Don’t just build a paywall: Pricing analyst on the science of subscriptions and online products

Only 27 percent of media companies think their profit margins are going to increase over the next three years, and two-thirds think that will force them to charge for almost all content online.

That’s according to a survey by pricing consultants Simon-Kucher & Parters, who argue that firms need to invest more in dedicated research and staffing for price, and should get senior executives involved in pricing. Otherwise, your paywall is just a barrier.

Senior consultant David Smith tells TheMediaBriefing the first step is working out what your content is worth – and that involves research: “The first step is to understand the value, and potentially, and how the value differs online and offline. Then understand how much people are willing to pay for something. If you have something very very specific then they will be willing to pay more.”

He recommends a combination of two methods:

Customer research: “Engaging with existing and potential customers – is very valuable,” says Smith. This may seem like a no-brainer, but it is important, especially with potential customers who not only represent a new opportunities, but are also not as likely to be users of your site and therefore providing you with even basic information.

A/B testing: This is commonplace in tech and marketing but not so much in publishing: presenting different options to your audience, then seeing which one works best. “If you already have a paywall or have an online business, then you can run A/B testing or price trials.”

Smith says subscriptions are likely to dominate for most consumer news publishers, because splitting up amounts like £10 per month into per-day or per-usage fees results in tiny amounts. That is both inefficient and could devalue your content in the eyes of the consumer.

But within subscriptions there are different levels – a flat fee for all areas access isn’t the most effective way of persuading people to pay anything.

“The key thing is tiering of those subs,” says Smith. “There will be different customer segments out there, some who value full feature, and some who value only specific parts of your content. It’s a kind of good, better, best model.”

How you differentiate those tiers is up to you, but there have emerged two main models – offering access to different content and offering access via different platforms and devices. Many of the most high-profile examples of subscription tiering, such as The New York Times and The Times charge different fees for access on different devices, so the NYT charges $15 to access the NYT website and its smartphone apps, $20 to access the website and tablet apps, and $35 for all three.

However, Smith says he thinks platform tiering will be less common in the long term.

“I think for something like Spotify, it is perhaps a fundamentally different value prop listening to it on desktop to listening on a mobile. But something like print, in theory a print newspaper is portable as well. In that sense paying by the nature of the content is perhaps more valuable.”

Once you’ve actually persuaded a reader to sign up for a subscription, raising the price is comparatively easy.

“It’s all about the habit, says Smith. “People aren’t in the habit of paying for things online.”

“There’s a lot of inertia in going from paying nothing to something – it doesn’t necessarily matter what that amount is. It’s just the act of handing over your credit cards details. Once you’ve done that you’ve got over that hurdle and so the normal rule of price elasticity will apply. Yes you will lose some people when you put up the price reasonably, but not many.”

Simon-Kucher’s study also concluded that readers, once they have been forced to think about the cost of creating content and the problem sustaining that creation on ads, thought that a subscription only became too expensive at the £20 per month mark. That suggests news organisations have a fair bit of wriggleroom to experiment with price.

TMB has profiled their analysis before and invited them to speak at Mobile Media Strategies last year, if you want more pricing thinking.

By | 2013-04-12T00:00:00+00:00 April 12th, 2013|Analysis|Comments Off on Don’t just build a paywall: Pricing analyst on the science of subscriptions and online products

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