💎 Growth Gems #110 - Subscription Growth

Mar 05, 2024

Hey,

This week, I’m sharing gems on Subscription Growth:

These insights come from Ken Houseman, Phil Carter, and David Barnard.

Enjoy!

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Subscription Growth: pricing, retention, regulations

Gems from Ken Houseman (VP Product at The New York Times) in Best Practices in Subscription Funnel Management on Subscription Stories: True Tales from the Trenches with Robbie Kellman Baxter (Founder, Peninsula Strategies)

A while ago, I mined gems from Lenny’s podcast episode An inside look at how the New York Times builds product. While it was fascinating to hear how they approach Product, I never shared them here (one of those “bonus gems” I’ll share one day).

This is a different discussion that gets into more growth and monetization topics. Great insights from a giant in the subscription business!

💎 It all starts by making sure you deeply understand as a company what your differentiator is. Whatever that is, index on that being the thing that you spend your highly expensive engineering technical resources to do it better than anyone else in the market. Are you a commodity? Do you have a product that no one else has? Do you have a technology? Do you have a particular process or access model? For everything else, try to find the best partner possible to put it on autopilot.
(03:36)

Build vs. Buy comes back often in organizations. Ken’s take is pretty clear! He gave the following example to back this up:

No one in their right mind goes to their friend and goes, “Robbie, you have to buy a sub to the NYTimes because they process my credit card like nobody’s business”. But the minute you get that processing wrong, they’ll say, “Robbie, don’t bother.”

💎 Don’t underestimate the need for quality data, whether with a partner or a system you build internally. You have to understand the behavior of your subscribers and measure the impact on your core KPIs of anything new you introduce or experiment with.
(05:58)

Pricing and Bundles

💎 One of the fastest ways to lose a subscriber is to price them out. When you’re thinking about your upgrades to bundles and cross-sells, make sure you have a price point that entices them to get in and matches the value at that time in their lifecycle.
Example: The NY Times has a $1/week offer, then over time, as they understand users’ behavior, they step you up while providing more value.
(08:55)

💎 Pricing right is all about understanding each user’s behavior so you know when it’s the right time to put a paywall in front of them. It’s figuring out what they are ready for and then displaying the corresponding offer. If users don’t take advantage of an offer, it feeds back the model to better serve the right offer later (at the right time and price).
(12:00)

💎 AI is a tool, like spreadsheets, so you don’t set it and forget it. The pricing model may not change, but the environment changes, and there can be slight differences in attributes (e.g., age, gender identity, people who moved, etc.). When you find behaviors that are not meeting your experiment expectations, you have to deep-dive so you can retrain the models and target users differently.
(14:00)

💎 If a user is interested in one product, The NY Times wants it to be the best product for them and have it priced for them. But if a user is interested in that product and one other thing, they’d rather upsell the user from that one product to the bundle.
The subscriber then uses one product the most and then sometimes the other one—products at The NY Times: Journalism, Games, Cooking, WireCutter, etc.
(19:55)

By default, the NY Times sells its bundle to new users

Ken reflected on when it makes the most sense to have more of a “catalog” approach where users configure their package (like in B2B).

He says that even though their products are all different, they all still feel like the NY Times and relate with each other, making a bundle natural. If that natural connection isn’t there, maybe it is better to keep products separate and offer discounting when you get multiple products.

Retention

💎 Retention is the next-step session. It’s about making sure you constantly find those natural connections with your subscribers for whatever matters to them in your product.
Example: serving a weekend baker who saves weekly recipes vs. a hyper-political news consumer.
(06:36)

💎 Abandon cart communications is the way to tackle helping consumers finish transactions, and it’s super important. But if that’s all you’re doing, it’s not enough: you should be obsessing about customers not abandoning the cart in the first place.
(25:07)

Privacy and regulations

💎 You have to be voracious about seeking out what’s coming down the pipe regarding privacy and consumer protection. You have to stay on top of national/state and international laws to understand which things are most likely to hit you and have the flexibility to pivot.
For example, cancellation flow rules now stipulate you give equal ease to cancel online than to subscribe.
(26:54)

💎 When it comes to privacy and regulations, the worst thing you can do is get entrenched in your path/roadmap/strategy because this will create a blind spot. It might be best to pause your efforts and address a change before it becomes a problem.
(28:11)

