Why is your subscription rate so low?

Around ten years ago two men had an idea for a magazine for local government employees. It was to be sold by subscription.

They knew their market and the launch was immediately successful. Over the coming years they launched other local government magazines and their business grew until it caught the eye of a larger publisher.

The two men decided to sell out. Although demand existed for their publications, they knew local government had to be careful with public funds -- and therefore subscription rates had to be kept low. They were working hard for very little return. The new publisher would find it a tough market, but then that’s business.

Once the new publishing company took control, however, they ran some tests and lifted subscription rates across the titles by 50%. Their new division went into immediate profit. And as subscribers renewed over the coming year, profits increased by 400%.

The two men had shrewdly identified a new market. But it was the application of the scientific principles of price testing that brought in the profits. The two men weren’t to know – after all they were not subscriptions marketers. *

Assessing the value of a publication

‘The value of a product is measured by how much someone is prepared to pay for it.’

Although most of us have will have heard that age-old maxim, it is, unfortunately, almost universally ignored by publishers. The chances are, unless you have carried out a price test in the last twelve months, you probably don’t know how much your subscribers are prepared to pay for their annual subscription.

In fact, it’s very likely your annual subscription rate is lower than it could be. In every subscription price test I’ve carried out for publishers over the past year, I’ve found that subscribers were willing to pay more.

Price testing is integral to the fascinating world of subscriptions marketing. Subscriptions work in the same way most businesses do: you have a product or service that people want and you make a profit out of providing it. The fascinating bit is how you go about increasing that profit.

Let’s suppose, as in our example above, you suddenly discover a way to increase the price you charge for your product by 50% without incurring any extra on-going costs and without reducing demand. What would happen then? In most cases the person who made the discovery would be a hero. And that person would be you.

In fact, current price testing shows that subscribers are willing to pay up to 100% more for the same publication. All you need to do is ask in the right way.

Why ignore extra profits?

Very few publishers carry out price tests. But why do companies neglect this easy source of extra profit? This apparent mystery can be easily explained.

For subscriptions marketing to be effective, the managing director must lead. Success is the result of the person at the top having some enthusiasm for the process.

Unfortunately, this often isn’t the case. That’s why so many so-called ‘marketing managers’ are nothing of the kind. They are so restricted in what they can do they spend their time creating loose inserts and in-house promotions to appear in their own magazines.

This isn’t marketing, of course. An effective marketer will have a simple brief: ‘Find where the money is and bring it in.’ A real marketer is measured on a simple comparison of revenue versus marketing costs. If the marketer wants to spend his budget on newspaper advertisements or building a new website to capture names, then it’s up to him.

In any well-run business the MD simply wants to know how much money has been brought in and what profit can be expected over the agreed term – one, two or three years. If the marketing department is making more money than it spends, let it keep on spending.

A sure sign that something is wrong is if the marketing brief goes to too many pages, or sounds complicated.

Price testing tactics

If you have ever briefed an advertising agency to come up with an idea for a subscription promotion, you will have seen some pretty fancy production work. This is because production is where many agencies make their money and get their awards. High production values are, however, something we must resist.

When we organise a marketing programme the promotion should have two qualities. It must be:

1. Highly responsive
2. Cheap to print

Let’s look at why these two ingredients are necessary.

High response

It’s no good carrying out a price test with a promotion that is not highly responsive. The copy and proposition must convince the reader that he has little option but to subscribe to your publication. Any objections he may have must be handled up front, at the top of the letter. If, for example, your publication is available at newsagents, or he can borrow it from a friend, or the content is available elsewhere, you must give him a good reason to ignore these alternatives.

The benefits of subscribing must be so strong they are almost irresistible. However, most promotions simply state: ‘This is the publication and here is what you pay.’ Some testimonials and a discount may be thrown in to spice the message up, but that’s as far as it goes. This kind of offer-led approach will not work as well as a benefit-led message. What’s worse is that the offer-led message will work against you because the last thing you want in a price test is your prospect focussing on the cost of the subscription!

