Lo and behold, Amazon has found another market to conquer: the music streaming business. The tech conglomerate that started selling books in 1994 is now a major player in everything from groceries to gaming. Today, Amazon Music — launched in 2016 — supplies competition for other streaming services like Spotify, Apple Music, and Pandora.
However, Amazon Music’s share of the market — which includes around 55 million monthly active users (MAUs) — is a relatively small piece of the streaming pie. Apple Music has more than 60 million paying users. Pandora, the dominant force five years ago, will soon be tied with Apple as it continues to lose listeners. Now the undisputed leader in this category, Spotify boasts nearly five times as many MAUs as Amazon, according to its latest earnings report.
What makes Spotify such a tough competitor? Simply put, the company knows how to keep customers. After claiming it had half the customer churn rate of Apple last quarter, Spotify reported that its rate has only improved since then (by more than 50 basis points). Amazon and Apple pride themselves on delivering superb customer experiences, and they’ve built devoted followings as a result. But when it comes to retention in the music streaming arena, Spotify is leading the pack — and it’s not even close.
Making Them Stay
Bringing on new customers is getting harder as consumer trust in brands continues to wane and acquisition gets more expensive. According to a report from business intelligence platform ProfitWell, the cost of customer acquisition is up almost 50% from five years ago for both business-to-business and business-to-consumer companies. In order to boost revenues, companies must focus on keeping the customers they already have.
Regardless of your industry, if you’re looking to turn first-time customers into ardent supporters, here’s how to do it like Spotify.
1. Win loyalty during the onboarding phase.
Spotify works hard to capitalize during one of the most important periods of any brand’s relationship with customers: onboarding. It experimented with new onboarding tactics in 2019, quickly immersing new users in product functionality with the goal of driving more engagement and ultimately boosting retention. For example, after customers sign up for Premium, they receive a branded email outlining all of the exclusive features they can now enjoy. Don’t assume that customers won’t second-guess their choice to upgrade; remind them what they’re paying for.
Making customers feel welcome after they sign up, subscribe, or make a purchase allows you to establish a solid foundation on which to build the relationship. Even for its ad-supported listeners, Spotify is quick to gather favorite artist data, which it uses to create personalized playlists. An effective onboarding program shows the value of your offering while likewise demonstrating that you value your customers. It also presents an opportunity to gather feedback that you can use to design future onboarding experiences. Send a quick survey after the process is complete. Some customers will be more than willing to share their perspectives; take advantage of the insights they have to offer.
2. Price for profitability.
Especially for newer companies, it can be hard to demonstrate the value of your product if prospects haven’t experienced it firsthand. It’s often beneficial to establish a lower starting price as you enter new markets or go after new market segments. Pricing is especially important in an extremely competitive vertical or sector. “The key is to quantify the value you provide your customers, which can be difficult without a baseline,” says Christine Alemany, CEO of TBGA, a branding and marketing firm. “If you face a strong competitor, you might have to price aggressively to entice customers to try your product and then increase your price as targets begin to recognize its value.”
Pricing aggressively may take the form of promotional introductory prices, free trial memberships, or tiered freemium models. In August, Spotify debuted a 90-day free trial offering for both its standard and student plans. The company extended its 30-day free trial period in response to the launch of a similar offering by rival Apple Music. You don’t want to ultimately price yourself out of business, but don’t shy away from a pricing war if the stakes are high enough.
3. Diversify your offering.
Granted, when it comes to diversification, Amazon might be case study No. 1. Even so, Spotify has shown it has a knack for branching out into new markets, and the company has prospered as a streamer of not just music, but audio as well. It has become the biggest podcasting platform in the world and recently announced that it would be purchasing The Ringer — the sports and pop culture website and podcast network founded by Bill Simmons in 2016 — for $250 million.
Diversification doesn’t have to mean entering entirely new markets. How can you sell more to the same customers? The best way to start is by examining your existing offering and adding ancillary services. “Revenue growth from existing customers can be achieved by offering additional add-on services through strategic revenue share partnerships,” advises Nishant Aggarwal, founder of BlueWander, a luxury travel experience platform. “The positioning of these services and the timing of sharing the offers with customers are key considerations that can hugely impact the conversion rates.” When existing customers can buy more from you, that gives them more reason to stick around.
For true competitiveness in your market, focus on customer retention. If you use Spotify as your model and take these tips to heart, you may just come to dominate your own industry.