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Subscription Growth: growth models, value creation vs. value capture

Gems from Phil Carter (Growth Advisor at Elemental Growth) and David Barnard (Growth Advocate at RevenueCat) in The Subscription Value Loop: A Formula for Growth on the Sub Club Podcast

Who’s this Phil guy who shares one insight from each Sub Club podcast episode? Doesn’t he know I have a ™ on sharing #growthgems? 😂

Joke aside, Phil is legit: he worked at Faire, Quizlet, and Ibotta and now advises leading consumer subscription businesses across several categories. He also recently launched a top-rated Reforge course on Consumer Subscription Growth that got rave reviews from its first cohort.

He now also has a Consumer Subscription Growth course on Reforge.

So, I wanted to hear how he was approaching the topic!

Growth models are always wrong

💎 The growth model looks different for every company. What you’re looking for is the Minimum Viable Model that really gets at the variables that are most leveraged for driving the business and tied to user actions: acquisition, monetization, and retention variables.
(06:15) by Phil

Phil shared you’re looking for the biggest bottlenecks in the business so you can find the highest leverage opportunities.

💎 Value creation vs. value capture:
Core product teams focus on creating core value for the user, with the primary metric being retention
Growth product work on capturing value as well as new user onboarding, with the primary metric being activation
(10:45) by Phil

To illustrate that value creation is not enough by itself, Phil mentioned the Spotify vs. Pandora comparison:

Pandora was an ad-driven model: it interrupts users and doesn’t have as much profit density (LTV/CAC ratio).
Spotify went all in on the subscription model, with a way to reinvest revenue in the core product.

Value creation

💎 Value creation is the most important step - you need something people really want:
Robust: do you have the value promise that is solving a real pain point and has PMF?
Rapid: it’s hard to retain people’s attention. People need to understand why your product matters to them very quickly (within the first session, the first 30 seconds)
Repeatable: you need to make sure that the value promise is repeatable and that there are new chapters that bring users back in. Otherwise, there’s a point at which users have gotten most of the value.
Remarkable: you want a product that is unique and compelling enough that people will want to talk about it
(14:45) by Phil

The following gems dive deeper into these different points.

Robust

💎 When using Sean Ellis’ product-market fit test to understand how robust your value creation is:
Break down results into sub-segments to find who has the highest propensity to be “very disappointed”
Talk to those users and iterate to go past the 40% threshold
(17:20)

He advises segmenting on user personas, not features.

I shared insights from one of my favorite videos on PMF in Growth Gems #101 (“Save the puppies!”) 👇

💎 Growth Gems #101 - Product and User Research: Product-Market Fit

Sylvain Gauchet

October 17, 2023

Read full story

He also shared this is more than just an early-stage thing: some companies are trying to expand and need to find PMF for the expansion (e.g., Quizlet acquired Slater, which moved them into a new segment; Matter added their readable podcast feature). This is similar to the Adjacent User Theory I linked to before.

Rapid

💎 Ultimately, you want to build a sustainable habit with users. But you’ll never get there if you can’t tell them why they should use your app in their first session. Frontload as much delight and backload as much work as possible so users get to the aha moment as quickly as possible.
(25:15)

This is the eternal debate: is less always more? Some products, like Noom, ask users more questions to build more intent.

Phil also mentioned Rise as one of the best examples of onboarding because it demonstrates their coaching value: Within 2 minutes, you understand their value proposition and the main metric (sleep debt), you provide them with the minimum information, and you get a “magic output” (sleep debt over the last 90 days and recommendations).

