Electronic Retailer - March 2012 - 36

GUEST VIEWPOINT

BY JEFF SAWITKE

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36

Maximize the Lifetime Value of Recurring Customers
Recurring billing occurs when a merchant offers a product or service that involves several payments over a set period of time or with no defined expiration; for example, magazine subscriptions, skin care products, health clubs, credit reporting services, gaming companies, utilities, satellite TV, etc. Although credit and debit card declines are common among all transactions, card-not-present merchants offering subscription programs such as those described above are particularly vulnerable as their business models are dependent on receiving timely, recurring payments and achieving a defined breakeven and lifetime value to reach profitability. According to MasterCard, recurring payment decline rates average 25 percent to 30 percent compared to a 5 percent average for face-to-face transactions. These declines occur for a variety of reasons, the most common being lost or stolen cards, expiration dates, insufficient funds, reaching credit limits, card upgrades, new credit card number, security breaches and processing errors. The result of these declined transactions directly affects the merchant’s bottom line and its customer retention.

Negative Impact of Declined Transactions
Declined transactions immediately put a merchant at risk both of future revenue loss and damage to customer relationships in a number of ways. • Revenue Financially, the negative impact of declined  recurring payments is pretty straightforward as they directly decrease profit. The lack of payments decreases cash flow and reduces access to working capital, while attempts to manage them can increase operating expenses. • Customer Service From a customer service perspective, recurring payment declines increase demand on a merchant’s resources by forcing agents to outbound call customers and ask for alternative payment methods or updated information, a process that is ineffective, time consuming and expensive. Often, the customer is upset that service was interrupted. • Lifetime Value of Customers Beyond revenue loss and lowered customer satisfaction, recurring payment declines cause a much more detrimental loss to merchants: a diminished lifetime value of customers.

Merchants typically experience a 30 percent to 50 percent fallout of customers in the first 60 days. Because of the small transactions values common in recurring billing models and the high customer acquisition costs, merchants normally don’t make a profit on a customer until the second or third month – sometimes for as long as two years if there is a high cost of acquisition or up-front capital expense. Therefore, customer retention, especially early in the customer lifecycle, is the most important factor in reaching profitability.

Managing Declines
Organizations can, and should, adopt an end-to end-strategy for managing payment declines. Merchants can apply two approaches. The first is targeted at preventing declined transactions based on inaccurate account information, while the second attempts to quickly find a remedy for those transactions that do get declined. • Visa and MasterCard Account Updater Visa and MasterCard both offer merchants an Account Updater service that electronically exchanges account information such as credit card numbers and expiration dates with information from the issuing banks. Automatic updates address one of the most common reasons for declined recurring payments, providing an instant increase in authorizations and an immediate impact to a merchant’s profitability. In addition to increasing the number of approved card transactions, Account Updater helps merchants retain customers, increase customer loyalty and reduce customer service

electronicRETAILER | March 2012



Electronic Retailer - March 2012

Table of Contents for the Digital Edition of Electronic Retailer - March 2012

Chasing Shadows in Mobile Retail
Calendar of Events
Industry Reports
eMarketer Research
IMS Retail Rankings
Jordan Whitney’s Top Categories
Lockard & Wechsler’s Clearance & Price Index
Cover Story CarMD Makes a DR Diagnosis
Selling in a Fragmented World
Case Study DR Marketing North of the Border
Advertiser Index
Bulletin Board
Classifieds
Electronic Retailer - March 2012 - Calendar of Events
Electronic Retailer - March 2012 - cover2
Electronic Retailer - March 2012 - 3
Electronic Retailer - March 2012 - 4
Electronic Retailer - March 2012 - 5
Electronic Retailer - March 2012 - 6
Electronic Retailer - March 2012 - 7
Electronic Retailer - March 2012 - 8
Electronic Retailer - March 2012 - Industry Reports
Electronic Retailer - March 2012 - 10
Electronic Retailer - March 2012 - 11
Electronic Retailer - March 2012 - 12
Electronic Retailer - March 2012 - 13
Electronic Retailer - March 2012 - eMarketer Research
Electronic Retailer - March 2012 - 15
Electronic Retailer - March 2012 - IMS Retail Rankings
Electronic Retailer - March 2012 - 17
Electronic Retailer - March 2012 - Jordan Whitney’s Top Categories
Electronic Retailer - March 2012 - 19
Electronic Retailer - March 2012 - Lockard & Wechsler’s Clearance & Price Index
Electronic Retailer - March 2012 - 21
Electronic Retailer - March 2012 - 22
Electronic Retailer - March 2012 - 23
Electronic Retailer - March 2012 - Cover Story CarMD Makes a DR Diagnosis
Electronic Retailer - March 2012 - 25
Electronic Retailer - March 2012 - 26
Electronic Retailer - March 2012 - 27
Electronic Retailer - March 2012 - Selling in a Fragmented World
Electronic Retailer - March 2012 - 29
Electronic Retailer - March 2012 - 30
Electronic Retailer - March 2012 - 31
Electronic Retailer - March 2012 - 32
Electronic Retailer - March 2012 - 33
Electronic Retailer - March 2012 - Case Study DR Marketing North of the Border
Electronic Retailer - March 2012 - 35
Electronic Retailer - March 2012 - 36
Electronic Retailer - March 2012 - 37
Electronic Retailer - March 2012 - 38
Electronic Retailer - March 2012 - 39
Electronic Retailer - March 2012 - 40
Electronic Retailer - March 2012 - 41
Electronic Retailer - March 2012 - 42
Electronic Retailer - March 2012 - Bulletin Board
Electronic Retailer - March 2012 - Classifieds
Electronic Retailer - March 2012 - 45
Electronic Retailer - March 2012 - 46
Electronic Retailer - March 2012 - cover3
Electronic Retailer - March 2012 - cover4
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