Last month I wrote about how we dropped trials at NRC because they turned out to be worthless when we looked at the data.
When looking for valuable customers, the trick is to recreate the circumstances that build relationships right at the start of the customer journey.
Ideally, we are looking for a straight chute in the sales process: a straight line from acquisition to loyalty. Although this may be exaggerated because sales will always show some form of a funnel, it is important to make the funnel narrower at the top by looking for customers who are prepared to go beyond a trial.
We have been successful by carving an intelligent threshold in acquisition that is high enough to stop low-value customers from entering the business, but low enough to let valuable customers come in. The ace in our hands is this intelligent threshold.
How do you know what the right threshold is? We have seen at NRC that listening through data is one part. The data hinted at longer offer periods and a monthly payment.
The other part is to start an experiment. Our experiment was to offer subscriptions that had equal monthly payments of an introductory rate that remained in place throughout the term of the offer.
A customer would commit to monthly payments for a period of time, and NRC agreed not to increase the price until that term had ended. The test began with just a small group of sales agents in one particular channel: street sales. Although they were used to selling half-year and year subscriptions, we added the two-year option.
The agents were very sceptical. “Nobody wants a longer subscription. It is already very hard to sell an annual offer,” they said.
It took some convincing. We told them the two-year option could work as a price anchor. We are all familiar with anchoring. In a coffee shop, they offer small, medium, or large sizes. Most people choose medium. But if there is no large option, most people choose a small coffee, considering medium to be too big. That is how an anchor works.
To the surprise of the agents participating in the experiment, new customers loved the two-year option. Not only did the number of annual subscriptions go up, the two-year offer quickly became the term that sold most subscriptions.
So, we introduced a new anchor: a three-year term. Today, 56% of all subscriptions sold are three-year subscriptions. We discovered a new KPI that was much better at predicting relationships than the number of acquisitions sold. We called it contract years, representing the yearly subscription volume that was sold.
After this experiment, we added more street teams to the group selling these new multi-year offers. We then dropped the half-year contracts, thus drastically increasing the number of years sold per acquisition.
While increasing the number of new clients with longer contracts, we stopped selling all automatically stopping trial subscriptions. Those trials were great at the top of the funnel, but they were bad for long-term customer relationships. We could boast about big numbers. We were doing a great job at finding new customers, but the data proved we were not finding the right customers.
When we looked at the actual cost and revenue of the trials, we were shocked to find out that the trials had a negative value after deducting all costs, including acquisition and variable costs.
In our case, we also offered a bad customer experience because we did not give a stripped-down version. We offered the exact same product on trial, sometimes for free. And after the trial, we asked people to pay.
In pricing, we call the first price a customer is offered the “reference price” they will use to gauge the value of the product. A cheap or free trial makes them think of the product or service as inexpensive and perhaps low-quality.
As we were drifting further from the trail offers, we made a radical decision. We introduced longer contracts in all channels. This also took a lot of convincing, but the data was again very helpful. We had proof we had nailed it. It was now time to scale it.
The greatest fear everybody in the company had was that we had made a dumb decision — that we would sell less rather than more. But by the next year, we increased the number of acquisitions by 20%. The contract volume went up 130%, although we were in a highly competitive subscription market that had been going down for almost two decades.
The biggest win was actually something else. We were seeing fewer stops, because the big hunting game had stopped. Instead of starting trials over and over again, we started forming relationships. Gone were the many and expensive starts of newspaper delivery with a costly follow up in conversion.
Part of the money we saved on all these trials was re-invested in a welcome programme where we call every new subscriber and try to engage them with our digital products, while checking if the newspaper delivery is going as planned.
In this crucial phase of the first dates, we have to make sure the touch points will lead to a proper engagement. The call centre workers are more energised to help build relationships instead of asking for trial conversions. The customers get their energy from deep human needs of belonging and commitment.
It is, therefore, always good to acquire the right customers who have the potential to become engaged in relationships. And sometimes it is better to let other customers go if they do not pass the threshold.