Rise’s onboarding is also one of my favorites, not only because of its storytelling and how it educates users, but also because of how they got there: in Growth Gems #43 (June, 2021!), I shared insight from their CEO, including this one:

💎 Growth Gems #43 - Gems from "From B2B to a $500k ARR Subscription App"

Sylvain Gauchet

June 1, 2021

Read full story

Here is a LinkedIn post with what I love most about the experience:

Check out the post

To pay the experience justice, and because things are better when they move, here is a quick recording:

💎 People have seen things before they get to your onboarding. It shouldn’t repeat what they’ve seen on the App Store. Once in the onboarding: show, don’t tell: demonstrate how you will deliver the value.
(32:30) by Phil & David

Repeatable

💎 Consumer subscription businesses only work if they have very high long-term retention rates because that builds the compounding layer cake of net revenue retention.
(35:58)

Remarkable

💎 Even if you’re not a product that depends primarily on virality to grow your user base, you want a product that is unique and compelling enough that people will want to talk about it. Extreme examples: Tinder’s “Swipe” and Strava’s “If it’s not on Strava, it didn’t happen.”
(39:30)

💎 The best consumer subscription companies have robust organic acquisition strategies that are their primary growth lever and only use paid ads as a supplement. It can be through word-of-mouth but also content. Example: Quizlet with long-term SEO, Alltrails with hyper-local search.
(47:54)

He also mentioned the different kinds of viral loops:

Personal viral loop - people inviting people to the product because it makes the product more valuable for them
Social viral loop - people are telling other people about the product early on because it increases their social status
Financial viral loop - people are inviting other people to get a monetary or non-monetary incentive (e.g., Masterclass)
Casual contacts viral loop - people use the app, and others see it (e.g., Strava at a marathon, Tinder at a party)

Value capture

Paywall

💎 Unless you have a very strong network effect (which most consumer subscription apps don’t), you can’t afford NOT to re-invest most of the value you capture into the product. Because if you don’t, someone else will come along and will leapfrog you.
(05:03)

💎 If you’re using a freemium model, you should think about what value you’re capturing from free users and what it is adding to the equation. Example: in AllTrails, free users help improve the data, etc.
(55:40) by David

💎 Customize the paywall for different entry points: the channel users came in through or other signals you have on users’ behavior. For example, if you enter Calm via Matthew McConaughey content, you will be displayed a paywall relating to Matthew McConaughey.
(1:03:50) by David & Phil

💎 If you’re already at scale, personify the app and celebrate the purchase. Example: Duolingo’s owl and Super Duolingo trial start where the icon changes, fireworks, etc.
(1:05:20)

Pricing

💎 Conjoint analysis is a great supplement to Van Westendorp and helps you get insights into what they value most about your product. It presents users with a set of alternatives: 2-4 packages, each with attributes (price, number of usage-based, range, features you get or don’t get). Then, users go through tasks where they see those packages.
(1:13:44)

A conjoint analysis can help you with R&D (e.g., for what your product lacks), pricing (how to bundle, how to price according to users’ priorities), and sales & marketing (what to focus messaging on).

This HBS article gives a quick overview.

Conjoint Analysis example: determining what matters most for users in a tablet

💎 A/B testing for pricing is fast and effective but is a blunt instrument. Surveys like Van Westendorp or Conjoint analysis can give you deeper insights when you do them correctly.
(1:17:45)

💎 You want to remind users what they’ll be losing if they cancel their plan, but it should be easy to find, and you don’t want to prevent users from canceling. You want to understand why they’re leaving and see if it can be fixed (e.g., if it’s the price, you can offer a discount).
(1:19:30)

💎 There is legislation in the works at the state and federal level that is going to mandate that subscription apps have to make it as easy to cancel as it is to subscribe.
(1:20:05)

Mentioned twice in the same newsletter and from two different experts? Maybe it’s time to take this seriously.

Promotions

💎 Promotions are a tool to better align the value of your product with the willingness to pay of an individual customer so you can capture more consumer surplus. You have to be targeted and thoughtful about promotions. The companies that are doing this best:
Interject their brand and personality into seasonal promotions to stand out
Use activity-based discounts (e.g., offer a discount after the point where 90% of subscribers typically convert)
Segment based on demographics/psychographics to better align the price of your product with the customer
(1:22:30)

Before I leave, here is a quote from The Knowledge Project Podcast on the risk of over-optimization for proxies and losing the big picture:

“The over-optimization on proxies or abstract goals rather than absolute, principle-driven goals is really problematic” - Aaron Dignan (Founder of The Ready and Plumb)

See you next time.

Stay curious!

⛏️ Sylvain

🔗 Sources:

Best Practices in Subscription Funnel Management on Subscription Stories: True Tales from the Trenches
The Subscription Value Loop: A Formula for Growth on the Sub Club Podcast

Growth Gems