Thursday, February 16, 2017

Profiting from Habit -- Seamless Monetization

Marketers increasingly recognize how essential habit and seamlessness are. "How to Win and Keep Customers" is the cover theme of the current Harvard Business Review -- the lead article says to focus on habit, not loyalty, while others say that "habit is how we build the connection" and "habit beats novelty."

Some people question whether FairPay is seamless enough, and whether it goes against habit, but I suggest that, done right, it actually builds a stable, self-adjusting relationship based on habit in a way that is natural and largely seamless.

Habit and subscriptions

Subscriptions are about as habitual as commerce can get. The dream of many subscription marketers is to get customers to subscribe, put them on autopay, and hope they never think about it again -- pure habit. Not even "thinking fast" as Kahneman called it, but not thinking at all.

But the reality of the subscription habit is not really so simple -- and poses financial risk to the subscriber. Seamlessness requires not just absence of effort, but absence of risk.
  • Especially for unlimited digital subscriptions, customer usage -- and value -- varies not only from customer to customer but also from period to period. 
  • Many customers are often nagged by the feeling that they are paying too much for a service they no longer find worth the price (and may not be using). 
  • A price that sustains lack of thought from one customer at one period may not do so for another customer -- or for the same customer, for a different period. 
  • Perceived value fluctuates, and when it goes below a threshold, the dreaded cancellation request arises. 
  • Then things get hairy, as previously profitable customers may or may not be coaxed to stay. 
  • Both businesses and consumers spend great cognitive effort (and service agent time) negotiating whether to cancel, or agree on some customized retention offer -- and if successful, that just kicks the can down the road a bit. 
No matter what your subscription price, there are problems.
  • If the habit does not fail for many customers, the question is why not? Is it because your price is so far below the pain point that you are leaving money on the table for most of your customers? 
  • Whatever the failure rate, what about the unseen base of the iceberg?
    ...those who do not subscribe because the price seems too high?
    ...the many customers who don't even consider subscribing because of fear they will regret it?
    ...those who decline even a free trial, because they do not want to have to remember to opt-out? (That barrier is reinforced by the consumer-hostile "roach motel" policy of most subscription businesses that make it painfully difficult to cancel.) 
So what seems a nicely mindless subscription process actually works rather crudely, and not always so mindlessly. (See Winning Back Lost Customers -- Before They Get Lost.)

At the same time, keep in mind that for some customers, seamlessness is not the issue. An important segment of consumers enthusiastically embrace behaviors that are far from seamless. Some consumers willingly bear punishingly high cognitive loads -- some in various forms of bargain hunting (such as to maximize credit card bonuses and airline rewards), others because they are "superfans" and actually want to be deeply involved.

Habit and FairPay

The new FairPay relationship strategy entails a learning curve that may seem burdensome, but it is risk-free, and once established, it can be simpler than conventional subscription (or membership) processes.

When managers consider FairPay, a common initial concern is that it is unfamiliar, and that it imposes a new cognitive burden on the customer. The burden is in the cooperative discovery process that leads to personalized prices, based on dialogs about value (and price) with each customer. In principle, that process is adaptive, forever. That may sound like a formula for a lot of "thinking slow," something humans try to avoid, and marketers rightly wish to help them avoid.

But that is not the full picture, for two reasons. The first, as explained above, is that the seemingly mindless subscription process often fails and becomes burdensome. It involves not only cognitive effort, but financial risk.

The other reason is that FairPay actually can become habitual, and ultimately become an even simpler habit than a conventional subscription (even when that subscription is working reasonably smoothly). As a buyer and seller gain familiarity and gain a shared understanding of received value, the FairPay seller can adapt the process to create a level of confidence and trust in its workings that reduces the cognitive load:
  • After a short learning curve, the seller's algorithms can begin to predict the value that the buyer sees, and can suggest prices that the buyer will generally be satisfied with. These suggested prices can use predictive and anticipatory analytics and machine learning to reflect the dynamics of value, as perceived by the buyer -- reflecting how many and which items are consumed, with what intensity, and with what results -- and that can be shown in the usage report that goes with each pricing request.
  • The buyer sees the progress of that learning as it emerges, and becomes increasingly comfortable that the seller's pricing suggestions are becoming properly personalized to reflect their usage and values. Such dynamic suggestions can become far more aligned with perceived value than any fixed subscription fee.
  • Once that comfort level emerges and is sustained for a while, the buyer can simply put the process on autopilot (using autopay, just like a conventional subscription). The difference is that the buyer always has the option to review recent charges, and can go back to make a unilateral adjustment any time they might feel those prices are out of line for a given period. That can be a one-time adjustment, or can trigger a deeper re-calibration of the personalized pricing process.
  • This process eliminates financial risk to the subscriber -- an important aspect of seamlessness. Customers need not fear subscribing under FairPay, because there is no roach motel -- they will not be required to pay by default, to pay for services they do not use, or to remember and go through hoops to cancel a service they no longer want. 
Because this adaptive learning can become largely automatic, with just occasional re-calibrations, this can actually become just as simple and impose no more cognitive load than conventional subscriptions. Done well, it can actually become more seamless.

