How to kill your business

I’ve been tidying up my media subscriptions of late. Although I’ve subscribed to many paper and online publications over the years, I’ve found that there are only a few which give me an adequate mix of content to the price they’re willing to charge and the time I have available to give to consuming them.

I know it costs a lot to create a publication, but it’s astonishing to see how much some media companies value their product – more than their consumers, and charge accordingly.

Within the past year and a half, I’ve had two experiences with publications which, like Hollywood, try economic games in order to try and keep customers they already have, instead of just offering competitive prices to begin with for new subscribers, or offering existing subscribers a logical extension of the initial rate they paid.

Like I said – I understand that it costs money to make a publication. I also understand that often, costs increase annually, or at least on a semi-regular basis.

In almost any business, finance usually likes to see revenue go up while expenses go down. But there are only two real ways to do that. Say I have 200 customers I sell my widget to, and I rely upon annual sales of that widget at $10/each in order to keep my business going. I either

  1. Find additional customers to buy my widgets (good idea).
  2. Charge my existing customers more for the replacement widgets when they come back (bad idea – causes churn).

There’s this warped psychology that says you can shaft an existing customer and they’ll just gleefully take it. They will – for a bit. But in today’s economic climate, when you take a publication that costs less than US$30/yr for a first year weekly subscription, and you offer a “discounted” renewal for more than US$150, all I can say is, “You’re high.”

That’s not even close to sustainable. Either you’re not charging customers enough in year one and your little loss-leader for that year is actually a stupid idea, or you’re charging too much for years after that. Usually this is trying to pass along costs due to dwindling subscriptions to those who have stayed behind and renewed – which is not viable. I’ve seen far too many friends on Facebook complain about a handful of well-known US newspapers that have been jacking up their prices at rates that are so ridiculous they don’t risk churn, but instead guarantee churn.

I’ll give you a hint – you can only pass the pain of your financially stressed business model to customers for so long before they will cease being customers – and trust me, they will. There are far too many sources of information today – consumers are simply overloaded. Where you may have once thought your news was special and exclusive, you’re largely incorporating newswire feeds that consumers are seeing over Twitter, Facebook, and countless news channels that cost less than you or are free. You either add unique value, or figure out how to make your subscribers happy at a non-extortionistic renewal rate.

Which brings me to my second point. A long time ago, I used to read the NY Times quite often. Then came the paywall. Then I became a “tenner”. I’d read the ten allotted articles per month, and unless I bumped into an article syndicated through Twitter, I wouldn’t read it again until next month.

On a sidenote, I fear for local newspapers that have been inspired by the NYTimes’ ability to keep the paywall up (unlike Slate, where we tried a paywall, but it failed rather brutally). Local newspapers – especially those not in major cities – that are putting up paywalls in order to access the small amount of unique content they have (and the large amount of syndicated content people can find elsewhere) are really taking a risk. I don’t see that being sustainable and will hurt in the long run.

As for the NYTimes, I do value the unique content they provide. But their subscription rate and the amount of value I get out of it given the time I have/other sources of news I have are simply incompatible. Recently, I did decide to subscribe to the NYTimes because I earnestly wound up finding several articles I wanted to read but couldn’t because my monthly 10 were burned. So I did. The NYTimes of course does the same thing I talked about earlier… US$.99 for the first month, and then every model of subscription is US$15 per month or more after that. While I found I did use the site more for a few days, I just found that I wasn’t using it enough to justify US$180/yr – the value just isn’t there for me. I’m sure it is for some people, but wasn’t in my case.

But this is where it gets fun. Or not. Did you know that, in order to cancel a NYTimes subscription in 2013, you have to call an 800 number? Yes. That’s right. No email cancellation. No Web form. A phone call. And you know why, of course… because the hard sell is really hard to do through electronic media. While the site says, IIRC, you can “quickly and easily” cancel your subscription, the result of a phone call wasn’t quite that. I had to stay on hold for a few minutes, and then got the usual result.

The call went like this:

  • I calmly told the operator something to the effect of “I don’t have the time to get the value out of the content that it will cost me when my trial is up, and want to close my account.”
  • She proceeded to tell me about features of the site that can help you ensure you’re seeing the most appropriate content to you.
  • I restated my request, verbatim.
  • She volleyed back with more site hints.
  • I restated my request, verbatim, again.
  • She paused, changed angles, and proceeded to offer me a discounted renewal (for a year, IIRC).
  • I repeated it yet again…
  • She paused again, and volleyed back with an even more steeply discounted renewal.
  • I said it again, for the fifth time.
  • She gave me the warning that my account would close on such and such a date, and then finally closed it.

And in the end, this was just like the magazine (although the magazine wasn’t so obnoxious about me not renewing, and just lets the subscription lapse). Initial loss-leader trial, followed by a massive ramp-up on renewal (where hopefully the subscriber has stopped paying attention to the line-item on their credit card). But if you complain enough or threaten to quit, they drop the price. Offer the reduced price to at-risk subscribers, and shaft your loyal ones. Brilliant.

Charge people a fair rate out of the gate, and keep that rate. If you have to raise the costs passed along to your subscribers, fine – do it – but understand that you can’t do it significantly, or you will get churn. If you keep doing it, you won’t have churn, you will have priced yourself out of existence, and your business will not be long for this earth. Frankly, I feel the same about the tendency for free or nearly free in-app purchase (IAP) apps on iOS like games where there are bull***t line items available for purchase for insane costs like US$99 for “200,000 coins” or some virtual bunk like that. In time, I think people will realize how idiotic it is to pay that much for a game or an app on their phone, and that model will flop as well. I hope.

As I wrote this, I had to contemplate how much magazine publishers wanted Apple to pass along subscriber details to them, and how much Apple resisted. In the end, the subscriber got to select whether or not their personal information was actually visible to the publisher. Also, as far as I am aware, there is also only one price available for subscriptions – it doesn’t matter whether you’re a first year or fifth year subscriber, magazines can’t use the loss-leader model to get you in, and in the end, you can easily cancel your subscription through iTunes. No phone call, no hard sell. I love that.

This post talked primarily about media publications – but I’m seeing the same thing happen with many software vendors. Regular price increases passed along to largely loyal customers, in order to keep revenue numbers going the right way – which is also not sustainable in the long run. Loyalty and lock-in will only take you so far.

I’ve said it before, I’ll say it again. You need to focus on delighting your customers first. Don’t nickel and dime them, or they won’t come back – they’re your lifeblood – and often your best opportunity to find new customers, through word of mouth.

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