is a proprietary growth framework for healthy acquisition and retention across entertainment, Telco, FoodTech, TravelTech and FinTech sectors.
Not that long ago, if you wanted to make dinner from scratch, not only would you have had to go shopping, but you would also have had to figure out a recipe, check what was in your fridge and spend time chopping and peeling. Now, for an increasing number of people, dinner arrives on the doorstep, ready to cook, via a digital subscription service. Quick, easy, convenient and, hopefully, delicious.
Digital subscription services such as these make good sense – for brands, they provide predictable, recurring revenue streams, help to build customer relationships and offer opportunities to cross-sell or upsell additional products and services. And for customers, they can reduce stress and friction. Get the services and the cadence right and customers can have all their every-day services and needs met at their fingertips. It’s no wonder that the global subscription market has grown rapidly in the last decade and is forecast to grow further in the next five years to reach an estimated value of over US$2,400 billion by 2028.
Subscription models also come with their share of challenges, of which customer acquisition and retention are, arguably, the most important. After all, if you can’t acquire or retain customers, you don’t have a business. The same is true for digital service brands more widely. The dynamics of acquisition and retention in digital services are different from those in a traditional business. For example, a digital relationship lacks the human interaction that happens in offline services, which means it takes more effort to personalise the service, build a connection and listen and respond to customer needs. And these dynamics are different again across categories: consumer behaviour, preferences and desires in gaming or travel, for example, are not the same as in telecoms or FinTech.
This is why MTM developed its groundbreaking new HEART framework to help subscription and digital services companies navigate the path to profitable and healthy growth. If you want your service to thrive and not just survive, then read on…
The key challenge: healthy acquisition and retention
One of the key challenges is the need for a razor-sharp focus on not only the quantity of customers acquired and retained, but also the quality. What may look like a healthy volume of new customers and a low rate of churn can hide longer-term problems. Attracting the wrong customers and keeping them for the wrong reasons is not healthy. It can be expensive and ultimately damaging to your brand.
MTM’s HEART framework recognises that each brand with a subscription or membership model faces a unique acquisition and retention challenge. HEART, which stands for HEalthy Acquisition and Retention Temperature, enables brands to take the temperature of their acquisition and retention strategies and performance and, crucially, to diagnose the actions to take for optimum health. Because it’s designed specifically for subscription and other digital services models, it really shines a light on brand’s biggest opportunities and challenges so they can take swift action to drive growth, whether that’s fixing a leaky bucket, dialling up brand experience, becoming the preferred ecosystem or just staying ahead of the game.
Not all customers are equal
We define ‘healthy’ as the ability to attract customers to your brand who value what you do enough to sign up, spend money, stay for the right reasons, and advocate your brand.
So, how can brands achieve HEART health? We’ve broken it down, as follows:
Make your offer crystal clear: At the acquisition stage, healthy means ensuring that customers fully understand what they are signing up for. Brands need to have – and be able to communicate – a strong sense of their value proposition, or what Clayton Christensen calls the ‘job to be done’. If you understand exactly what people struggle with and set out to solve exactly those problems, you will be confident that you are signing up people who want exactly what you offer, and you make it harder for other brands to copy you. For example, Hello Fresh offers a clear and simple proposition, beautifully realised, promoted and delivered.
“There is no magic formula here. You have a person that has a problem, you solve that problem, you do it damn well. They’re going to stay with you. And sometimes, you know, there is a lot of over complication in this process. People try to think about all the different strategies and initiatives and all these things and then how we keep our customers, and they have no idea what, what are their needs and problems. It doesn’t have to be rocket science.” — Michele Galli, Group Product Manager, Wise
- Demonstrate value: Healthy means attracting profitable customers. Unprofitable customers are bad news for any business, but when they are locked into a subscription or membership, the losses are multiplied. If you’ve signed up the right customers and can deliver great service you will have opportunities to sell additional and premium services, making each customer more willing to spend money and therefore more profitable. Beware of incentivising the wrong customers to join or offering perpetual discounts as this detracts from the brand proposition.For example, Monzo has created the potential to sell its premium service because it has done such a decent job of building an engaged and loyal customer base with its free service. GoHenry has been spectacularly effective in understanding parents’ needs and the job to be done, by understanding that parents are willing to pay a monthly fee for a banking service that makes them feel that their children are also getting a financial education
- Create compelling experiences: At the retention stage, health is about ensuring that your customers aren’t with you through apathy, lack of competition, or through being tied into contracts, as this just breeds resentment. It can also make you vulnerable when new, disruptive market entrant comes along. You want customers to stay for the right reasons.For example, before the advent of challenger banks such as Metro, Starling and Monzo, the received wisdom was that you were more likely to change your spouse than change your bank. Healthy retention means different things in different categories, but it is mainly about positive, purposeful and low-friction experiences
- Build advocacy: Healthy means having a customer base who want to affiliate with your brand. Brand purpose is key here, but it has to be authentic. Your treatment of ‘People, Planet and Profit’ all have long-term implications for healthy acquisition and retention, as do the extent to which you can be open, transparent and authentic. All these elements affect whether customers will advocate for your brand.
In the Telecoms sector, giffgaff, as a certified B-Corp, is a great example of a brand that has excellent environmental, social and governance (ESG) credentials. The brand makes it easy for members to live up to the same values by recycling old phones, selling refurbished phones and matching charity donations, all of which translate into a great HEART health score.
Take a closer look at HEART
Overall, focusing on HEART health enables brands to address the most existential challenges of any subscription or digital services business — acquisition and retention — providing tangible insights so brands can focus on the actions that matter most for driving growth.
Our HEART framework is based on structural equation modelling and regression analysis of 5,000 quantitative interviews covering 50 brands in eight categories: gaming, travel, finance, music, food, sport, video on demand and telecoms. The backbone of the HEART framework is comprised of seven proprietary experience drivers. These key drivers help brands understand customers’ needs and motivations before, during and after they become a customer, so you know what action is needed to acquire, retain and win them back.
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