“Pricing is the fastest and most effective way for media businesses to increase profits,” says INMA Researcher-in-Residence, Greg Piechota. The pandemic appears to have refocused the news industry on pricing, according to a recent INMA report. It is due to the record growth in subscriptions for many publishers, and cratering of ad revenues due to the pandemic.
Publishers prioritizing reader revenue are trying to formulate pricing strategies that will help them acquire new subscribers, as well as retain existing ones. However, while a fair share of publishers have been successful with their pricing strategies, many are still trying to figure theirs out.
The report, Subscription Pricing: From COVID Bump to Sustainable Revenue, authored by Dawn McMullan, Senior Editor, INMA, shares the latest smart pricing strategies publishers around the world are using successfully. The report includes case studies from Dennik N in Slovakia, The Boston Globe in the United States, Politiken in Denmark, Amedia in Finland, and Malaysiakini in Malaysia. It also features insights from pricing experts at FTI Consulting, Mather Economics, and Piano.
“Most important decisions a business can make”
“Pricing is always among the most important decisions a business can make,” says Patrick Appel, Director of Research, Piano. “The quality of the product and what you charge for it are always the two most important factors when running a subscription business.
“Other factors matter — how you target, your promotion strategy, your onboarding strategy, and so on. But charging a price that your customers deem fair is among the biggest pieces of the puzzle.”
Pricing is a moving target. Pricing travels with many myths and can be counterintuitive. Pricing is difficult. And pricing has never been more important.Dawn McMullan, Subscription Pricing: From COVID Bump to Sustainable Revenue
A fundamental error many publishers make is picking the wrong companies as benchmarks. “A lot of publications make the mistake of comparing their price to Netflix or even The New York Times. Those are broad products meant to appeal to vast volumes of subscribers,” says Justin Eisenband, MD, FTI. “A local news product may not be that. It may be a niche product, which is not the same level of comparison.”
People say, ‘I can’t price at US$15 a month because that’s more expensive than Netflix or The New York Times. Well you’re not competing against them. Sure, it’s a share of the consumer’s discretionary wallet, but it’s not the same news you’re generating. The value proposition is entirely different.Justin Eisenband, MD, FTI
“See what segments react to what kind of messaging”
Slovakian news start-up Dennik N constantly experiments with new pricing offers, according to its Co-founder and Head of Digital, Tomas Bella. The publisher has offered 305 different types of subscriptions since it was founded six years back. Most of these offers were made to some small sub-segment of readers, Bella tells INMA.
Dennik N’s three main subscription packages are the Mini product (€4.99 per month), the Standard product (€6.99) and Klub N membership (€8.99). Klub N members get ad-free experience on the website and can unlock premium articles for their family or friends.
The publisher made an intriguing discovery from analysing its subscribers base – readers that were paying more, were reading less. Members of Klub N visited the site just seven times a month on average compared to subscribers of the Mini and Standard products’ 10 visits.
A survey of the members led to the finding that the majority (69%) wanted to support Dennik N.
This led to a change in the communication strategy. The publisher now mainly uses two kinds of messages in all its communications, one talks about the features and price offered by the subscription, and the other focuses on values, like supporting independent journalism.
“So if we have a promotion to upgrade to a higher package (or anything else),” says Bella, “we have an A/B test ‘upgrade to receive print magazine’ against ‘upgrade if you think our country needs more investigative journalism.’ This is simplified but … we try to see what segments react to what kind of messaging and fine-tune it further.”
“Works well and the damage to our brand is minimised”
The publisher has also created special offers around the Covid situation. It gave readers two options: they could choose to pay full prices or opt for a 50% discount if they were adversely affected by the pandemic (like losing a job). Between 10-35% of the readers, depending on the segment, chose to pay the full price – an encouraging finding, according to Bella. Moreover, readers appreciated the publisher’s gesture.
Another offer around the pandemic, limited to a single day, let readers buying an annual subscription get an additional year for free. It turned out to be the publisher’s most successful promotion ever. The offer was presented with the message – “You lost one year because of corona. Here is one year free when you buy for one year (1+1).” It bought Dennik N €500,000 in 24 hours, a figure it normally takes four to six weeks to reach.
