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Subscriptions Strategy: Upgrades - turning subscriptions into a goldmine - part 1

Upgrades - turning subscriptions into a goldmine - part 1

Upgrading
Many, if not most, publishers just play at marketing. They fix a budget and set a target for the number of subscriptions they expect. That budget is what their marketing department has to spend, and those are the number of subscribers they must bring in. The targets are usually reached at or before the end of the year and the department is happy to be ‘on budget’.

Many publishers, including the big ones will ask: “What’s wrong with that? That’s what we do!”

Well, let’s start at the beginning. How much is a single subscriber worth to you? Until you know the answer to that question, you are not really in the marketing business. When you know the value of a subscriber and his full revenue potential, you know how much you can spend to get each one in. Let’s take some examples from a healthy subscriptions publisher:

Revenue from 10,000 subscribers over four years

1. £40 for an annual subscription: £160

2. Ancillary items purchased such as books, newsletters and events: £10 a year = £40

Total: £200 over four years

These figures are for the average subscriber (who lasts four years). The average value of each subscriber comes to £200. From that we deduct servicing and other costs of £20 a year to arrive at a profit figure of £120 over the four years. For magazine publishers, this doesn’t include any extra revenue from advertisers for the 10,000 extra circulation.

Now we know how much each subscriber is worth, we can give our marketing department a brief: spend £40 to get each subscriber in. Or perhaps £80. This is where most publishers will scratch their heads – you call that a brief? There’s no restrictions – the marketing department could spend £millions!

That’s right – they can. In fact, a good marketing brief is short and uncomplicated, just like that one. It means the marketer can do what he does best: sell and make a profit. He can be productive without anyone holding him back.

Establishing an upgrade programme
If your company is still talking about renewals, then you are far behind the times. Most good subscription publishers introduced an ‘upgrade programme’ years ago. A typical programme can include:

1. Conversion of bill-me subscribers to automated payment (there are different kinds of automatic payments for consumer and business publications).

2. Cash payers upgraded to two and three year subscription terms

3. Early-bird offers to bring cash-flow forward and reduce renewal notices

4. ‘High ticket’ newsletters

5. Special reports, books and directories

6. Subscriber events, conferences and workshops etc

7. Special ‘subscriber club’ offers

8. Access to members-only website

9. ‘Confidential’ email updates

Many publishers have introduced this kind of product extension in the past five years or so. What bought the change was the realisation that if you sell a new subscription in the right way, subscribers will buy in to the rest of what you offer later on. This, for example, is what National Geographic does so well. Their World Atlas is one of the many books they sell to subscribers. It sells for £80.

Before upgrading became the norm, most companies focussed on the publication and advertisers within its market. Publishers would carry a page selling back issues and a few books. It was never big business and if an advertiser could be found to replace the ‘house ad’ it would. Advertising and/or cover revenue was paramount. Then things changed.

How upgrading was invented
A few clever publishers began to re-package editorial into books and reports and sell them at a far higher price than a £2.95 ‘back issue’. Then they began to take content off their free-access websites and turn that into reports too, selling for £20, £50 and more.

Then an interesting debate started: as it costs almost nothing to send, should you reduce the charge for a product delivered via the internet? Although heated, the debate was misguided. The principle is governed by one of the first rules of marketing:

“The price you charge is determined by what customers will pay, not by your costs.”

So the price should be determined by price testing — and often the price turns out to be astonishingly high. To some, charging so much for what cost so little will sound extraordinary – especially those who arrive at prices by adding a profit figure to their costs (It’s called cost accounting and it has no place in subscriptions marketing). The truth is most publishers underestimate the value of their products and they could ask a lot more for their information even when it’s already free and in the public domain.

Then some publishers found they could charge different people different subscription rates for the same product. The fear that subscribers would talk with each other and compare the money they paid proved unfounded.

Interestingly, at one of our recent marketing workshops the main reason publishers gave for not conducting price-tests was the fear that some subscribers would discover they were paying more and would complain. They couldn’t see how readers wouldn’t notice the various prices on offer. In practice, when promoted in the right way, few if any complaints are ever received. If a complaint did come in, the subscriber is easily handled by offering him the discounted rate.

In my experience, it’s the editors who worry most about this. Of course, editors shouldn’t worry about marketing problems at all. They have plenty of their own problems to occupy them.

If you are still doubtful about charging different rates, as I know some readers are, think of other markets and what happens there:

• CD’s sold at £12.99 at Woolworth’s and WH Smith are available to those same people through the internet as a free download, or discounted through the mail. They prefer to spend the money in the high street.

• Air travellers routinely pay two or three times the price for an airline ticket than the person in the next seat. Rarely is a complaint heard.

• Movies on DVD, sold at £15.99 in the high street, are available for around £2 through the internet. Recent releases are available at big discounts long before they appear in shops.

• Atlases, travel and discovery books are sold by publishers via direct mail for prices ranging from £50 to £100 when similar titles are available for around £10 to £25 through Amazon and other bookshops

There are segmented markets for all of these products. The people in these segments have different attitudes to spending. Each segment should be regarded as separate, with each group of people prepared to pay a different set of prices. It’s no use attempting to guess what people will pay — that’s what test-marketing is for.

In the second part of this article, I will look at why upgrading is big business, the problems publishers face in introducing a programme and how to solve them.