INMA Satisfying Audiences Blog
29 May 2019
By Matt Lindsay
We work with hundreds of publishers on their subscription pricing, and we often discuss the appropriate actions to take with subscription pricing decisions. Many of these decisions are common in the industry, affecting both digital and print products, and they provide interesting case studies.
Here are some of the common questions and recommendations relevant to subscription pricing analytics and strategy, an important part of the news media business.
1. Should we poke the sleeping bear?
One conundrum often faced by publishers, particularly in a digital subscription relationship, is what to do with readers who are not engaged at all? These customers continually pay their bills, but we know they are not reading the product. These types of subscribers are present at every publisher.
Common questions are: “Do we leave them alone, or do we reach out to them?” “Is it right to raise their price when they are not consuming the content?” “If we send them a renewal notice, will that cause them to stop?”
In our experience, there is a segment of customers willing to support local journalism, and digital subscriptions are one means of doing so. These customers subscribed knowing they will not read the product often, but they want to pay for journalists to cover their local community.
In environmental economics, there is a concept called “existence value” used to describe the value individuals place on knowing an environmental resource, such as forest, a clean river, Antarctica, or an endangered species, exists. The value people place on these resources does not depend on their consumption of the resource but merely its presence in the world. Local journalism to many people is important, and they place value on its existence.
There are other customers who subscribed intending to read the newspaper, just as many people will state they support local libraries or zoos because they intend to go. Or people join the local gym believing they will work out. These people may cancel their subscriptions once they realise they do not actually read the newspaper, but it is not the responsibility of the news media company to remind inactive customers to mind their spending.
In both cases, we recommend publishers continue to serve these customers just as they would other subscribers. Do not poke the bears unnecessarily, but do not avoid standard communication or price increases in an effort to keep them from cancelling.
2. Do we notify customers ahead of a price increase?
Advanced notification of a price change is often debated prior to launching a renewal price increase. Notification is required in many places, particularly for print subscriptions, but the nature of notification can vary considerably. Printing the new subscription prices on page 2A on New Year’s Day when readers may not be at their cognitive best is a common practice.
We found through testing that notifications increase incremental stops from the price increase by 20% to 40% over a non-notified group. This is a substantial increase in price-related stops, and it creates a big economic incentive for publishers not to notify subscribers in advance. The good news is incremental price stops are usually less than publishers expect, so a 20% increase is often not as bad as it sounds.
We recommend publishers notify customers of price changes while offering explanations of the value of the product and services available to subscribers as well as the reasons for large changes in price if they are happening. In our experience, customers understand the reasons for the changes in price, and they will often state they would rather pay more to keep the content they want in the product.
3. Can we charge customers different prices?
At Mather Economics, we help publishers measure price elasticity of their subscribers so they can avoid significant pricing-related subscription losses. Over the years we have often discussed the ethical nature of charging different prices to subscribers. It is common for audience executives to feel price differentiation is not something they should do, and I understand their reasoning.
A few quick points on this topic that are worth considering:
1. Customers are paying different prices now. We often start our work with publishers by analysing data on their current subscribers. Invariably, there are many, many different prices already in the market for various reasons. The problem is these prices are not managed effectively or proactively over time.
2. Long-term customers had lower prices when they were new customers. Every subscriber has a lifecycle with the product. When customers are new subscribers, they are usually given promotional offers to attract them to a new product. The speed customers can move to higher prices depends on many factors, and treating everyone the same way is inefficient.
3. Discretionary household income varies across customers. Young, less affluent, newly acquired customers tend to have a greater likelihood of stopping their subscriptions after a price increase. Knowing this likelihood in advance and still giving these customers the standard price increase is harmful to both the subscribers and the publisher. Using smart data-driven pricing strategies can reduce churn following a price increase by 50% or more.
As we discussed earlier, we advocate transparency and clear communication with subscribers on subscription prices. We have many examples of customer communications used by media companies that have been effective at explaining price changes and saving customers who have called customer service, and we can share these with other publishers facing similar questions.
There is concern that individual data privacy should be respected, and we agree on this point. It is not necessary to have household-level demographic data to make a differentiated pricing strategy successful.
Two of the most important variables for segmenting subscribers is subscription tenure (how long they have been active customers) and digital engagement. Other data variables useful for pricing decisions possessed by the publisher are payment method, product bundle, and acquisition channel. Other data can be used in the audience analysis, and these decisions are entirely at the discretion of the publisher.
News media companies play an important role in society, and they are supported by their customers. This financial independence gives them journalistic independence. To sustain their businesses and their independence, publishers need to adopt new business practices while maintaining the trust and relationships they have with customers. Subscription pricing, particularly at renewal, is an area where balancing reader trust and business objectives is crucial for long-term success.