While this is just a discount strategy, Bella says that adapting special offers to current circumstances “works well and the damage to our brand is minimised.” The publisher has 68,000 active subscribers at present. It had 50,000 a year ago, and 33,000, two years back.
“Small improvements in utilisation can pay big dividends over time”
Which leads to the question of how to price the product right. A publisher may acquire higher numbers of readers via discounts but that’s not profitable in the long run. On the other hand, costlier subscriptions may have less takers.
Many publishers use discounted trial offers (ranging from a month, to 6 months, to a year) to give readers a taste of the product before moving them to the full price. They encourage readers to use the product and all its features. This is typically done through emails and onsite communication informing them about apps, podcasts, newsletters, personalised content recommendations and so on.
The Boston Globe increased its subscription price by 72% ($3.99 to $6.93 per week) in 2015 to positive results (it lost only 3% subscribers against the expected 20-30%). When subscription growth slowed down in mid-2018, the publisher, after pre-testing a few different offers, ran a one-day sale offering new subscribers six months access for US$1. They acquired 1,728 new subscriptions.
“We knew that this was a risk,” says Tom Brown, Senior Director, Consumer Revenue, The Boston Globe. “We weren’t generating any revenue from these new subscribers, and it would take a while before we knew what would happen.”
The publisher then focused on increasing engagement. It did that with a revamped onboarding series, driving subscribers to Globe newsletters, and encouraging them to download the app. It also partnered with MIT’s Initiative On the Digital Economy for a churn model. Subscribers engaged better and the conversion rate ended up being 10x higher compared to the standard four-week free trial.
They (The Boston Globe) saw strong adoption in engaged users, and their fear that this offer would only attract low-interest, non-engaged subscribers proved unfounded. Small improvements in utilisation can pay big dividends over time.Dawn McMullan, Subscription Pricing: From COVID Bump to Sustainable Revenue
The publisher continued to use the strategy during the pandemic. “At only US$1 for six months, it was still very accessible to people, so we kept rolling with the six-month paid trial,” says Brown. “We experienced a sharp increase in acquisitions, and we actually hit our year-end goal in the first quarter [of 2020].”
“We’ve been really encouraged with the results,” he adds. “The one-year and beyond retention is identical between the short- and long-term offer. We have taken a hit in lifetime value because, for the first six months, the subscribers are not generating revenue.
“But their lifetime value once they reach that nine-month mark is virtually identical to the other subscribers — and there’s just so many more of them. It’s been undoubtedly a revenue-maximising approach for us.”
“80% strategy and 20% tech”
An effective pricing strategy is “80% strategy and 20% tech,” says Ken Harding, Senior MD, FTI. “There are just some basics: Tenure and visit frequency are just very good predictors. It’s not like you need lots of complicated data points.”
“Your environment is constantly changing,” adds Eisenband. “Whether you’re super-sophisticated or just figuring things out, there is always going to be a customer surplus that’s left on the table.
“With dynamic pricing and the ability to now give an offer to a specific customer based on a model that tells you ‘this person is willing to pay this much,’ there is always going to be room for improvement.”
It involves figuring out the trade-off between price and volume. “Price versus volume is like trying to keep a seesaw flat,” writes McMullan. “When you raise prices, by how much can you raise them and what can be the volume lost that ends with the same revenue?
“For those not very far along in the digital subscriptions journey, the focus on volume over pricing makes sense,” she adds. “For a US publication, US$1 a week for eight weeks or 12 weeks makes sense because you want to get people onboarded,” explains Eisenband, “and you need the time to get them engaged and using the product.”
Those who are already well into it should focus on customer lifetime value, he adds. “You can still be aggressive with initial offers even as a mature publication, but you need to understand how all of these things impact churn rates. A robust understanding of that is really important.”
“Pricing is a strategic tool that needs to be thought of in relation to the overarching strategic objectives of a given organisation.”Patrick Appel, Director of Research, Piano
The full report is available at INMA:
Subscription Pricing: From COVID Bump to Sustainable Revenue