It is always challenging for newspapers to consider strategic change with no reasonable measure of the potential impact.
Acquisition optimisation can help newspapers wring greater productivity out of their investment in subscriber acquisition by creating a value-based blueprint that explicitly apportions acquisition investment dollars based on projected rates of return — at a micro-targeted level. Actual performance can be tracked against that blueprint on a monthly basis.
Recently, one top-50 U.S. newspaper, hereafter referred to as “XYZ,” quantified the improvement of its acquisition performance following adoption of optimisation techniques in mid-2012. XYZ also wanted to compare those improvement to investment in intellectual and informational assets necessary for proper optimisation.
By quantifying its improvements, XYZ found that:
- It was able to reduce its acquisition investment by 15% from US$4.9 million to US$4.1 million. As a result, the number of annual starts fell from 110,000 to 97,000.
- In spite of the reduction in starts, XYZ was able to increase its cumulative lifetime net margin surplus from those starts 10-fold, from US$200,000 annually to more than US$2 million annually. This resulted in an increase in the return on its acquisition investment from about 15% to well over 200%.
- The number of insufficient starts (i.e., those not generating a sufficient rate of return) fell from 72% to 37% of all paid starts.
- These incremental annual profits were 25 to 40 times greater than the company’s annual investment in optimisation services, making the investment highly valuable.
Where did the performance improvement come from?
Performance measurement and improvement should happen at a micro-targeted level. In other words, it should be a segmentation level that is sufficiently granular that starts are reasonably homogeneous in their performance characteristics. All of the guiding principles of acquisition optimisation can be found here.
Basically, though, improvement must come from two sources: within micro-targets or across micro-targets.
First, XYZ’s channel mix changed, although not as much as one might expect given the 10-fold improvement in net margin surplus.
As mentioned above, the number of paid starts fell 12% since 2011, with the greatest start declines coming from the profitable telemarketing and single-copy insert channels.
Door-to-door crews was the only channel that grew its starts in absolute terms; it had among the highest weekly net margin rates on an incremental basis (i.e., it could grow the number of crew starts without destroying its net margin on those starts).
Beyond these shifts in channel mix, XYZ was able to drive improvements in its performance in its two worst channels: crew and kiosk. (Note: the crew starts’ high cost per start and poor retention more than outweighed the aforementioned attractive weekly net margin.)
XYZ successfully migrated its crew and kiosk channels to sufficiency in 2012-13. It simultaneously boosted its returns in other, sufficient channels.
This was because of lower, more efficient investment levels (i.e., pruning out its least effective starts, in spite of the fact that their overall performance of these other channels was already quite strong.)
Every channel experienced improvements in at least one of the three performance drivers, while some channels, such as telemarketing, kiosk, and Internet, experienced improvements in all three drivers simultaneously.
The improvement in performance can be attributed to changes in start mix across the channels, combined with changes in each channel’s three performance drivers (cost per start, weekly net margin, and lifetime retention).
How is this possible? For example:
Retention improved in most channels due to an improved shift in the mix of starts by original subscription term.
Cost per start improved in some channels as a result of re-negotiating commissions with vendors after it became clear that their existing commissions were not supported by their starts’ aggregate performance.
Weekly net margin improved through a combination of targeted price adjustments and shifts toward more favourable delivery frequencies in certain channels.
In fact, only one segment experienced a decline in driver performance (cost per start in the crew channel, highlighted in red above), and this resulted from a deliberate decision to spur a greater number of high-performing starts with higher commissions.
As a result of all of these changes, XYZ was also able to drive improvements on a regional basis. The newspaper led its under-performing Western region closer to sufficiency, and drove its best performance in the already over-performing Central core.
Tactics that drove performance improvement
So what were the most significant tactics that XYZ employed to achieve these types of improvements? Among the myriad of tactics implemented by XYZ’s circulation staff, the biggest value changes were:
- Sales offer optimisation: XYZ’s use of optimisation tools allowed it to effectively adjust commissions, delivery frequencies, and offer pricing to balance retention, volume, and revenue goals systematically.
- Balancing the sales mix: The starts’ performance improved in aggregate. But the profitability of individual sales channels and offers within sales channels still varied greatly. Understanding the relative values of each segment shifted focus toward the most lucrative delivery frequencies within each channel, and on growing the most lucrative channels.
- Vendor accountability: By linking directly to acquisition profitability, costs and performance for each start are now tracked by sales vendor, allowing XYZ to identify and adjust commissions based on results. It now partners with vendors to better manage geographic targeting. By understanding the relative value of competing sales vendors, making decisions concerning territory assignments and vendor replacement has become easier.
Although every newspaper is unique, common elements can usually be discerned across all newspapers that chose to develop and then track against an optimised blueprint:
- Optimisation doesn’t usually originate from massive improvements in one area. Rather, value tends to be derived from incremental improvements across all three performance drivers (acquisition expense, weekly net margin, lifetime retention.)
- Although substantial inefficiencies in acquisition investment are often waiting to be uncovered, it is impossible to know that the inefficiencies exist unless you collect the right information.
- Even after an initial optimisation blueprint, you may still find substantial room for improvement in subsequent years. As noted above, a sizable 37% of XYZ’s starts were still insufficient after the first year of optimisation. But pruning these starts from the portfolio and replacing them with sufficient starts will continue to add incremental profits beyond the US$2 million increase in annual profits already captured.
- Sales tactics tend to favour some metrics over others, e.g., selling long-term heavily discounted subscriptions improves retention and lowers CPO, but also negatively impacts yield. Optimisation explicitly quantifies these tradeoffs so newspapers can understand the economic impact of any potential changes in strategy.
- Investment in the intellectual and informational assets that are required for optimisation in subscriber acquisition is often a tiny fraction of the overall return, thus making it one of the best investment opportunities available to newspapers today.