Your concept - the idea behind the message - must drive readers towards the coupon with determination and proficiency, and without diversions. When they get to the coupon the price must match the value you have established for the benefits available. That’s the price of your product and that’s why it’s wrong to charge any less.

Keeping print costs low

Why must your promotion be cheap to print? The answer lies in one of the fundamentals of marketing. A good marketer first spends his time and money finding the right message to bring in more business. He does this by running tests on his best (usually in-house) list until he hits gold.

What comes next? Some will roll out to their remaining databases; others will negotiate joint deals with other media owners or rent outside lists. But this is where even experienced marketers get it wrong: the next step should be to run a series of price tests to your own list to decide what subscription rate you are able to charge.

If your production costs are too high then printing small numbers of between 1,000 and 5,000 names for each test group will be too costly to make money. Enthusiasm will evaporate and you will find it difficult to justify continued use of your expensive mailing pack.

This is why some publishers refer to their promotional activity as a ‘campaign’. It’s usually timed to run at a certain time of year to a fixed budget. But this is the wrong attitude. A campaign is what an above-the-line advertiser manages. We marketers create and organise subscription-building programmes in order to establish a profitable long-term business. That’s the difference.

Driving down costs

This brings us to the other important aspect of marketing: reducing costs. Even those who have cleverly begun by designing a promotion with low-cost production values can usually reduce costs further (often by avoiding the mistakes other publishers are making all around you).

Reducing costs and increasing income and are the two principle aims of successful business management -- and the results go straight to the bottom line of your trading statement.

You can picture the astonished faces around the boardroom as you say: ‘We don’t need any more marketing money. Our income is exceeding expenditure.’

When to price test

The best time to run a price test is before launch. That’s probably a bit too late for most of you. Your publication may have been around for ages, but it doesn’t really matter. You just need to find a new way to sell it.

There are many cases, as above, where companies have acquired other publishers in the knowledge they were charging too little for their products. Following the acquisition, profits were increased immediately simply by applying the pricing strategies explained in this article.

Before we price test we must ask some basic questions to determine the best way forward:

1. How do we arrive at a subscription rate in the first place?
2. What are the common errors we should avoid in setting a price?

The answers lie in the definition of a price test, which is: A means to discover what price the market will bear.

The result of our test will enable us to decide the profit / volume parameters. For example, it may be in a newsletter publisher’s interest to bring in the most profit he can from his subscribers, because that’s where most of his revenue comes from. A magazine publisher, on the other hand, is more likely to rely on advertising – and he will want a higher circulation (volume) to enable him to maintain or increase his advertising rate base.

It’s rarely that simple, however. Most top subscription publishers now rely on ancillary products (back-end sales) to make up a large proportion of their income. They will therefore want a high volume to ensure their customer base is large enough to bring in enough additional revenue.

Whatever category you fall in, a price test can usually show the way to lift revenue exponentially.

What to test

If we accept that most publishers are already in the market and simply want to make more money in 2004, here’s how to go about it.

If your annual rate is currently, say, £40 and you would like more profit (rather than volume), you should price test at £80 or higher. This kind of price hike will come as a shock to most publishers. They will bring to bear many solid-sounding reasons why their market could not pay the high price.

The first answer to these objections is: ‘How did you decide the subscription rate in the first place?’ I’m afraid gut instinct, as with most subscriptions marketing matters, doesn’t work here. Most of what we do is counter-intuitive.

The second answer is to simply go ahead and test the £80 price anyway. Once you have positive results the various arguments tend to change to: ‘How do we implement the rate increase?’ This, of course, is another problem with another answer. But like most problems in this field there are tried and tested solutions you can employ.

If no price test has taken place in the last twelve months, then it is unlikely that the publisher will have any logical or scientific basis for not carrying out a price test at double the current rate.

The battleship test

The way to view a price test is as a sighting shot on an enemy ship. When the captain of a battleship fires on an enemy boat in the distance, he first orders two sighting shots to straddle the boat. He can then measure the distances involved and sight his next shot to land on the target.

A marketer must remain in touch with the nature and size of his market in order to set his price. He does this by regular sighting shots, otherwise he cannot have an accurate measure.