INMA Satisfying Audiences Blog, February 2018
This blog post is the second in a series on key performance indicators (KPIs) that are helpful for media companies and other subscription- or membership-supported organisations. The first post was about total customer lifetime value (TCLV).
In our book, The Relationship Economy, we discussed the importance of good KPIs for driving sound business decisions. As my co-author Xavier van Leeuwe described it, “poor KPIs can lead companies to do strange things.”
Traditional paid audience statistics are a good example. When I started working with companies publishing newspapers, the Audit Bureau of Circulation (now renamed the Alliance for Audited Media in the United States), defined rules for paid circulation that were arcane and not aligned with the true mission of a newspaper. As an outsider coming into the industry, I was amazed at the complexity of something as simple as counting subscribers. A Sunday-only subscriber was 1/7th of a daily-Sunday and so on.
The KPI of paid circulation was driven by the desire of advertisers to reach paying subscribers who were believed to be more engaged than readers who were not paying for the product. This is in stark contrast to the digital advertising market, which does not value paying subscribers.
When I started working with newspapers in the United States, the definition of a paid customer was 75% of the basic rate, the full price of the product. In time, this rule was relaxed to 50% and then 25%. Now it is paid at any price, meaning someone paying one cent for the newspaper is counted as paid circulation.
Magazines in the United States are another example of how a KPI focused on audience volumes for advertisers can lead to poor outcomes for publications. The rate base, a guaranteed paid audience volume a magazine will reach for advertisers, has caused magazines to drop their subscription prices to incredibly low levels.
We work with companies publishing magazines in the United States and Europe, and the average price of a subscription is 1/10th in the United States compared to European countries where the rate base metric isn’t used. Dropping the rate base in advertising sales will happen in the U.S. magazine industry given the radical change in print advertising, and those magazines will be able to set subscription prices to levels that make printing and delivering the product to subscribers profitable.
When media companies no longer follow a metric such as paid circulation or rate base and instead focuses on what is most important for a subscriber-supported publication — their core customer relationships — they invest in activities that support the long-term health of the business.
My co-authors on Relationship Economy, van Leeuwe and Matthijs van de Peppel, introduced this metric at NRC, a leading newspaper in Holland. The change from paid circulation to core relationships caused the news media company to realign its resources away from maximizing the numbers of new customers toward customer retention, service, and engagement.
The results have been dramatic. NRC’s subscription numbers are higher now than they were in 2015.
Core relationships are defined as customers that are profitable over a two-year period of time. Each customer, regardless of the product, counts as one relationship. A fundamental point is that relationships must be good for both parties. Customers should pay enough for the product so the media company can serve them profitably while also providing a valuable product and good customer service. Defining a specific price point customers need to pay for their subscriptions (and relationships) to be counted is not necessary or productive.
In Germany, paid circulation rules are still rigid. Subscribers must pay 85% of the full price of the product to be counted as paid circulation. I am not an expert on the German circulation rules, but I believe these rules will change soon to allow for more flexibility in pricing. This will enable the country’s media companies to focus more on value-adding customer services. Ironically, I predict a relaxation of paid circulation rules will ultimately lead to more paid print newspaper subscribers and higher audience revenue.
With all of the focus on data and analytics, it is easy to lose site of the primary mission of the organization: creating and maintaining lasting customer relationships. Examples of how predictive modelling and analysis can support the core relationships KPI are churn-modeling supported retention campaigns and customer service representative performance measurements to optimize call centre operations.
There are many other innovative ways analytics have helped media companies transition to a digital business model. The importance of good KPIs during this historic transformation of the industry is hard to overstate.