Growth vs Retention

where should you focus activity?

If you missed the newsletter last week, I apologise. A combination of public holidays and deadlines for multiple projects meant I failed to send it. Every week I have the pleasure of looking at the breadth of the subscription economy for articles or examples which I think are insightful. This week’s newsletter takes a look at the tough issue of where to spend time and resource in subscription marketing, the growth of SVoD, the importance of not trying to be everything to everyone and much more.

Doing the math on growth vs retention

For subscription businesses that gain momentum a tension over where to allocate resources will develop - should you focus on subscriber acquisition or retention? Companies tend to focus on growth initiatives, as the results are more visible and immediate. But in the long term the math shows that retention is the more important. Zeya Yang of the venture capital company a16z lays out the maths for properly accounting for the impact of retention over growth. A few points that stood out for me:

  • companies have to recognise that growth inevitably slows - this should impact marketing efforts

  • there’s too much focus on growth, especially in terms of validating performance - it’s a sort of vanity versus sanity situation

  • you cannot avoid churn - retention rates will max out, Yang quotes 80% for monthly plans and 90% for annual plans as benchmark numbers

  • there’s another less obvious tension between growth and retention - when you think about increasing prices, almost any price increase will negatively impact retention

Read the full article here.

Service stacking = good news for OTT subscriptions

According to Ampere Analysis there are now more streaming subscriptions being paid for in the US than the size of the population. There are close 340 million subscription OTT contracts across Netflix, Amazon Prime, Hulu, HBO Max and Disney+. Pay TV in the US continues to decline. It has dropped from household penetration of 80% in 2015 to less than 60% at the end of 2020. Consumers now seem happy to add SVoD services, according to Ampere’s latest data just over 25% of US internet users now report using five or more SVoD services. This stacking os services will continue to grow as more consumers move away from pay TV. People are creating a collection of services that meet their needs. Whilst this looks to grow in 2021, how far will this extend and how do you ensure your service is in the subscription stack? Read more.

BritBox - don’t try and be all things to all people

BritBox the joint venture between the BBC and ITV launched in the US in 2017. BritBox was never designed to compete directly with Netflix. Instead it plays to its strengths and super served audiences who want to watch British programming and in particular British mysteries and crime stories. With 1.7 million paying subscribers BritBox is small but growing, it has a pipeline of content from BBC and ITV. It is now adding original content but focusing on its strengths - true crime. Given the investment in content that Netflix is able to make you might assume they could eliminate any niche player. The key to thriving is owning the niche community and serving it in all the subtle ways that a general service can’t maintain. BritBox isn’t alone in doing that Mubi, Shudder and Crunchyroll all focus on niche markets. It also appears that consumers, now used to paying for a streaming service are happy to add others. Read more.

Every marketer should learn how to analyse data

Trying to build a successful marketing campaign without data is the equivalent of hoping to hit a piñata when you’re blindfolded” for this quote alone I had to include this article from Limor Goldhaber this week. In a world where we’re awash with data too few people know how to use data tools and to approach data analysis. Many companies I come across have the data tools but insufficient resources to become properly data driven. You don’t need to become a data analyst but investing a little time in learning statistics and how to extract data will help anyone analyse marketing campaigns more efficiently. In the article Goldhaber suggests also learning Python, but increasingly there are no code tools any marketer could use. What’s really required is the ability to ask the right questions of the data. Read more.

D2C offers more than just a sales channel

According to eMarketer D2C sales in the US grew by 45.5% last year. That increase helped digitally native and established brands generate $111.5 billion in revenue. But with D2C, brands get much more than just a sales channel.

  • Having a direct relationship with the customer gives brands the ability to acquire first-party data. This presents the opportunity to understand what customers want and need. Providing information at scale to customise existing products or identify new products.

  • Adopting a D2C model also gives brands the ability to control their own messaging and the way their content is presented.

  • Add in a subscription service and brands can also have a dependable recurring revenue stream

The case for brands shifting to D2C are compelling. So why aren’t more doing it? Read more.

How HelloFresh think about CLV

HelloFresh is a different type of subscription service. The nature of the service - ingredients for recipes and the flexibility HelloFresh offers means customers can pause and reactivate. Of course they also cancel and reactivate. This makes for more complexity when it comes to optimising marketing. When do you activate marketing and spend money on a person who has paused their subscription? The data team reveal some of the predictors that they use to optimise marketing for example:

  • Customer acquisition funnel and CRM - how the customer came to HelloFresh impacts their later behaviour as does how they interact with HelloFresh emails

  • Incentives and pricing - whether the customer bought a subscription at a discount is a predictor of their likelihood to cancel - the bigger the discount, the less loyalty

  • Web and app engagement - how users behave in app or onsite for example the frequency of visit and the time spent on certain elements are tells on propensity to keep subscribing

And many more. The breadth of data considered and the level of detail are a great example of both the rich data any subscription business has, but more importantly how to use it. The approach of the team at HelloFresh means they can go beyond addressing groups of customers to true personalisation. Read more.

Quick Links

Apple is rumoured to be adding a subscription service to its podcasting business. This could be part defensive move against the growing competition from Spotify and Amazon in podcasts. Or maybe premium podcasts are a natural fit as part of an Apple One bundle.

Artlist is a royalty-free music service for video creators. To help video editors music is available on a subscription service. Their growth, from 62k to 1.1 million customers in the last 3 years, is impressive. Looking at Exploding Topics data there is a whole video creation tech meta trend developing.

Reddit has been experimenting with a subscription service since last August. The service called power-up gives a number of perks such as HD video, GIF replies and custom emojis. If enough members of a subreddit buys subscriptions then the whole community get the perks. Not the easiest service to market. Now it looks like moderated voice chats will become another perk members can access. If it sounds remarkably like Clubhouse, that’s because it is. Audio chat is easy to copy. Reddit has the advantage that it already has communities to host chats.