On Friday, Bo Sacks distributed Cosmin Ene’s article, “Subscription Cannibalization is here. Just not as you think.”
Cannibalization is, of course, eating your own. Publishers often use that word to describe when a new, low-priced product undercuts the sales of an older, higher-priced product.
As a general rule, I think fear of cannibalization is misguided. If people would rather have a cheaper product, if you don’t provide it, somebody else will.
But the issue here is cheap, introductory prices. Does it make sense to get people on your subscriber list for a very low price?
Cosmin mentions several problems.
First, most trial users will not go on to subscribe at the full price.
I’ll buy that. But once someone signs up for a free trial, even if they cancel, you still have their name. They can go on your prospect file, and there’s some value in that. As my friend Chris Moffa says, there’s all the difference in the world between someone who is willing to pay a dollar and someone who isn’t. People who sign up for these cheap trials are prospects who are willing to pay a dollar. That’s something.
Also, if you have a customer data platform, or at least good analytics, you can learn a lot from the behavior of these users. That’s also something.
And finally, the publisher is probably charging advertisers a higher CPM for people behind the paywall. So getting more people on that side of the paywall can increase ad revenue, even if the subscription revenue is lower.
Cosmin’s second point is that the publisher is losing potential revenue by failing to make a full-price offer.
That’s possible. It’s possible that some of the people who sign up at the cheap price would have also signed up at a higher price, so the publisher is losing potential revenue. But this is simply a math question — or a funnel question. Put the numbers in a spreadsheet and see how it works out.
Third, Cosmin says that by offering a low price, the publisher is downgrading the value of their product in the public mind.
That’s possible, but I think people are used to the idea of a cheap, introductory price, so I don’t know if that’s a huge problem.
Fourth, Cosmin mentions the issue of trust. Everybody is sick of offers that trick you with a cheap price and then suddenly raise your price when the trial is over. Cosmin is absolutely correct that publishers need to fight that impression. They need to make it easy to unsubscribe before the trial is over.
I think the bigger issue with these low introductory prices is ensuring that your full-priced customers aren’t signing up at the introductory price. In that case, you’re clearly losing revenue.
There’s no way to prevent that completely, because people can use different names and addresses to fool your system, but it is a good idea to (1) make it clear that the offer is only for new subscribers, and (2) have some means of enforcing that. Even if it has some holes in it.
