Plucking Geese To Get Golden Eggs

Photo: Peter Bond | Upsplash

Newspapers are the fastest-moving consumer goods industry of them all.

David Tymm of i-movo explores what brand owners can learn from how they drive loyalty and turn customers into subscribers

The online world has quietly ushered in the ‘Subscription Economy’. Similar to Louis XIV’S Finance Minister, Jean-Baptiste Colbert who declared that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”, Spotify, Netflix, Amazon and many others have realised that getting customers to pay ‘little and often’ is the best way of maintaining their loyalty.

Perishable, produced from scratch every day and almost obsolete by four o’clock the following afternoon, newspapers are the very definition of a fast-moving consumer product. Notwithstanding the difficulties the industry has experienced in the face of the competition of instant, up-to-date and free online news, there are lessons for brand owners to be learned from this beleaguered sector in terms of maintaining consumer loyalty.

Given the logistical challenges of producing and distributing a new edition every day and the financial constraints imposed by a low product price, newspapers are sold through retailers rather than delivered direct.

Up until 20 years ago or even later, loyalty was forged as a result of tribal support for the editorial line. But, as with many other sectors, the internet ‘changed everything’ – including, for many former loyal readers, the habit of buying and reading a particular title every day.

The response from publishers was to launch subscription schemes, getting readers to commit to buying the paper for a set time – usually a year – in return for a discount on the cover price.

Four times annually, readers are sent books of 90 or so paper vouchers and use these to pay for the paper. The retailers then claim the value of these vouchers back from the publishers. The original theory was that if readers paid in advance, they would be certain to read the paper every day. For the publisher, the sale and associated advertising revenue would therefore be protected.

It’s a strategy that has proven to be partially successful in arresting the decline in sales. By way of a single example, the Daily Telegraph had 796,000 readers in 2007, of which 327,000 were subscribers. Over the next decade, subscribers fell to 223,000, a 32% drop – but that against a 53% fall in overall average daily sales to 377,000.

Paper is pricy

But paper vouchers are expensive to distribute, expensive to process and vulnerable to various ‘practices’ that can result in considerable, avoidable expense for the publishers. In addition, high fixed costs inherent in the production process result in publishers adopting ‘a one or two sizes fit all’ approach to product strategy. Fixed-term contracts with no escape route are also the norm. Both traits are somewhat at odds with consumer expectations of ‘mass customisation’ and a belief that subscriptions should be for their convenience, not to predict the revenue of suppliers.

Digital voucher systems dispense with these operational deficiencies and also provide added benefits. Digital provides insight into subscriber behaviour right down to who is using their subscription (or not), at which retailers, on which days of the week and at what time of day. Critical information for customer retention and product development that is lost in the ether with paper vouchers!

As a result, the Financial Times and Guardian Media Group have been the first to move away from paper fulfilment for subscription services to digital

Other fast-moving product categories face a similar challenge to those faced by publishers two decades ago – and they can learn from the experience of the newspaper publishers.

With consumer decisions often made within 30 seconds or 12 feet of purchase, according to some shopper marketing experts, relying on habit for loyalty and constant investment in marketing programs to influence the consumer at point of selection is, I would argue, economically unsustainable.

Also questionable are the considerable sums spent on digital media when the impact of online promotion is difficult to measure in the context of offline sales. Recent media coverage suggests that the party is over and brand managers are beginning to wise up to the state of the current online advertising market. Texans refer to such arrangements as a ‘Goat Rodeo’… a system rigged in favour of the organisers.

Generation Subscription

With financial innovators such as Zuora and GoCardless democratising the recurring payments market for credit/debit cards and Direct Debit respectively, any business can now collect payments easily and inexpensively from consumers on a regular basis and so sell their wares on a subscription basis.

Dollar Shave Club is probably the most famous example of this model. The disposable razors they sell have a predictable consumption pattern and are easy to ship. The less well-known Batch Brew distillery in Burnley makes fabulous but quite pricy gin. If you sign up as a subscriber, they send you a bottle of whatever they’ve decided to brew up that month for a direct debit payment of £30 a month, just below the price/value consciousness threshold of their target customer, I would guess.

Both examples have the advantage that direct payment and direct fulfilment are viable options. But, as with newspapers, direct fulfilment is not feasible for brand owners where such products are frequently purchased across a range of retailers. Brands will also be aware that retail partners will continue to represent the majority of sales and a direct-fulfilment strategy would effectively dis-intermediate them and damage commercial relationships.

Turning consumers into subscribers is not only good for brands in terms of securing loyalty and stabilising revenues. Consumers welcome it too. The Economist reported in 2014 that 80% favour subscription for preferred brands providing it signifies convenience and is not at the expense of flexibility.

For example, an energy drink manufacturer could pre-sell 20 bottles online and deliver a mobile voucher to let the customer collect at a retailer anytime they want one, but without any commitment to consuming all 20 by a certain date. Consumers who have already made their purchase decision and paid are unlikely to buy a competitor's product.

Alternatively, firms such as Klarna will extend credit to consumers based on their email address. This means consumers would not always need to pay upfront – just settle a monthly invoice for what they have consumed. Purchases can also be added to mobile phone bills using services such as ‘Payforit’, which is supported by all the UK’s major mobile phone operators.

Although the options are many and various and set to evolve further, two truths are inescapable: The ‘Subscription Economy’ is here to stay – and brand owners that cannot supply direct need a method for remote fulfilment of their products if they are to take advantage of this generational shift in consumer behaviour.