Rethinking monthly subscriptions for service businesses in Africa with Aimé Abizera, CEO of Group Vivendi Africa Rwanda- CanalBox

Monthly subscriptions are not native to Africa:

Monthly subscriptions began in the late 1800s with magazine subscriptions, and became so popular with milkmen deliveries in the 1960s. Now, subscriptions make up a huge chunk of our spend when it comes to services. In Africa, subscriptions are also common but they are structured differently:

• Most subscriptions are pas as you go, the customer initiates the transaction to get service each month. After payment, the service is activated for the following month.
• Card usage in Africa is between 20-30% on average (some countries like South Africa, and Mauritius have a card usage of 60%+, while countries like Guinea are Sierra Leone have a usage of 5% or less).
• Most subscriptions are not credit-based, the customer uses the balance on their mobile money account, checking bank account or can borrow from buy-now pay-later services to pay. But overall, the customer needs positive-cash to purchase a subscription.

Monthly subscription challenges for businesses in Africa:

• Most monthly plans start when a customer renews, and goes until the same day next month. Here is the challenge , if a customer delays 5 days , say about 4 time a year. The business will end up collecting 11 payments in the year as opposed to 12.
• Most subscriptions are pay as you go. The customer has to initiate payment every month, which leads to dormant subscriptions. Some customers will not renew their subscription on time or each month. Businesses spend additional operational resources to remind customers to pay and 5% of customers on average will be late or unsubscribed each month

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Corporate Africa is figuring out a way around this:

Telecommunication companies understand that not all users will afford the same monthly plans, especially the new users. These companies are adding weekly, Bi-weekly plans to meet demand. Companies such as Fibertime, TooMuchWifi in South Africa offer pay as you go fibre vouchers for R5 a (about 25cents USD). These pay as you go accommodations are growing their revenues and most importantly helping more people to get service (impact)

BUT-Majority of service businesses have not introducing bi-weekly or weekly plans:

If you run a subscription service such as TV, streaming, offering a sub-segments of the current subscription you already have , and obviously charging a little bit more to cover your self , might introduce new customers to your service and potential add new revenue.

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We spoke with Aimé Abizera , CEO of Group Vivendi Africa Rwanda- CanalBox | French Foreign Trade Advisor | Afrorian expert | Our conversation with Aimé was to understand potential opportunities and risks for service businesses in Africa around restructuring monthly subscriptions.

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Pros:

Offering cheaper plans can reduce churn: Customers who might not have the full monthly amount available, but are open to smaller payments in that month can pay to continue service. This could reduce customer churn and increase the active database. It goes also with African markets where some people are paid weekly or even daily.

Increase turnover: A customer may decide not to renew because of a temporary revenue problem. By offering more frequent payment options, a business can capture more revenue from existing customers who would otherwise disconnect or buy after a dozen day depending on their revenue. If you charge $25/month for a subscription like CanalBox for example, offering a bi-weekly of $16/month for Customers who do not have the $25 at the time of renewal generates additional revenue from the same customer in that month, and helps the customer to access service(impact).

Differentiation in a competitive market: Flexible payment options could attract more customers or increase the eligible number of clients. This is true especially in markets with variable incomes (some people are paid monthly/weekly/daily) or where customers prefer pay-as-you-go models. Note that, as of today, no ISPs have such options in east Africa. This could indeed be a market differentiation element.

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Cons:

Customer decision risk and revenue fluctuations: There is a risk of losing revenue. Indeed, some customer might decide to choose the one/two weeks package instead of paying for a whole month. Company revenue could be scattered in two or three and be at risk.

Operational/customer experience costs:

• Administrative and customer service work: While payment processing methods may stay the same, having more frequent transactions could increase customer service demands (inbound calls at call center) or admin overheads.
• invoicing complexities (in our case, we would multiple by X2 or X3 the number of transactions), and the number of transactions to process. Each transaction incurs a processing or management fee/cost, and multiple payments per customer would raise those costs. As much as this can all be factured in the cost, it brings additional work to finance and revenue.

Customer confusion & lost of simplicity: While we want to keep a simple business and clarity for clients, introducing multiple pricing models such as monthly or biweekly, might confuse customers and lead to less clarity of the offer. Less clarity leads to less business and this could lead to clients not knowing the rhythm of their subscriptions.

"In General, flexible payment options make sense for services if their operational costs are easily manageable. Offering biweekly or weekly subscriptions in addition to your usual monthly subscription, might increase customer retention and revenue, as long as the increased transaction volume and operational load don’t offset the benefits. For example: Telcos can easily implement this strategy as their business is different (CAPEX wise) than our business (ISP). What works for one sector or service type might not work for another!" Aimé Abizera.

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