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Subscription payments and customer lifetime value

Emerging start-ups and scale-ups are disrupting current eco-systems. “One of the more interesting shifts is the rise of subscription business models since that not only affect the relation between companies and their customers but also that it is adopted across industries”, says Johan Börjesson at Arvato Financial Solutions.

Marknadstrender Kundupplevelse

Tech and customer centric driven companies displays a growth rate exceeding most traditional companies. This in turn forces existing companies to review their eco-system strategy and business models to find new ways and partnerships to grow their business.

From a payment perspective, subscription business models create a new type of complexity since not only customer conversion and acceptance rates are the important KPIs, but also customer lifetime value also (CLV) grows in importance.

Different user journey

Johan Börjesson, Business Development Payments at Arvato Financial SolutionsJohan Börjesson, Business Development Payments at Arvato Financial Solutions.From the subscriber perspective, the user journey is also different compared to regular purchases. The subscriber most often accepts to pay the subscription cost in advance to get access to a product or a service for a predefined time.

“In the next step, combinations of fixed fees, usage costs, discounts, tiered pricing options and add-ons create challenges for merchants, since subscribers expect a friction free experience as well as transparency and control to keep track of their subscriptions and costs”, says Johan Börjesson.

Customer Lifetime Value

From a merchant perspective this is divided into multiple key steps. Starting with customer acquisition via sales, marketing or other sources is followed by activities to keep and build a valuable relation, making CLV one of the most important KPI within subscriptions. CLV is often broken down into additional KPIs to measure all steps that can improve the life time value, including churn, up sale, x-sales, steps to onboard the customer and customer service interactions to mention a few of the more important once.

“Understanding the business eco-system of subscriptions will help merchants to select the partnerships needed to provide a superior customer experience”, says Johan Börjesson, Business Development Payments at Arvato Financial Solutions.

Subscriptions therefore covers several more steps compared to a traditional e-commerce purchase where the relationship to some extent is over when the customer has received and paid for the product.

“An important aspect for companies to reach success with subscriptions is to take advantage of their customer data. Data provides them insights into what customers that are at risk to churn or where they might drop out in the onboarding or what customers that are most likely to move up in the value chain through an up-sale or cross-sales offer”, says Johan Börjesson.

Invoices important to customers

“From our experience and data we can conclude that invoicing has proven to be a preferred payment option for both end-users and merchants. The next generation of digital invoicing ensures transparency in terms of a clear overview of the ongoing subscription, creating a safe environment where the consumer is in control over what he or she is about to pay for”, says Johan Börjesson.

It also offers relevant communication options to reach customers through their preferred channels. From a payment perspective, consumers can select what payment option that works best for them, where for example direct debit options has proven popular to avoid the periodic payment process.

Arvato Financial solutions

Arvato Financial solutions is an international finance and tech company delivering data driven and customer centric payment experiences. Our product portfolio support B2C businesses within several industries, including Telco, Mobility, Utility, Health, Banking, and e-commerce, where invoicing and payments are core parts of their customer journeys.

Read more about Arvato Financial solutions

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