That media companies have been under constant pressure to reduce costs is an understatement. This year alone, US newspaper companies cut about 50 percent of total costs, and social media and streaming companies cut about 10 percent of costs. 1, 2, 3 To find long-term cost savings, subscription-based media companies should evaluate how to optimize their refund policies. One way is to allow for anytime cancellations and hold cash until customers cancel, only providing refunds for exceptional reasons. Implementing this requires evaluating trade-offs between cost savings and customer relationship management. The questions then become, what makes a customer worth keeping and what makes a customer worth parting on good terms with? To answer this, media companies should segment refund reasons into three segments: refunds for customers with higher resubscription potential, refunds for transactional customers, and refunds for legal requirements.
Refunds for customers with higher resubscription potential
In a world where loyalty is as important as ever, it is crucial to retain goodwill with customers with higher propensity to resubscribe. One example is offering refunds to customers who churn due to service failures from the provider (for example, access issues, incomplete products) to mend the relationship and encourage resubscription in the future. In addition, leading companies will prioritize building a deeper relationship with customers who have more cyclical behavior to prevent refund requests from occurring in the first place. For example, think of a customer who subscribed to a streaming service to binge a new season of a show. There’s a high likelihood that this customer may resubscribe for the next season, which likely means there is value in preserving goodwill. Ideally, there are ways to express the value of the service to prevent churn altogether, but if churn takes place, at least retain goodwill so that the customer returns.
Refunds for transactional customers
Customer satisfaction is paramount, but companies often get too focused on keeping all customers happy instead of satisfying the right customers, as some customers will not resubscribe even if they receive refunds. The key is to quickly identify customers who are likely to have a transactional relationship with the company or have fundamentally different needs that eliminates the need to return altogether (for example, a reason such as “no time to use the service” would be a clear example of truly lost customers). For these subscribers, no refund policy would be the best choice economically—perhaps paired up with the “cancel anytime” policy in keeping with common practice.
Refunds for legal requirements
When refund policies change, terms and conditions (T&Cs) update. Media companies must be cautious when defining which customers are refund eligible, as customers who subscribed with the initial T&Cs are bound to that policy until they sign the updated T&Cs. To size the financial impact, media companies should identify the number of customers who signed the original T&Cs and the subscription term length (typically about 20 percent refund allowance). Refund exceptions should also be provided for uncontrollable events (for example, health issues, death).
How to get started
When evaluating how this applies to your company, it is possible that your customers may fall under multiple categories listed above. If this is the case, consider applying a custom refund policy depending on the type of subscriber they are (high resubscription potential, transactional, or legally bound to receive refunds). While the trade-offs are increased complexity and cost of execution, the benefit is focusing your efforts on keeping the right customers happy.
Source:Kearney