Subs – the battlefield of tomorrow?

Subscriptions have traditionally been an under-valued weapon in consumer circulation wars.

The signs are this is changing and a big directional shift in marketing spend could be on the way.

At the November 2006 PPA Subscriptions Conference, the keynote speaker, Duncan Edwards, gave his thoughts on the ideal split of circulation. He spoke eloquently and inspirationally of his belief that the relative ROI of subscription and newsstand sale is much closer than commonly believed.

With a long-term eye on a future in which a 50/50 split of sale could be reality, he sent out a strong message to subscription professionals, challenging them to meet this opportunity head on.

His message echoed a challenge to the industry by Peter Phippen, of BBC Magazines, at the previous year’s conference, strongly urging publishers to get better at direct selling.

It is a sign of the times that many publishers want to do exactly that and are making investments on a much bigger scale than seen before.

In this article, I aim first to highlight the key trends in today’s market and then take a look in the crystal ball to predict what could be our future.

Key trends - Today

1. Increased activity across most UK publishers (large and small)
You have only to look at the quantity of campaigns out there to see how much more activity is happening in the UK. The number of inserts, page ads, carrier sheets, email campaigns and web promotions has increased significantly in the last couple of years. Retail gift packs are starting to gain increased momentum and investment at the big publishers is being up-scaled very quickly.

The PPA subscriptions committee has set a challenge to grow UK subscriptions to 20% of all consumer magazine sales. Some significant titles are already approaching or over the 50% mark of sales – Good Housekeeping, Gardeners’ World, the Economist, Time, Auto Express and New Scientist. There is no reason why more titles cannot emulate this success.

2. Movement in marketing spend away from retail towards subscriptions
This one will perhaps worry newsstand circulation managers, but there is increasing interest from publishers in the measurability of subscription promotional spend. Here, every pound spent equals a quantifiable return in sales and revenue, with an associated lifetime value and forecast sales return over the next five years.

This contrasts to some retail promotions that cost many thousands to implement and only deliver a single issue sales spike with no measurable return in subsequent sales.

Newsstand sales can rely heavily on costly retail promotions and covermounts to ensure that a single customer makes the required purchase decision each week or month. However, subscribers have already pre-ordered and pre-paid for their copy and provide much appreciated cash flow predictability.

3. Increased staffing investment in subscription marketers to implement campaigns
Speaking to recruitment consultants, it would seem that good subscription marketers can now command a premium and junior staff and new entrants are increasingly sought after. With some publishers’ departments increasing headcount by 50% or more, there is more talent out there to direct and implement increasing numbers of campaigns. This is excellent news as new blood is being attracted into the industry.

4. Investment in industry promotions including PR campaigns
There are increasing numbers of industry wide promotions, for example WH Smith has been successfully selling retail gift packs for several years and other retailers are dipping their toes into this water. A number of websites are out there selling cross-publisher subscriptions (eg isubscribe.co.uk, magazine-group.co.uk) as well as individual publishers producing and promoting their own portfolio sites (eg greatmagazines.co.uk).

A number of the big consumer publishers are also working with the PPA and Royal Mail to support an industry wide PR campaign. This initiative aims to raise public awareness of the benefits of subscribing and the delights of giving subscriptions as a gift, and involves radio and press PR. See magazinesbymail.net for the consumer-facing site supporting this campaign.

5. Increasing investment in CRM and database marketing
Investing in a single customer view and developing a database marketing approach to cross sell, up-sell, retention and win-back, as well as direct to consumer acquisition campaigns, is something most of the big publishers have put in place.

Those that are there already, BBC Magazines included, are now seeing great improvements in response rates through more targeted campaigns. We are also gaining great insight into the real facts on thorny topics such as the level of cannibalisation between competing titles in the same portfolio.

Key Trends – Predictions

1. Margins coming closer together, taking into account the true cost of newsstand sales versus subscriptions
Currently, profitability comparisons between subscription sales and newsstand, for consumer magazines, will usually come out in favour of the newsstand, where the channel doesn’t have the high cost of postage.

