maximizing subscription revenue: how 3 businesses increased their subscription revenue by...
DESCRIPTION
Would you, as a marketing professional, prefer short-term profit or long-term growth? Although the answer should be obvious, in a hyper-competitive market, subscription marketers continue to opt for the former instead of the latter. Before discounting subscription products in an effort to increase conversions, you should consider the following questions: • How do you know that your current discounted pricing isn’t hurting your product's long-term value proposition? • How do you know you found the optimized price for your product? • Is a single price point or product appropriate for all prospective customers? • Do you know which aspect of the product customers value most? • How do you retain customers at a price point that maximizes revenue in the long-term? However large your company, it’s important to analyze the role that discounting plays in the overall subscription strategy. Marketers will learn what to consider before discounting products, as well as risk mitigation strategies inherent in long-term promotional offers.TRANSCRIPT
Maximizing Subscription RevenueHow 3 businesses increased their subscription revenue by discovering the optimal pricing strategy
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Today’s speaker
Flint McGlaughlin—Managing Director, MECLABS Institute
Flint McGlaughlin is Managing Director of MECLABS Institute. The organization has partnered with key market leaders including The New York Times, Microsoft Corporation and Reuters Group.
McGlaughlin also serves as the Director of Enterprise Research at the Transforming Business Institute, University of Cambridge (U.K.), as the Chairman of the Board of Governors for St. Stephen’s University and as a Trustee for Westminster Theological Centre. McGlaughlin originally studied philosophy and theology at the University of London’s Specialist Jesuit College.
Today, his primary research is focused on enterprise as transformative agent. His work has won multiple awards and has been quoted in more than 13,000 online and offline sources.
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Experiment: Background
Background: A software as a service (SaaS) company that offers membership access to their products online.
Goal: Increase paying subscribers and increase revenue.
Research Question: Which price point will increase subscribers as well as increase revenue?
Test Design: A/B split test
Experiment ID: TP 11074Record Location: MECLABS Research LibraryResearch Partner: (Protected)
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Experiment: Control
• Customers land on this page after choosing the Basic Membership Product to select length of service.
*Anonymized
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Experiment: Treatment
• All subscriptions were discounted by 22% to attempt to drive more subscribers to longer subscription durations.
*Anonymized
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Experiment: Side-by-side comparisonControl Treatment
Audience Question: Which pricing strategy had the greatest results??
*Anonymized
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Design Total Conversions Total Revenue
Control 3.6%
Treatment (22% Discount) 4.3%
% Relative Change 19.44%
Experiment: Results
Relative increase in total conversions19%The treatment resulted in a 19.44% relative increase in total conversions.
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Design Total Conversions Total Revenue
Control 3.6% $19,425
Treatment (22% Discount) 4.3% $17,535
% Relative Change 19.44% 9.73%
Experiment: Results
Relative decrease in total revenue10%The treatment resulted in a 9.73% relative decrease in total revenue.
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Design Total Conversions Total Revenue
Control 3.6% $19,425
Treatment (22% Discount) 4.3% $17,535
% Relative Change 19.44% 9.73%
Experiment: Results
Relative decrease in total revenue10%The treatment resulted in a 9.73% relative decrease in total revenue.
The discounted option increased conversions but decreased revenue.
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Experiment: Background
Background: Online sex offender registry service for parents concerned about neighborhood safety.
Goal: To discover the optimal pricing point for the subscription.
Research Question: Which pricing strategy will generate the greatest results?
Test Design: A/B split test
Experiment ID: TP4002Record Location: MECLABS Research LibraryResearch Partner: Protected
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Experiment: Subscription details
• Customers get instant access to the database, all reports and maps of offenders in the area.
*Anonymized
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Experiment: Subscription price testing
$6 a month for full access.
Control
$6 per month.+ $20 activation fee
Treatment
Audience Question: How will the $20 activation fee impact results??
*Anonymized
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Design Total Conversions Total Revenue
Control 2.4%
Treatment ($20 Activation Fee) 2.4%
% Relative Change 0%
Experiment: Results
No statistical change in conversions0%The $20 activation fee did not have any statistical effect on conversions.
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Design Total Conversions Total Revenue*
Control 2.4% $15,792
Treatment ($20 Activation Fee) 2.4% $31,488
% Relative Change 0% 99.39%
Experiment: Results
Relative increase in total revenue99%Adding a $20 activation fee had a 99.39% relative increase in total revenue.
*Average lifetime customer value
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Design Total Conversions Total Revenue*
Control 2.4% $15,792
Treatment ($20 Activation Fee) 2.4% $31,488
% Relative Change 0% 99.39%
Experiment: Results
Relative increase in total revenue99%Adding a $20 activation fee had a 99.39% relative increase in total revenue
*Average Lifetime Customer Value
The increased price had no impact on conversions but had a huge impact on total revenue.
