08 September 2020

How to build a forever transaction with your readers, using the same principles as Netflix

Subscriptions are now par for the course in news media, but as previous editions of FIPP World Media Congress attest, this wasn’t always the case. How they can get beyond the initial freebies and retain paying subscribers was the topic of discussion at one of this week’s most insightful sessions, with strategy consultant at Peninsula Strategies and bestselling author, Robbie Baxter.

As she explained to FIPP recently, the leading players in subscriptions are companies that have always been “member-centric” – like Netflix in particular – and are using a simple approach to pricing that generates loyalty and brings in customers who stay long-term.

Building on her previous bestseller The Membership Economy (2015), in her new book The Forever Transaction (download free chapter here) Baxter explores the hows of a subscription business: how to launch it, how to scale it, and how to avoid the pitfalls in order to maintain a leadership position over time. While the advice applies to most kinds of businesses, there are some particular tips for publishers to take note of.

“Everybody wants to be the Netflix of their industry”

Baxter began by explaining the origins of her interest in the subject of subscriptions and membership models, and the basic principles for understanding why they work. “I had been consulting with subscription-based businesses for a while, and I really fell in love with the business model of Netflix,” she said. “Everybody wants to be the Netflix of their respective industry, so I tried to develop a framework for understanding this.”

She noticed that there was an enormous transformation going on, from ownership of a product (eg. DVDs, music) to access, from anonymous transactions to known relationships. “Execs just weren’t putting the pieces together, and I wanted to highlight the fact that it’s not just about subscriptions, but about long-term relationships with the customer,” she explained.

“It’s not about the transaction, it’s about the relationship”

Fast-forward to 2020, and subscription pricing and membership options are now so ubiquitous that they extend well beyond the entertainment and media industries, partly driven by ever-finer tools of personalisation. From heavy-duty machinery company Caterpillar loaning out cranes, to Pret-a-Manger and Burger King offering coffee subscriptions, every business seems to have recognised the value of formalising the relationships they have with returning customers. They have noticed that a membership model is more than the sum of its parts – ie., individual transactions.

“It’s not that high-tech, it’s just about knowing your customer and providing ongoing value to them,” explained Baxter. She emphasised thinking about the following questions: what is the forever promise you’ve made, and who have you made it to? What are they expecting to see from you? And who might you think you serve, but actually don’t? Who do you lose (eg. with entry offers), and who sticks around?

“Don’t fall too much in love with the way you’ve done things in the past,” she added. “Remain focused on the mission: it’s not about any one thing, but about helping customers solve a problem and delivering on the promise you’ve made to them.”

Baxter recognises that it isn’t always possible for companies to make quick decisions. “If you move too fast, you tip the ship,” she said. Nonetheless, it’s worth remembering that there are other organisations that are adapting more nimbly, and there are only so many subscriptions that any one person can use. “A lot of different businesses are coming at that same customer with different products,” she reminded the audience.

[People] trust your organisation to solve their problem, or achieve their goal, forever. They take off their ‘consumer hat’, don a ‘member hat’ and stop considering alternatives.

The power of fixed pricing

As Baxter wrote in her article for FIPP, what Netflix does so well is to have a very simple pricing structure. Customers can only pay monthly, and there is only one special offer of one month free for new subscribers. Although not unique, they were pioneers in this area, and that’s where she thinks their subscription model really stands out.

“The power of subscriptions is that your subscribers make your offering a habit,” she wrote. Having a clean, straightforward pricing structure can streamline this process; people know intuitively what they are paying for, how much they must pay if they want it, and what value they will get from it. “They trust your organisation to solve their problem, or achieve their goal, forever. They take off their ‘consumer hat’, don a ‘member hat’ and stop considering alternatives.”

The key is to not make it too complicated. “If I, as a customer, have to be an expert on your pricing, then I am not going to get what’s best for me,” said Baxter.

While there is evidently value in all kinds of partnerships, they should be made with care. “At Netflix, they have a very disciplined model. They don’t partner with anyone else for giveaways. They decided that they only wanted subscribers who value their promise and are willing to pay for it independently.” In this way, Netflix has a kind of “pure aura” around its pricing that doesn’t dilute its own brand or come across as too easy to access.

Without criticising the media industry, Baxter thinks more publishers should try this option, rather than some of the dynamic subscription models favoured (for good reasons) by outlets such as the New York Times. Why? “The more noise – bundles, discounts, special offers – you have, the harder it is to tell what your customers really value. You end up with a muddy business model.”

DTC subscriptions: everyone should think about it

Next, Baxter defined DTC (direct-to-consumer) subscriptions and laid out the main ways in which media companies, like others, can benefit. “DTC subscriptions are those that tell the customer: as long as you subscribe, we will do x at a fair price, ie. where value (as recognised by customer) exceeds cost,” she said. “Everyone should be thinking about doing it.”

She used the example of WW (formerly Weight Watchers, whose General Manager, Anna Hill, also spoke at Congress) to illustrate how it works. “As a former user and advisor to WW, you can see how they start at the bottom of the funnel – focusing on the end product – and work back up,” explained Baxter. “There’s a triggering event, such as wanting to lose weight: At WW they know this, so they immediately give you a goal, such as losing 10 per cent of your body weight. Then they onboard you by telling you what to cook that evening and how to track your food.”

Bringing someone into the fold so soon is very effective at driving engagement. “I consider it a form of gamification, where you do something artificial and get rewards for it. WW gets you to do the right behaviours until the value kicks in, until you can see results,” she added.

