Customer engagement drives revenue

plus the psychology of pricing

We’ve packed this newsletter with lots of articles providing tactics that you could apply to any form of digital business but particularly subscriptions from the FT’s breakdown of just how much difference customer engagement makes to a company's performance to pricing tactics to a lesson in writing compelling copy from Apple.

But first….

Not only did Netflix fail to deliver on its Q1 subscriber numbers but it appears to be losing share of viewing. According to TVision the US based audience measurement company, Netflix has shrunk from 28% percent of all viewing time to 23% percent in the past two quarters. Is this decline due to competing streaming services or does it illustrate how important fresh content is in engaging users.

The decline looks like a combination of the two factors. There were new entrants to the market whose content, was at least fresh to users if not new. YouTube grew most in terms of share, where the restrictions on content production don’t apply. As the FT points out if fresh, new original content is critical to driving new subscriptions and retaining engagement that has implications for the dynamics of the business model in the future. The FT piece takes a look at content spend and the impact of binge-worthy content where HBO over performs. Read more.

The engaged customer difference

According to a new study published by FT Strategies 70% of companies who focus on customer engagement have seen revenue increase and average customer spend grow over the past three years. So what does being focused on customer engagement mean? FT Strategies identified five areas that increase customer engagement:

  1. Strong data capabilities - gather first party data about your customers to understand them and ultimately serve them better.

  2. Personalise the customer experience - use the data you have to deliver the right message, at the right time, through the right channel. Super serving the customer increases their loyalty and their likelihood to become an advocate for your brand.

  3. Accelerate your digital offering, you cannot afford to lag behind in how customers can access products and services digitally. Customers experience multiple different digital offerings every day, against which your service will be judged.

  4. Implement a customer centric strategy - this is easy to say, much more difficult to put into practice. You need to ensure you provide a positive experience pre and post purchase.

  5. Shift to a recurring revenue model - changing to a subscription model, should change your focus to building a long term relationship with customers and particularly customer retention.

The report is worth a read for the detail, for example the biggest difference between those companies leading in customer engagement versus the laggards is their digital experience. The best deliver a seamless online experience. Read more.

Drive top of funnel acquisition with viral features

Acquiring customers is becoming increasingly expensive. Gabor Cselle, partner at Area120 Google’s internal start-up incubator suggests 9 ways to encourage viral spread of your product or service. Some of these seem like network effects to me, but who am I to argue with a Google alumni. Anyway, there are some good reminders here. But, these need to be baked into the product, not just tacked on. Below are the top 3 suggestions:

  1. Two-sided reward - offer incentives for people to share your product, but to make it stick offer an incentive to those who they will share to

  2. Appeal to vanity - build in signals in the product that demonstrate the users worth eg no. of followers

  3. Collaboration - building in features that enable collaboration automatically means the product is likely to spread

You can discover all 9 viral features here.

Pricing tactics to drive conversions

As this article shows, a lot of academic research has been carried out on how we perceive and react to prices. There are some great reminders here of how you should price to drive conversions. Stand out recommendations are:

  • Reduce the left digit by one - if you change a price from £3.80 to £3.79 there is no increase in conversion. But drop the price from £3.00 to £2.99 and you can double the conversion rate. We read numbers so quickly that we encode the size of a number before we finish reading it.

  • Display prices in a small font size - we universally apply size, a number that has less visual magnitude will be perceived as less. You should reverse this for discounts.

  • Offer a decoy option - people will use your own products for reference prices. The Economist have famously used this offering:
    - Web only $59
    - Print only $125
    - Web and Print $125
    The decoy price is the Print only product - this effectively makes the web and print option look like great value - this helped the Economist generate 43% more revenue.

There are 39 other pricing tactics you could employ here.

Quick links

Apple’s approach to copywriting is powerful and persuasive, ideas worth implementing.

Scala Radio, Jazz FM, Planet Rock, owned by Bauer Media Group are launching a subscription service which gives listeners an ad free experience for £3.99 a month. Given a combined reach of 48.6 million adults a week in the UK they have a big pool of prospects. But is there enough value in the service, especially when it’s so close to Spotify? This article is on the FT.com so you may be blocked - of course you can type the headline in as a search in Google and you’ll probably get free access.

YouTube with a very different business model and content approach is likely to match Netflix revenues soon. Alphabet (YouTube’s owner) doesn’t breakdown revenues, but the bulk of YouTube’s sales are coming from a growing advertiser base. They also benefit from an increasing subscriber base as well.

A great podcast on Freemium and much more where Robbie Kellman Baxter interviews Elna Verna of Reforge - I love the quote “It’s (Freemium) driving so much more than just my monetization. It’s a strategic move.”