And, perhaps more importantly, with a FairPay relationship, there is no financial risk to fear -- consumers need never doubt that subscribing is worthwhile, because they share in the power to set the terms, expending as much or as little effort as they deem worthwhile..

Easing the learning curve

Of course this is a new method of doing business, so early uses will not go as smoothly as they will after businesses and consumers have gained a good understanding of how to use it effectively. So for early uses it is important to be careful to select lines of business and customer segments where it is likely to work well, and where some cognitive load will be tolerated. Suggestions on how to do that are in a companion post, Finding Good and Fair Customers -- Where Are the Sweet Spots?

FairPay is a new pricing method that reduces risk, but involves joint learning. It will not be simpler for all people, all of the time. But it promises to reach a level of habit that will be simpler for many people, most of the time. And as businesses and consumers learn to use it effectively, it will be simpler for more people, more of the time. And that will generate greater CLV, from a wider market.


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

Tuesday, February 7, 2017

"Subscription-First" ...Why Not Subscriber-First???

"We are, in the simplest terms, a subscription-first business," said The New York Times in its 2020 Report -- an admirable examination and re-dedication to its premier journalism.

But what is missing in this picture? In an age where businesses of all kinds are realizing that their path to success is to go beyond "customer-centric" to become "customer first," is the Times thinking about becoming "subscriber first?"  What they refer to as subscription-first is recognition that the subscriber (not the advertiser) is the customer they must center on. But are they pushing beyond subscription-centric to subscriber-first? Perhaps to some extent, but I have suggested to the Times (and their competitors) that the business of journalism must focus more directly on how business model innovation can facilitate that.

A nice explanation of this difference is in a recent report from MarketingSherpa: "to come alongside customers and help them achieve their goals versus only driving them towards business goals."
A shift from...
Customer-Centric Marketing — aiming at the customer
Customer-centric marketing puts the customers at the center of marketing; all promotions and messaging flow towards them in the way that is most relevant to them. Marketers put themselves in the customers’ shoes to sell to them better.
Customer-First Marketing — elevating the customer
Customer-first marketing uses the customers’ goals as the compass to make decisions about marketing approach. They put the long-term interest of the customer above the short-term company conversion goals. Marketers put themselves in the customers’ shoes to serve them better, thus building a long-term, sustainable competitive advantage. 
It does not appear that the Times has this deeper shift in mind. This may seem a fine distinction, but it can be made operationally important. FairPay is a new strategy for subscriptions that are truly subscriber-first at the core. It focuses all aspects of the business on value as each subscriber perceives it, and does that in the most direct way possible -- by involving the subscriber in setting their subscription price.