Subscriptions in three phases: launch, scale, maintain leadership

Baxter went on to outline the three phases of establishing a DTC subscription, as she sees it.

The first is launch. “At this stage, it’s about product market fit,” she said. “This is a Silicon Valley term, meaning when you know that the thing you’re offering exactly meets the needs of a particular audience.”

The launch phase concerns testing and planning for engagement and retention. “It’s not enough to just get someone in with an offer; you have to design your product to keep their attention,” she added. “Ask if you can attract and keep your target group on an ongoing basis.”

The next phase is scale. At this stage, organisational pushback may occur. “In my experience company culture, more than any of the technical or analytical stuff, is the hardest to win over,” Baxter noted.

Crucially, scaling should not be enacted with haste, but only once you have checked the minimum viable product box. The trigger point, Baxter highlighted, should be when you have a high level of confidence that if you put your message in front of a person that fits your profile, they would join and stay. “When you know how the model works, how this type of person is going to join and then what their likely behaviours are, that’s when you scale.”

Once launch and scale have gone according to plan, it’s not time to sit back and relax – on the contrary. In the third and final phase, maintaining leadership, “complacency is the biggest potential problem,” said Baxter.

“The best organisations know what their most loyal members want, but they also know what’s coming around the corner.” She recommends keeping your overarching voice constant, but being as welcoming to new members as you are for existing members: “Roll out the red carpet for them!”

What is the attractive freebie? Does it align with your mission? Is it more or less likely to bring in the right kind of people?

Don’t give it away too easily

Baxter also addressed some common questions about retaining subscribers. “If your introductory offer is amazing, you’ll get a lot of subscribers but a lot of people are going to leave,” she said, using the example of Disney+ initially presenting the extremely popular musical Hamilton for free to new subscribers, before backtracking. “The big question here was, are the people who joined only for Hamilton going to stay?” Disney+ realised that they needed to charge people something or they wouldn’t attract the right kind of long-term customer.

“It’s all about knowing your audience,” emphasised Baxter. “Even Amazon doesn’t serve everybody!” Organisations should identify what kind of customer is high value for their business purposes.

Freebies don’t always have to lead to churn, though. “What is the attractive freebie? Does it align with your mission? Is it more or less likely to bring in the right kind of people?” asked Baxter.

Freebies can also serve a useful purpose when trying to establish the reasons that people leave a service or subscription. “Segment out reasons so you can remedy them. If someone doesn’t have time to use your product, then it might be worthwhile offering them a discount or freebie. But if they are leaving because they hate the product, there’s no reason to give them anything. The remedy fits the problem.”

Audible, for instance, offers those who attempt to cancel their subscription one free credit (worth one audiobook) or three months at a discounted rate. Indie movie streaming site MUBI, like many companies, now offers the option to “pause” a membership. This allows people to take a breather without breaking their loyalty, explained Baxter.

The content needs to be content worth paying for, as opposed to content worth writing.

Creating a member mindset at media organisations

Returning to publishers, they are undoubtedly some of the biggest success stories when it comes to driving revenues and creating a feeling of community through subscriptions. Yet this industry does pose challenges: “a successful media company may find that moving to a member mindset is difficult because it necessarily becomes reader/viewer-first,” said Baxter. “The content needs to be content worth paying for, as opposed to content worth writing.”

Some things to consider, she added, are: what is the last article someone reads before they subscribe? What do subscribers read vs. non-subscribers? Who are the most valuable readers?

“This helps you to create more content worth paying for,” she said. The tension between advertisers, who traditionally value more eyeballs and click-throughs, and publishers, who value loyal subscribers, can be alleviated by getting to know your audience like the back of your hand – something many publishers already excel at. “With subscriptions, you learn about your customers, what they value, and what content they are willing to pay for. This is almost always worth more to advertisers. You can demonstrate how unique your content and readership is.”

Something else media organisations are especially good at is keeping content fresh. Different kinds of newsletters can serve different segments of the audience, for instance.

“But brand voice is why people are coming to you, so don’t change who you are/what you’re offering,” advised Baxter. “Especially when your product is the voice, like media companies, it’s about having the right product for the right audience, understanding who you’re not trying to serve and feeling okay with that.”

New roles for a new approach

Finally, Baxter emphasised the importance of having the right team. In addition to sophisticated data analysts, it’s important to have product managers as well. “You probably don’t need more people on your IT team, but you do need a ‘product person’ who is employed to think about the whole package: how does someone log in, navigate around the site, choose what to download, plus pricing, features, and content. Employ someone whose job it is to think about those things.”

She describes the job description of someone in a customer success (not customer service) role. “They should be proactive about what the problem is and how to solve it,” Baxter said. “Having this mindset is a big change – not being reactive, but proactive. This is a really important part of the onboarding process.” A preemptive reminder to connect your OTT (over-the-top) app to a big TV screen to make the most of video content, or an email saying “Netflix tonight?” with some personalised recommendations are examples of a customer success team in action.

She also recommends cataloguing and looking out for the early indicators that someone is going to cancel their subscription. Are they not logging in as much, or not browsing around?

Netflix has taken anticipating a user’s cancellation one step further, announcing that accounts that have been inactive for more than 12 months will be automatically deleted and no more money taken.

For Baxter, this is just another example of Netflix’s innovative model. “They’ve recognised that if you’re only using one little part of the total value of the service, you’re far more likely to cancel,” she explained. “They want you to get the value that you’re paying for.”