This guest article is the third in a three-part series from Mather Economics, an Atlanta-based global consulting firm that helps businesses with pricing strategies. Read Part One and Part Two.
Subscribers are a precious commodity. A loyal print audience takes years to develop, and digital subscribers are proving difficult to acquire in substantial numbers. From a cash flow perspective, keeping the customers that you have is arguably more important than acquiring new subscribers in the first place.
Recently, we have been working with several publishers and spoken with many others who are using data and analytics to improve retention. We found that applying analytics to lower subscriber churn often yielded the greatest return on publishers’ investments in big data and analytics capabilities to date. In this article, we discuss several strategies that are having significant success in lowering churn and improving the performance of news media companies in both digital and print platforms.
A message in time saves nine
One publisher is using targeted messaging to customers whose behavior indicates they are at a high risk of churning. In this case, a diversion from past payment patterns triggers a retention message via email or an outgoing customer service call. Customers often pay their bills at the same time every month, which may make them consistently early or late payers relative to their expire date. If a consistently late payer is a few days past due, they are not messaged until their historical payment window has passed. A traditionally early payer may receive a retention message before the expiration. This dynamic messaging process has reduced churn by targeted customers by 14 percent, compared to a business-as-usual control group that received the standard retention messages.
Examples of messages targeted using behavior triggers
In another project with a newspaper publisher, we found that the last five retention touchpoints were netting only 7 percent of total payments. These touchpoints have been moved up to occur earlier in the retention process and replaced with less expensive communication options that have both reduced churn and lowered costs. In the diagram of payments received and the timeline of invoices and touchpoints, several of the communication stages do not appear to produce incremental payments under the current process.
A diagram of payments received and retention touchpoints
Test, Learn, and Save
A recent test of retention incentives found that, often the least expensive offer works the best. A publisher tested three retention incentives: a universal device charger that cost $18, a gift card that cost $12 and a thank you card that cost $1. Customers were segmented by estimated churn risk, and customers in each segment received one of these three items. Interestingly, for the medium- and low-churn groups, the thank you card had the best results.
Results from testing retention incentives
Offer it and they will come
Several publishers have realized that high churn is a symptom of poor acquisition strategies, and they have experimented with different offers to stop churn at the source. The most exciting strategy that we have seen is by one publisher that is shifting to multi-year contract-like acquisition offers. In such cases, the publisher offers to keep a customer on a lower monthly rate over the term of the acquisition in exchange for the customer’s commitment to pay for the product for one, two or three years. Surprisingly, the number of starts per month under this acquisition strategy has not declined relative to prior offers. The publisher does not offer deeper discounts for longer terms; all options are about 50 percent of the list price of the product, but the average start term has moved from just over six months to nearly 18 months. This publisher no longer sells new subscriptions with terms of less than a year. As you would expect, churn has dropped dramatically, and print circulation is growing every month.
Renewal pricing is another tool for managing churn. Frequently new subscribers are moved from the acquisition offer price to the list price at their first renewal, a price increase of 100 percent, when sensitivity to price is the highest it will ever be. We have worked with publishers to test intermediate price points for high-risk subscribers and we have found that this type of graduated pricing strategy will improve retention about 5 to 10 percent relative to the standard renewal offer. The break even for this pricing strategy from a revenue perspective is about 24 months, which was too long for many publishers until recent years. More publishers are now taking the long view and opting for these retention-first strategies in exchange for short-term revenue.
Turning a ship takes time
Changing acquisition and retention strategies will have short- and long-term effects on audience revenue and volumes. Managing through the transition period to avoid short-term declines in revenue or volume is a challenging process, particularly for public companies for which quarterly results are important. The first step in developing a strategy for mitigating short-term risk is forecasting the likely effect of the new strategies on volume and revenue, the timeline for the transition and the effect of possible tactics that may be employed to offset the volume or revenue risks.
In developing risk-mitigation strategies, it is helpful to remember there is an “equilibrium level” of revenue and customer volume in a subscription business. The equilibrium volume is determined by the level of acquisition activity and retention. If retention is improved and stops decline, the audience level will increase until the higher subscriber volume generates a level of stops equal to the level of starts. The equilibrium revenue level is determined by the pricing strategy employed through the acquisition and renewal processes.
If a new acquisition strategy is implemented that lowers the level of starts but increases new customer retention, subscriber volume will decline until the stops avoided from higher retention offset the decline in starts. To offset the short-term decline in volume from the new acquisition strategy, a temporary halt in renewal pricing or a more generous retention policy can be implemented.
Similarly, if a more conservative first-renewal pricing strategy is implemented that causes a short-term decline in revenue, additional targeted price increases can be implemented on existing customers to make up the revenue difference until the improved retention level, and resulting higher subscription volume offsets the lower average rate.
The time required for a subscription business to reach new equilibrium volume and revenue levels is determined by the gap between starts and stops, the difference in retention caused by the new strategy and the number of existing subscribers. In our analysis of these transition periods, we have found the time required to reach the new equilibrium takes longer than expected. In some cases, it can require years.
Forecasting is hard, especially when it is about the future
Our work with publishers testing acquisition and retention strategies to reduce churn has given us insight into the long-term future of newspapers. It is not unreasonable to conclude that the use of customer analytics to improve retention performance and acquisition offers, along with revenue from advertising, will support levels of audience and revenue necessary for producing high-quality journalism. We just need to manage through the transition.