Ways subscription services increase switching costs

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Customer churn can be a big problem for subscription services. Rather than traditional sales where each sale represents a large purchase, and it doesn’t directly matter if customers continue to use the product or service if customers cancel after only a few months, the revenue stream stops. There are various ways that subscription services do start to develop some lock-in, with various frictions or switching-costs that in many ways discourage users from moving to a different service. These are some of the reasons why, despite most music subscription services having very similar offerings, customers tend to remain with one service for long periods – there are difficulties moving to a different option.

This article explores some switching costs common in subscription services. 

Unique features - only offered with that service

One way that subscription services can increase switching costs is to actually give customers specific reasons to prefer this offering over others. If there are some features that only this product provides, customers may decide that there is simply no alternative available other than to continue with the subscription. 

Learning your preferences

Another way subscription services  of building in some switching costs is to start to learn and predict user preferences. If the service is able to gain an understanding of how you use the product and make useful suggestions based on this, you may prefer to continue with the subscription.

Even if a competing product is similarly placed to learn and predict your behavior, this will take time. Developing this user-specific understanding of preferences can thus help keep customers – if they were to switch the service that they move to would have to start this learning process from scratch. 

Integrating with other services

Another way of encouraging users to maintain their subscription services is integration with other services that the customer uses. Such integrations often provide some value for customers – allowing them to access your tools from other accounts. It can also make it less likely that they will switch away – now their value is reduced across other services that the user has. At a minimum, a new service would need to re-establish these integrations. 

Connecting with your friends and colleagues accounts

Connecting an account with friends and colleagues can further increase the likelihood that customers will maintain their accounts. Now the benefit of being on the service is shared with others that the user interacts with. Being on a service with your friends and colleagues brings some network effects, and these are lost if you move to a different service that does not have your contacts on. 

Friction to export your data

There is quite often some friction to export your data from subscription services. While some services do allow exports (potentially to avoid customers avoiding the service for fearing that they are locked-in), there is always some difficulty in migrating between services. It takes time to download and upload settings, and the fear involved in whether the migration will lead to loss of data may discourage some customers from switching. 

Final thoughts: The importance of providing the best service

While there are various approaches that subscription services use to try and encourage customers to keep their subscription rather than moving to a competitor’s offerings, ultimately, the quality of your product and service plays a significant role. If customers are able to see a better offering elsewhere or have frustrations using your product, they are likely to make the switch.