Or at least this is what the first glance comparisons suggest. In practice, once you take into account the cost of wastage, covermounts and trade marketing, as well as the cost of taking the product to market, this gap narrows significantly.

In the future, developments in the supply chain suggest that the newsstand margin could reduce significantly and economies of scale, via increased subscription volume, could narrow the gap further. The possibility of cheaper postage could also be on the horizon, as postal carriers better understand the value of publishers’ regular and reliable traffic in the new de-regulated marketplace.

Such a change in the relative economics of the two channels will naturally push up investment in subscriptions and see increased volumes of sales in return.

2. Understanding trade up in frequency of purchase and using this ROI model to invest more in acquiring and retaining subscribers
One of the factors that have held back the development of UK subscriptions sales has been a deeply held belief by many publishing professionals that subscriptions cannibalise sales on the newsstand. This belief has sometimes been coupled with a requirement at the level of company profit and loss to see return on subscriptions investment fully paid back in year one. Together, these factors have seen some reluctance in the past to get behind subscriptions as much as many marketers would recommend.

Research by Brandlab, sponsored by Royal Mail and unveiled at the PPA November conference, suggested that subscribers typically trade up the number of copies read, by 4.5 copies.

Factoring into this readership versus paid for copy purchase; I believe that the actual trade up is likely to be nearer 6 to 8 copies purchased. This means that for every customer taken out of the newsstand you gain up to 67% extra sales. Publishers, through research, can empirically quantify these numbers, and building this knowledge into ROI modeling helps to strengthen the argument to invest in subscriptions through a longer term Lifetime Value model.

Separate research at several companies has shown that there is also a significant number of subscribers who haven’t purchased prior to subscribing, where 100% of issues sold on subscription are incremental.

3. Development of retail sales of subscriptions
This is potentially one of the biggest opportunities for publishers and retailers to sell higher margin subscriptions in the same way they sell single copies. As a gift purchase, the subscription pack has great in store appeal for the consumer. Analysis shows these packs deliver a new and different customer to the customer generated by traditional publisher direct marketing campaigns. In five year’s time, with retailer buy in and publishers truly getting behind this kind of initiative, what is already a nice sales channel for some publishers should be much bigger.

4. Single point of ordering across publishers and cross-sell across publisher portfolios
One of the frustrations for consumers is definitely the number of different ways and types that you can buy subscriptions as well as the need to phone a number of different bureaus when placing orders for subscriptions.

In the future, it is possible this will be a thing of the past, as publishers co-operate more to provide a bigger and better marketplace for customers. It is also likely that cross-selling initiatives and data-sharing will become commonplace as magazine publishers work together to maintain their share of UK customers’ leisure and entertainment spend, in the face of new distractions and leisure opportunities. Look at the use, among the younger demographic particularly, of websites such as myspace.com and youtube.com and compare that to their magazine purchase habits.

5. Successful subscription models for electronic products in consumer markets
Already there are very successful online B2B models for subscriptions to electronic products. Look at Estates Gazette interactive for a great example of a market where very significant electronic revenues have been generated hand-in-glove with continued print subscription success.

On the consumer side, things are a little different. Some have generated successful and profitable websites such as the Guardian online or radiotimes.com but the profit margin is driven by advertising sales. So far, consumers haven’t signed up on any scale to pay a subscription premium for online content apart from television programmes and movies.

However, as technology improves, the reading experience gets more pleasant, and hand held devices are becoming increasingly lightweight and portable. This will change consumer behaviour and open the door to a potentially enormous saving on physical product production as well as physical delivery, making this a very exciting concept and one that we should be exploring today.

All of this is good stuff for those of us lucky enough to be working in this increasingly vibrant and growing sales channel. Our skills are in demand and our budgets are expanding.

And it’s not bad news for the newsstand either, as direct marketing at some companies is evolving into a channel neutral approach. By this I mean that database marketing and campaigns including direct mail are also used to activate, re-activate and increase frequency of purchase on the newsstand. This is a growing and successful area of publisher investment. Radio Times recently won several Gold awards from the DMA for exactly this type of activity.

The future of subscriptions looks rosy, albeit challenging, and the role of subscriptions in consumer circulation wars can only get bigger.