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Price testing problem
1st Experiment
2nd Experiment
Conversions
Revenue
Conversions
Revenue
Discount
Added $20 Activation Fee
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Marketers Ask:“With so many different factors at play, how do we discover the optimal pricing for our subscriptions?”
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Price testing
11%Revenue
36%In Paid Subscriptions
609%Capture Rate
112%In Conversion
41%Revenue/Conversion
43%Conversion Rate
163%Revenue
99%Revenue
12%Click Through Rates
69%Revenue
Today, we will walk through three major price testing pitfalls we’ve observed from over 15 years of
optimization research to help you discover your optimal pricing offering.
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Pitfall #1: Beware of metric isolation
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Background: A large media company offering various subscription options.
Goal: To determine the optimal pricing point after the introductory rate.
Research Question: Which price point will generate the greatest return?
Test Design: A/B split test
Experiment ID: TP 1739Record Location: MECLABS Research LibraryResearch Partner: (Protected)
Pitfall #1: Metric isolation
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Experiment: Price test background
$0.99 Introductory Price: After the introductory price ends, the customers incur the regular rate.
*Anonymized
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Experiment: Treatment
Design Test Price Variable
Price 1 $0.99
Price 2 $1.99
Price 3 $2.99
Price 4 $3.99
Price 5 $4.99
Audience Question: Which price generated the greatest results??
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Experiment: Key metrics
Design Test Price Variable
Initial Conversion Rates
Cancellation Rate After Introduction Period
Revenue Per Subscriber
Price 1 $0.99 2.18%
Price 2 $1.99 1.95%
Price 3 $2.99 1.80%
Price 4 $3.99 1.65%
Price 5 $4.99 1.47%
Conversion rates
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Design Test Price Variable
Initial Conversion Rates
Cancellation Rate After Introduction Period
Revenue Per Subscriber
Price 1 $0.99 2.18% 41%
Price 2 $1.99 1.95% 51%
Price 3 $2.99 1.80% 56%
Price 4 $3.99 1.65% 57%
Price 5 $4.99 1.47% 60%
Experiment: Key metrics
Cancellation rates
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Design Test Price Variable
Initial Conversion Rates
Cancellation Rate After Introduction Period
Revenue Per Subscriber
Price 1 $0.99 2.18% 41% $36.46
Price 2 $1.99 1.95% 51% $61.73
Price 3 $2.99 1.80% 56% $82.54
Price 4 $3.99 1.65% 57% $112.13
Price 5 $4.99 1.47% 60% $130.42
Experiment: Key metrics
Revenue per subscriber
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The metric narrative
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Total Revenue
$0.99 $1.99 $2.99 $3.99 $4.99
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The metric narrative
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$0.99 $1.99 $2.99 $3.99 $4.99
When price testing for subscriptions, we must be careful not to focus on only one
metric such as conversion. It is not about a metric; it is about the metric narrative.
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DesignTest Price Variable
Initial Conversion Rates
CancellationRate
Revenue Per Subscriber
TotalRevenue
Price 1 $0.99 2.18% 41% $36.46 $17,172.54
Price 2 $1.99 1.95% 51% $61.73 $26.048.01
Price 3 $2.99 1.80% 56% $82.54 $31,611.53
Price 4 $3.99 1.65% 57% $112.13 $45,189.15
Price 5 $4.99 1.47% 60% $130.42 $39,386.81
Experiment: Results
Relative increase in total revenue163%Price 4 had a 163.1% relative increase over the highest converting option (Price 1).
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The metric narrative
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Total Revenue
$0.99 $1.99 $2.99 $3.99 $4.99
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The metric narrative
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Total Revenue
$0.99 $1.99 $2.99 $3.99 $4.99
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The metric narrative
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Cancellation
$45,189.15
$0.99 $1.99 $2.99 $3.99 $4.99
By only focusing on conversions, you may miss out on other factors that
impact revenue more directly.
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Pitfall #2: Beware of value deflation
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Background: A large media company offering various subscription products.
Goal: To determine the optimal pricing point after the introductory rate.
Research Question: Which price point will generate the greatest return?
Test Design: A/B split test
Experiment ID: TP 11087Record Location: MECLABS Research LibraryResearch Partner: (Protected)
Pitfall #2: Value deflation
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Experiment: Control• Customers are presented with
an offer of “50% off Home Delivery for 12 Weeks with free digital access.”
*Anonymized
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Experiment: Treatment• If the order is not completed
within a certain time, a pop-up appears with an incentive for an additional four weeks at 50%
*Anonymized
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Experiment: Side-by-side comparison
Control Treatment
Audience Question: Which treatment had the greatest results??
