Being a subscription business no longer means that your product is unique. It simply means you’re sharp enough to offer a service that’s aligned with the modern consumer’s expectations. Research by Gartner indicates that by 2016, more than 50% of CRM software will be delivered on a subscription, cloud-based model.
This means that simply existing and delivering a product isn’t all it takes to beat the competition.
According to subscription business marketing strategist Lincoln Murphy, “Being a SaaS company in 2013…allows you to be in the game.” If there’s no built-in competitive advantage, and you’re aware of at least a dozen other companies delivering the same product, you can’t afford to make any critical errors. We’re of the strong and educated opinion that offering lock-ins is one of the worst marketing mistakes a subscription business can make.
Why Lock-Ins Don’t Create Value
Why do your customers continue to purchase your service month after month, instead of taking their data to your competition? If your answer is the fact that they’ve been locked into a year-long contract without an option that allows them to churn, that’s a problem.
In the words of Murphy, “lock-in doesn’t make you unique…it makes you frustrating to deal with.“
Brand loyalty is developed when you provide your client base with real value, which could come from the best uptime record in your niche, amazing customer service representatives or the best webinars online. There’s a number of ways that you can provide value, but not allowing your customers to cancel whether they want to or not certainly isn’t at the top of the list.
The Dangers of Lock-Ins
80% of small business customers make their purchase decisions based on trusted referrals, not really great marketing or smooth sales representatives. When your prospects ask your current clients what they’re getting from being a customer of your subscription business, what are they going to say?
Regardless of whether they’re saving 10% or more with their year-long contract, you certainly don’t want their referrals to focus on the fact they’re not receiving value, but simply can’t cancel.
We’d be lying if we said that lock-ins have some appeal to subscription business owners, and they certainly are a way to ensure you receive decent life-time value from your customers.
However, it also dramatically increases the chances you’ll find yourself with a disengaged and dissatisfied user base, who aren’t talking about your product to their friends and peers. These users also won’t take the time to provide feedback on how you can improve your service and competitive edge.
The focus on your business needs to be on providing value to your customers that you competitors simply can’t touch, in the quality of your service, staff members and education efforts for your customer base. You will experience churn, because it’s simply the nature of the subscription business industry and the flexible consumers who populate the market in 2013.
The answer simply isn’t providing your customers with year-long contracts in exchange for savings. It’s about continually improving, listening and being a company that your customers want to recommend to others.
So, what is your focus? Just lock’em up and be proud of the number of customers you have? Or do you focus on keeping them engaged and happy? Please share your thoughts below.