From Doorstep to Mailbox: Navigating Subscription Pricing During Delivery Transitions

By Nathan Hart, Manager of Consulting Services, and Becca Bettinger, Consultant.

August 14th, 2024


 

Labour shortages and rising costs have driven many news publishers to transition segments of their print subscriber base from home delivery to mail delivery.

This shift introduces significant questions about how to manage revenue and pricing strategies effectively. Understanding the impacts of such a major change is crucial for publishers aiming to navigate this transition successfully and minimise the effects on volume and revenue.

Mather’s benchmark data, drawn from more than 60 markets undergoing this conversion, reveals an initial spike in churn post-announcement, which often remains elevated for several months (see chart 1). This article examines the effects of transitioning from home to mail delivery on churn. It also explores insights from real-world A/B testing to guide effective pricing and retention management during delivery model changes.

 

Chart 1: Benchmark churn rate prior to and following a mail conversion.

 

To pause or not to pause: navigating renewal pricing decisions

The initial instinct among most publishers is to address all subscriber touchpoints to try to mitigate churn associated with the transition. While this approach is advisable, renewal pricing deserves special consideration.

Many publishers pause renewal pricing for subscribers affected by mail transitions. While this is a common practice, it is crucial to differentiate between organic churn and price-related churn and consider the revenue implications of such a strategy before making a decision.

Mather’s research reveals that a subscriber’s decision to churn is influenced by various publisher-driven and external factors. Under normal circumstances, a price increase might be the primary reason a subscriber cancels their subscription. However, when external factors such as inflation, print delivery day reductions, or mail conversion are introduced, the reasons driving a customer’s decision to churn become less clear.

Halting renewal pricing without first understanding these distinctions can result in significant revenue losses, despite stop-loss measures. Publishers must carefully weigh the potential increase in price-related churn from the mail conversion against the revenue lost by not maintaining their renewal pricing strategy.

 

A publisher’s experience

To further explore these dynamics and illustrate why it’s often preferable to maintain renewal pricing even amid significant changes like a mail conversion, we’ll examine two A/B pricing tests facilitated and reported by Mather for a mid-sized U.S. publisher during the period of March 2023 to February 2024.

Phase 1: business as usual (BAU)

In this phase, under typical home delivery conditions, the publisher sent renewal price increases to 90% of its eligible subscribers (treatment group), while another 10% of its eligible subscribers were not subjected to a price increase (control group). The two groups were studied over the same timeframe to isolate the impact of the renewal price increase on incremental subscription revenue and churn.

Phase 2: during mail conversion

Phase 2 testing followed the same methodology as phase 1, including the same treatment-to-control ratio and reporting period.

However, phase 2 was implemented after phase 1 had concluded and immediately after the publisher’s announcement of mail delivery. The objective of this testing round was to assess the mail conversion announcement’s impact on renewal pricing performance, focusing on incremental revenue and churn.

 

Findings

The results in chart 2 highlight the differences in the churn rate and pricing sensitivity (measured by price elasticity) between the treatment and control groups across both rounds of testing, during BAU (phase 1), and during the mail conversion period (phase 2). The results indicate that pricing was not a significant driver of churn during the mail conversion.

Although subscribers who received a renewal price increase (the treatment group) during the mail conversion experienced a slight increase in churn (+2 percentage points compared to BAU), the control group (which did not receive a price increase) saw a much sharper rise in churn (+10 percentage points) and had overall higher churn rates. This leads Mather to conclude that in the second testing period, the increased churn was primarily attributable to the mail conversion itself, rather than the renewal pricing action.

Chart 2: Overall churn rate and price elasticity from A/B testing period. Note that price elasticity is a measure of pricing sensitivity and is calculated by taking the ratio of the percentage change in volume over the percentage change in the gross price.

 

This phenomenon has been explored in prior research by Mather Economics with comparable findings. During periods of high inflation — another significant external shock — organic churn tends to increase while pricing-related churn (as measured by price elasticity) decreases.

This highlights the importance of understanding these dynamics when making pricing strategy decisions. It also suggests many publishers may be overestimating the impact of pricing on churn during events like a mail conversion.

Strategies to minimise churn during delivery transitions

The root cause of churn aside, news publishers can deploy several tactics to help mitigate the risk associated with events like a mail conversion. These include:

  • Communicating early and often. Announce the change well in advance and continue to provide updates. Use a letter or video from the editor to add a personal touch.
  • Utilising multiple channels. Notify subscribers through various channels, such as e-mail, print copies, and online platforms.
  • Preparing customer service. Equip service teams with tailoured responses and focused messaging. Ensure they express empathy about the change and explain that change is necessary to sustain high-quality journalism.
  • Adapting the content strategy. With mail delivery, breaking news may lose its immediacy. Shift focus to more forward-looking or in-depth content and highlight the value of current stories.
  • Enhancing and communicating value. Consider offering the e-edition as part of a print subscription bundle if not already included. If it is included, provide clear instructions for access, activation, and navigation.
  • Encouraging early digital activation. Promote digital access before the announcement to ease the transition.
  • Aligning product launches. Time product feature or benefit launches to coincide with or precede the mail announcement to maximise positive impact.

Closing thoughts

The example provided shows that a publisher can successfully target revenue growth through pricing even during periods of significant change, like a mail conversion.

However, outcomes can vary across different markets or subscriber cohorts, underscoring the need for a test-and-learn approach. Mather generally recommends publishers maintain their renewal pricing while closely monitoring the results to ensure the strategy remains aligned with their specific business goals.

 


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