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DesignTotal
ConversionsRelative
DifferenceAggregate
LOC
Control 17.2% - -
Treatment 16.5% - 4.03%
% Relative Change: -4.03%
94%
Experiment: Results
Relative decrease in total conversions4%The treatment resulted in a 4% relative decrease in total conversions.
#WebClinic
DesignTotal
ConversionsRelative
DifferenceAggregate
LOC
Control 17.2% - -
Treatment 16.5% - 4.03%
% Relative Change: -4.03%
94%
Experiment: Results
Relative Decrease in Total Conversions4%The Treatment resulted in a 4% Relative Decrease in total conversionsDiscounting can dramatically decrease the perceived value of an offer. We
must be careful not to damage the long-term value of an offer with a discount.
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Pitfall #3: Beware of cost perception
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Background: An independent vitamin manufacturer and distributor.
Goal: Increase total revenue from the page.
Research Question: Which page will generate the highest total revenue?
Test Design: A/B multifactorial split test
Experiment ID: TP 1903Record Location: MECLABS Research LibraryResearch Partner: (Protected)
Pitfall #3: Cost perception
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Experiment: Control
• Products displayed in a horizontal matrix with the $77/month option preselected.
*Anonymized
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Experiment: Treatment
• The treatment displays the products vertically.
• This version adds “Most popular!” and “Best Value!” next to different options.
• The best value option is preselected, which also happens to be the most expensive
*Anonymized
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Experiment: Side-by-side comparisonControl Treatment
Audience Question: Which treatment had the greatest results??
#WebClinic
Design Total Conversions Total Revenue
Control 2.31%
Treatment 2.88%
% Relative Change 24.68%
Experiment: Results
Relative increase in conversions25%The treatment had a 24.68% relative increase in conversions.
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Design Total Conversions Total Revenue
Control 2.31% $12,877
Treatment 2.88% $21,737
% Relative Change 24.68% 68.8%
Experiment: Results
Relative increase in revenue69%The treatment produced 68.8% more revenue than the control.
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Design Total Conversions Total Revenue
Control 2.31% $12,877
Treatment 2.88% $21,737
% Relative Change 24.68% 68.8%
Experiment: Results
Relative Increase in Revenue69%The Treatment produced 68.8% more revenue
Price is one of many factors that contribute to cost. To decrease
perceived cost, we may alter material factors (e.g., price), mental factors (e.g.,
friction) or both.
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The principle of sequence Protocol ID: TP1811
Not this But this
Service Detail Page: Moved monthly fee from bottom to the top of the table to enhance clarity
38% in conversions
*Anonymized
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The principle of elimination Protocol ID: TP1169
But this
Product Matrix: Eliminated the different premium options from the control
36% paid subscriptions
Not this
*Anonymized
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The principle of suggestion Protocol ID: TP1774
Not this But this
Pricing: Moved to a preselected “Recommended Option” and emphasized monthly price
15% Increase in Orders
*Anonymized
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What you need to know: Your customers determine the price they are willing to pay. It is the
marketer’s responsibility to first establish value then guide the customer to the ideal price.
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Maximizing subscription revenue
Warning — Common pitfalls1. Beware of Metric Isolation: When price testing for subscriptions, we must be careful not
to focus on only one metric, such as conversion. It is not about a metric; it is about the metric narrative.
2. Beware of Value Deflation: Discounting can dramatically decrease the perceived value of an offer. We must be careful not to damage the long-term value of an offer with a discount.
3. Beware of Cost Perception: Price is only one of many factors that contribute to the perceived costs of an offer. To decrease cost, we may alter material factors (e.g., price), mental factors (e.g., friction) or both.
Live optimization
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Live Optimization: Indianapolis Star
Primary Audience: Print & Digital Newspaper subscribers near Indianapolis.
Page Purpose: Sell subscription access
Landing Page
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Live Optimization: Logic Monitor
Primary Audience: IT professionals, Web Based Companies, & Cloud Providers
Page Purpose: Visitor sign-up for a 14 day free trial
Top of Page
#WebClinic
Live Optimization: Stamps.comHomepage
Primary Audience: Companies and individuals looking for on demand postage
Page Purpose: Visitors to begin the account creation process and purchase membership
#WebClinic
Live Optimization: Medical Care Alert
Primary Audience: Seniors looking for a home monitoring solution for emergencies
Page Purpose: Purchase a quarterly, semi-annual, or annual membership
Product Matrix
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Live Optimization: Who2Start.com
Primary Audience: Fantasy football enthusiasts
Page Purpose: Purchase a membership to receive weekly fantasy football picks and advice
Homepage
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