Upgrading … or how to turn subscriptions into a goldmine

What else are you selling to your readers in addition to their subscription? If the answer is “nothing” then you are missing a trick. Successful publishers have realised that the real value of a subscriber is in what else you can market to them. Peter Hobday explains more.

By Peter Hobday

Many, if not most, publishers just play at marketing. They fix their budget and set a target for the number of subscriptions they expect. That budget is what their marketing department has to spend, and those are the number of subscribers they must bring in. The targets are usually reached before the end of the financial year and the department is happy to be ‘on budget’. Many publishers, including the big ones, will ask: "what’s wrong with that? That’s what we do!"

Well, let’s start at the beginning. How much is a single subscriber worth to you? Until you know the answer to that question, you are not really in the marketing business. When you know the value of a subscriber and his full revenue potential, you know how much you can spend to get each new subscriber in. Let’s take some examples from a healthy subscriptions publisher:

Revenue from each subscriber over four years
£40 for an annual subscription£160
Ancillary items purchased such as books, newsletters and events (£10 a year)£40

These figures are for the average subscriber (who lasts four years). The average value of each subscriber comes to £200. From that, we deduct servicing and other costs of £20 a year to arrive at a profit figure of £120 over the four years.

Now we know how much each subscriber is worth, we can give our marketing department a brief: spend £40 to get each subscriber in. Or perhaps £80. This is where most publishers will scratch their heads – you call that a brief? There are no restrictions – the marketing department could spend £ millions!

That’s right – they can. In fact, a good marketing brief is short and uncomplicated, just like this one. It means the marketer can do what he does best: sell and make a profit. He can be productive without anyone holding him back.

Establishing an upgrade programme

If your company is still talking about renewals, then you are far behind the times. Most good subscription publishers introduced an ‘upgrade programme’ years ago. A typical programme can include:

1. Conversion of bill-me subscribers to automated payment.
2. Cash payers upgraded to two and three year subscription terms.
3. Early-bird offers to bring cash flow forward and reduce renewal notices.
4. ‘High ticket’ newsletters.
5. Special reports, books and directories.
6. Subscriber events, conferences and workshops etc.
7. Special ‘subscriber club’ offers.
8. Access to members-only website.
9. ‘Confidential’ email updates.

Many publishers have introduced this kind of product extension in the past five years or so. What brought the change was the realisation that if you sell a new subscription in the right way, subscribers will buy in to the rest of what you offer later on. This, for example, is what National Geographic does so well. Its World Atlas is one of the many books on offer to subscribers. It sells for £80.

Before upgrading became the norm, most companies focussed on the publication and advertisers within its market. Publications would carry a page selling back issues and a few books. It was never big business and if an advertiser could be found to replace the ‘house ad’, so much the better. Advertising and/or cover revenue was paramount. Then things changed.

How upgrading was invented

A few clever publishers began to re-package editorial into books and reports and sell them at a far higher price than a £2.95 ‘back issue’. Then they began to take content off their free-access websites and turn that into reports too, selling for £20, £50 and more.

An interesting debate then followed: should you reduce the charge for a product delivered via the internet as it costs almost nothing to send? Although heated, the debate was misguided. The principle is governed by one of the first rules of marketing: the price you charge is determined by what customers will pay, not by your costs.

So the price should be determined by price testing - and often the price turns out to be astonishingly high. To some, charging so much for what costs so little will sound extraordinary – especially those who arrive at prices by adding a profit figure to their costs (it’s called cost accounting and it has no place in subscriptions marketing). The truth is that most publishers underestimate the value of their products and they could ask a lot more for their information even if it’s already free and in the public domain.

Then some publishers found they could charge different people different subscription rates for the same product. The fear that subscribers would talk with each other and compare the money they paid proved unfounded. In practice, when promoted in the right way, few, if any, complaints are ever received. And if a complaint does come in, the subscriber is easily handled by offering him the discounted rate. In my experience, it’s the editors who worry most about this. Of course, editors shouldn’t worry about marketing problems at all. They have plenty of their own problems to occupy them.

If you are still doubtful about charging different rates, as I know some readers are, think of other markets and what happens there:

* CDs sold for £12.99 at Woolworths and WH Smith are available to those same people through the internet as a free download, or discounted through mail order.
* Air travellers routinely pay two or three times the price for an airline ticket than the person in the next seat. Rarely is a complaint heard.
* Movies on DVD, sold at £15.99 in the high street, are available for around £2 through the internet.
* Atlases, travel and discovery books are sold by publishers via direct mail for prices ranging from £50 to £100 when similar titles are available for around £10 to £25 through Amazon and other bookshops.

There are segmented markets for all of these products. The people in these segments have different attitudes to spending. Each segment should be regarded as separate, with people prepared to pay a different set of prices. It’s no use attempting to guess what people will pay - that’s what test-marketing is for.