The new Times report, Journalism That Stands Apart: THE REPORT OF THE 2020 GROUP, begins with this near the front (emphasis added):
We are, in the simplest terms, a subscription-first business. Our focus on subscribers sets us apart in crucial ways from many other media organizations. We are not trying to maximize clicks and sell low-margin advertising against them. We are not trying to win a pageviews arms race. We believe that the more sound business strategy for The Times is to provide journalism so strong that several million people around the world are willing to pay for it.
It goes on in a later section:
3. We need to redefine success.
The newsroom has embraced data and analytics over the past year, with positive effects. We now have a better sense for which of our work resonates with readers and which does not. We’re producing more resonant work, and we have largely resisted the lures of clickbait.
Now we need to take the next steps. The newsroom needs a clearer understanding that pageviews, while a meaningful yardstick, do not equal success. To repeat, The Times is a subscription-first business; it is not trying to maximize pageviews. The most successful and valuable stories are often not those that receive the largest number of pageviews, despite widespread newsroom assumptions. A story that receives 100,000 or 200,000 pageviews and makes readers feel as if they’re getting reporting and insight that they can’t find anywhere else is more valuable to The Times than a fun piece that goes viral and yet woos few if any new subscribers.
The data and audience insights group, under Laura Evans, is in the latter stages of creating a more sophisticated metric than pageviews, one that tries to measure an article’s value to attracting and retaining subscribers. This metric seems a promising alternative to pageviews.
Yet the newsroom should also understand that no metric is perfect. To a significant extent, we will need to rely on a mix of quantitative measures and qualitative judgments when deciding which stories to do and to promote. Achieving the right balance is tricky. We neither want to equate audience size with journalistic value nor do we want to return to the days when we persuaded ourselves that a piece of journalism was valuable for the mere reason that it appeared in The New York Times.
Subscriber-first -- its all about value to the subscriber -- in terms of the subscriber's goals

The Times seems focused on the value of its reporting to subscribers, but it is not clear that this looks beyond their own objective of "attracting and retaining subscribers." A true customer-first strategy would focus the Times on understanding the value they provide to each subscriber, in terms of that subscriber's goals, and using that to drive decisions. There may be limits to the extent to which this guides editorial, but it should guide product development, business, and marketing decisions. FairPay is a strategy for subscriber-first pricing that can drive all other aspects of the business.

The Times is already moving in the right general direction. They can follow their subscription-first path and seek to maximize revenue by just getting smarter about their goal of getting people to subscribe and stay subscribers. They refer to "more sophisticated metrics." A nice summary of methods they may apply is in David Skok's recent NiemanLab prediction: What Lies Beyond Paywalls (see my comments on that: What Lies Beyond Paywalls -- A Better Way).

The problem is that this is still aimed at the publisher's goals, not the reader's -- trying to psych out the reader, to understand how to better align prices they impose with the value the reader perceives, to get and keep more subscribers. But the reader has unique access to their personal perception of value (as it relates to their goals). Current processes do not involve the reader in real dialog that can expose those perceptions (or their goals) directly -- and signal that the publisher cares about them.

A truly customer-first, subscriber-first strategy would involve the subscriber in measuring value -- from their personal perspective. The FairPay strategy suggests a way to do this (at least for a segment of cooperative subscribers) is to involve the subscriber in setting the price of the subscription, and letting that price vary over time. Only by doing that can the price truly correspond to value -- as it varies from subscriber to subscriber and from period to period. The single price set by the Times ($2.75/week) is too much for many potential subscribers, and too little for many dedicated ones. Too much for a given subscriber in some periods, and too little in other periods.

The FairPay strategy can involve the subscriber in a cooperative and dynamically adaptive process that can quantify the value that subscriber sees (as it relates to their goals), and set the price accordingly.

  • It seeks to do this in a way that is simple, yet balanced to work for both the publisher and the subscriber. 
  • It applies dialogs about value to elicit value perception data from the subscriber that can be obtained in no other way. 
  • These dialogs also serve to deepen the relationship by demonstrating that the subscriber's perspectives and goals are respected. 
  • At the same time, this process gives the publisher a way to validate that information, to nudge the subscriber to pay fairly, and to cut off FairPay privileges for those who are uncooperative. 
  • This operates as a repeated game, a structure that can motivate cooperation. 

Think of it as not just customer experience (CX), but a truly customer-first focus on value experience (VX).

This may not work for all subscribers, at least not right away, but it can be applied to select segments of current and future subscribers to get and retain more subscribers, and thus increase the total value of digital subscriptions to both the publisher and the subscribers. A fuller explanation is in my post, Patron-izing Journalism -- Beyond Paywalls, Meters, and Membership. Suggestions on how this can begin with select segments and then gradually expand are in Finding Good and Fair Customers -- Where Are the Sweet Spots?

The Times (and others) can try basic forms of this strategy in limited, low-risk tests, and learn to refine and extend it. They and their subscribers can learn how to cooperate to get the best and most valuable journalism possible, by the measures that matter -- the satisfaction of each subscriber as well as the profit. They can move from subscription first to subscriber-first. As the MarketingSherpa report shows, this can lead to "customer loyalty, an increase in share of wallet, and sustainable business success."

Some other posts that expand on how FairPay applies to journalism:

For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.