How a gift can be worth more than the subscription price ?

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Summary

Because the price of your subscription is much lower than the value of your subscription.

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A few years ago, a friend told me he subscribed to a weekly News magazine for about 70 euros per year. As he didn’t renew on time, he was contacted by the publisher who offered him a TV worth 800 euros if he renewed his subscription for 70 euros. He thought the magazine made a mistake, and took the offer. This is what I told him…

1. How is it possible to offer a gift worth € 800 in exchange for a one-year re-subscription for € 70 ?

🎁The gift : it’s most probably a batch of end-of-life products sold off. The actual purchase price can be very low, possibly as low as € 100 or € 200 excluding tax even if the displayed price was € 800 tax included. However, the total cost, including delivery, will always be above the subscription price.

🗞️The product : weekly News magazines, just like fashion magazines, are filled with ads which make up the bulk of the magazine along with the photos. The magazine is financed well beyond 100% of its retail price through advertising.

⚙️The business model : the magazine sells ads spaces which are only valued if they meet two criteria:

• The number of potential readers who will see the ads. This is the number of subscribers,
• The match between readers and ads. This is the promise that customer is in the targeted socio-professional category.
• The socio-professional category of the reader is essentially based on the retail price of the magazine. The more expensive the subscription, the supposedly richer the reader.
  

The magazine needs a minimum number of paying subscribers in order to guarantee advertisers the quality of the audience and, in return, to collect advertising revenue. Considering all the revenues, a subscriber is worth much more than its subscription amount.
Note: in this specific case, the gift is only offered to customers who show signs of churn. The goal is only to keep the number of subscribers above a threshold.

Not convinced yet?

Let’s take a simple example to understand how the business case works:
I run a Weekly News Magazine:

• The weekly magazine retail price is € 1.50 per issue or € 78.00 per year.
• Ad revenue : above 100,000 subscribers, I charge up to € 2.50 per issue
• Ad revenue : below 100,000 subscribers, I charge 10% less : € 2.25 per issue
• The gift costs me € 250.00

In the table below, I consider 2 cases in which I either have 100,001 subscribers or a bit under 100,000 subscribers.

Table #1: Assumptions, Booking by on number of subscribers, Difference & Recovery

In the table above, the total booking are made of the subscriptions booking and advertising revenue per issue.
The difference between case #1 and #2 is 5,001 subscribers which translates into a € 2.27 M+ difference due to the drop in advertising revenue of 10%.

2. The retention strategy behind the gift

I decide to take action to recover these 5,001 churning customers and get back to my 100,000 subscribers threshold. I will offer a gift that costs me € 250.00 by recovered subscribers. The gift cost is 3 times higher than the yearly subscription price.
If they all agree to re-subscribe and receive the gift, then the gift budget is €1.2 M and the subscription booking is € 390k.

Bottom line : I invested € 1.2 M to recover € 2.2 M, I have an ROI close to 2:1. The net recovered is € 1.4 M.

⚠️ This is not a gain of € 1.4 M ; I just limited the damage by returning to the previous situation while spending € 1.2 M.

Key Takeaways

1. It’s necessary to differentiate the price of the subscription and the value of the subscription. Value is calculated by including all costs and revenues.
2. When I lack customers, I choose between increasing acquisition and reducing churn. Here, I go for a retention tactic. Depending on market dynamics, with the same budget, it may be easier to retain customers at full price than acquire twice as many at 50% off.
3. ⚠️ Caution : in some countries, there are laws regulating the value of gift offered to subscribers ; such an offer can be illegal.