A major component of our research focuses on the impact of previous responses to price changes.
Mather’s core MBP (market-based pricing) algorithm minimises cancellations, the primary revenue risk for most markets, from a pricing action by distributing the increase across subscribers according to their characteristics and past behaviour. This approach has successfully generated robust revenue streams with returns on investment regularly exceeding 10:1 while maintaining relatively high circulation levels.
Over time, subscribers who have received multiple price increases may be prompted to call customer service and move to a lower rate. This tendency can present a significant revenue risk. A tenured, high-rate subscriber who responds to a price increase notification by calling customer service to obtain a lower rate may cost the publisher more than the cancellation of a lower-rate subscriber.
Subscribers who have received multiple price increases are more likely to call customer service regarding their subscriptions. A concern is that subscribers can become conditioned to complain about an increase because they know publishers will offer a discount to avoid a cancellation.
Below is a table that demonstrates the outcome of a price increase for a representative sample (based on geography and market size) of 31 markets that receive tens of millions of dollars annually from subscription price increases. The table shows that as the number of reverts accumulates over a subscriber’s lifetime, the net revenue received from a pricing action decreases.
The table also shows that the proportion of subscribers who revert and cancel increase and decrease, respectively, as subscribers become accustomed to customer service retention practices. These phenomena are illustrated in the graphs below.
It is notable that the subscribers who have been given multiple price increases and reverted retain much better than those who have not. These subscribers are often highly tenured subscribers with a high demand for the product. In many cases, they are paying some of the highest rates in the market.
A simple tactic that reduces the risk of customer service calls and price reductions is to simply exclude these customers from the pool of subscribers who are eligible for a price increase — either perpetually or for a period of time. This simple business rule can have a significant effect on subscriber revenue and retention.
In the example from the table above, if each publisher excluded subscribers with more than two lifetime reverts:
- The number of subscribers that receive price increases would decrease by 5%.
- Revenue per subscriber would increase by more than 6%.
- Stops would decrease by 4%.
The customers that are excluded from the pricing changes will retain their current rate, which is typically higher than the market average, and be spared the price change notification, which can improve customer experience. This strategy can also reduce the burden on the customer service department by avoiding predictable customer interactions regarding price changes.
While this approach is relatively simple, it requires that publishers have information on subscriber responses to prices increases over an extended history. That is information publishers often do not have readily available, which is why we collect this data over time so that publishers have insights on their long-term customers and are able to implement tactics based on those insights.