Why upgrades are big business

For some consumer and business publishers ancillary products bring in far more revenue than subscriptions. One publication I work with pulls in a multiple of four and a half times the subscription rate. It has become the major part of its business. These publishers hold subscription rates low - to keep the volume of new subscribers and ancillary sales high.

One-product publishers

Some publishers produce just one small-circulation publication. They launch because they have faith in their idea. This is what motivates them. The publisher writes and produces each issue, bringing in just enough revenue to create the next one. Then, somewhere along the line, he wonders if his little publication could ever be a big one. Unfortunately, the owner has omitted to establish a marketing plan to find out how to maximise his small publication’s growth. The business is trapped in a pretty common situation: there is no money for marketing - and without marketing there can be no money.

So what is the function of ‘marketing’ and why is an upgrade programme so often left out of the publisher’s original plans? Marketing maximises revenue by:

1. Establishing a flow of enquiries and new subscribers.
2. Establishing the optimum, most profitable subscription rate.
3. Creating a series of ancillary products to upgrade subscribers.

It’s important to build a list of enquiries because they’ll be integral to your upgrade programme. Your customers will often buy an ancillary product rather than a subscription – a workbook for example. And list rental revenue brings a welcome injection of cash to the bottom line.

The potential of an upgrade programme is clear. Without it, many well known publishing businesses would find themselves substantially poorer, including big international names such as Reader’s Digest and National Geographic, as well as many very clever smaller publishers like Melcrum Publishing and Electric Word.

Why leave marketing out of publishing?

Back to our original question: why is an upgrade programme so often omitted from launch plans? It’s usually through ignorance – the publisher/owner either knows little about marketing or doesn’t see its relevance. He sees marketing as something to perhaps add on after launch. After all, isn’t circulating a new title a kind of marketing in itself? People will surely see the publication and buy it?

And can’t you learn all there is to know about marketing from searching the internet and chatting to a marketing expert over lunch? The answer to those questions is, unfortunately, no. Going into a market without a serious plan is rather like learning how to control air traffic from visiting the airport canteen. It’s very dangerous to your health, financial and otherwise. I have seen some great titles fold recently because of this. Others only realise their potential once sold off.

In fact, marketing should take precedence over the product. Again, this will upset many readers. But establishing a workable plan, including an upgrade programme, is the first step in publishing. Marketing determines basic business information and maps the way forward – and it’s not the kind of information you can pick up over a cup of tea. You need worthwhile investment to make a worthwhile return. I’m sorry to spring this on you reader, but free information has little value.

Channel your motivation and enthusiasm into a subscription promotion that includes a series of price tests to see who will pay what for your idea. Once you have your list of interested people, test a whole inventory of attractive and distinctive products to see what they will buy. I’m reminded of a great Gene Hackman quote from the movie Prime Cut: "Whatever they’re buying, I’m selling."

Heavy magazines

The publisher of a computing magazine once told me: "we don’t want more than 15,000 subscriptions. The magazine is so heavy we lose money on each issue we mail. It took just a few months for us to achieve his 15,000 target." Then I asked: "what about the advertisers? Don’t you increase the advertisement rate as your circulation jumps up?" The answer was intriguing: "No. Advertisers have a limit they’ll spend and they won’t go beyond it."

The publisher couldn’t see beyond his advertising revenue and had failed to set up an effective upgrade programme. He had also failed to educate his advertisers and draw them into the magazine’s growth. This required investment and commitment. Having spent his ‘budget’ on reaching 15,000 subscribers he had no more money left. His hands were effectively tied by his company management.

The folly of restricting growth is far reaching. Instead of giving the publisher a simple profitability and turnover target, management had reduced his whole marketing operation to secretarial level – order some copy (or write it yourself), organise some mailings and make sure you bring in a fixed number of subscribers. Although the publisher was a competent and intelligent manager, running one of the leading magazines in its market, he had no autonomy to make the kind of profit it deserved. Here is what he could have achieved, given the freedom:

1. Many subscribers are on direct debit. With the right approach, subscription rates can be increased until each subscriber is profitable.
2. Computer users are avid information junkies. There is lots of scope for ‘confidential’ insider email updates and newsletters – all paid-for. This would be the kind of ‘frank’ editorial the editor couldn’t carry in the main magazine.
3. There is an abundance of interesting new products readers would like to purchase – a perfect situation for creating a reader club, with special offers and events.

Each magazine requires its own special kind of upgrade programme to suit its position in the market. Whatever it takes, it’s worth the small investment to run a test to find out what works for you. It always pays off in the medium and long term. Failing to upgrade a subscriber is like a shopkeeper refusing to let a customer back in his shop until his original purchase has reached the end of its life. And you wouldn’t do that, would you?