Pricing is probably the trickiest, most stressful part of managing a subscription business.

How do you balance revenue and profitability? How can you keep your pricing simple to communicate and execute while personalizing it to optimize for elasticity of demand and value created? If these questions plague your organization, you’ll want to take notes today.

Matt Lindsay, founding partner of Mather Economics is a subscription pricing expert who’s helped hundreds of publishers build and evolve robust pricing models.

In today’s conversation, we’re taking on pricing controversies, including the role of introductory offers, how to raise prices and how to respond to a subscriber threatening to cancel.

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Listen to the podcast here

 

Controversial Topics in Subscription Pricing with Mather CEO Matt Lindsay

Pricing is probably the trickiest, most stressful part of managing a subscription business.

How do you balance revenue and profitability? How can you keep your pricing simple to communicate and execute while personalizing it to optimize for elasticity of demand and value created? If these questions plague your organization, you’ll want to take notes today.

Matt Lindsay, founding partner of Mather Economics is a subscription pricing expert who’s helped hundreds of publishers build and evolve robust pricing models.

In today’s conversation, we’re taking on pricing controversies, including the role of introductory offers, how to raise prices and how to respond to a subscriber threatening to cancel.

 

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Robbie Baxter: Matt, welcome to the show.

Matt Lindsay: Thank you. It’s great to be here.

Robbie Baxter: So tell me a little bit about your area of focus and the kind of work that you do with regard to subscription businesses.

Matt Lindsay: I am an economist and I work with hundreds of subscription businesses on their subscription pricing strategies and their revenue management.

Robbie Baxter: How did you come to have that focus?

Matt Lindsay: Well, I was an economist and I worked with a couple of industries and companies prior to starting Mather Economics. I was at Arthur Andersen Business Consulting and I did consult pricing strategy in a number of different industries. And prior to that, I was at UPS. I was one of the first economists they hired to do sophisticated pricing strategies for their transportation networks. And one of the clients that I had at Arthur Andersen was a news media company, Knight Ridder. And they had asked me to take a look at their subscriptions right at the dawn of the internet when they were starting to be disrupted by online news. That was my entry into subscription modeling.

Robbie Baxter: Interesting. UPS, where were they at that? How sophisticated is UPS when it comes to pricing? That’s something I really know nothing about.

Matt Lindsay: Well, UPS was one of the first companies that was an alternative to the post office. And so they really adopted the post office pricing model, which was a matrix of weight and distance. What was really fascinating about that time was that they had some new entrants like Federal Express to come into the market. And a couple of other players and what those other people had done was identify where there was profit in that pricing matrix. And essentially the short answer is things that were heavy that went very far were super profitable, things that were small and only went a small distance were not profitable. The competitors had people like myself that were economists and they were saying, “you know what, let’s be more aggressive and acquire these types of clients. And let’s let UPS and the post office keep the unprofitable things.” And so UPS, it took them a while to figure out what was going on, but then they got sophisticated and reacted. Now they have a very sophisticated pricing kind of group and strategy.

Robbie Baxter: That’s a little known fact. I love it.

Today’s theme is controversial topics in pricing. Before we get into the more controversial topics. Can you provide a quick overview about the key moments to consider in subscription pricing in particular, and some of the levers that a business might have when it comes to optimizing that pricing?

Matt Lindsay: Certainly, yeah, subscription pricing is really fascinating from an economics point of view because you’re not really solving for a single price point. Where most businesses have that traditional economics pricing model where you have marginal cost and marginal revenue and you’re going to set up an optimal price and you’ll sell a certain number. With a subscription model, you’re acquiring that customer, and you’re ideally renewing them many times and so what you’re solving for is this vector of price points that maximizes that individual’s lifetime value and the price elasticity changes for an individual customer over that life cycle. They’re most price sensitive or price elastic at that first decision point to subscribe. But once subscription becomes part of their life or part of their habit their price elasticity goes way down.

The ability for us to raise prices changes based on that individual’s price elasticity, where they are in that life cycle. And there’s another closely related concept called income elasticity, which is, some people really want a product but they can’t afford it. And so what we’re really looking at is total elasticity, which is their combination of their willingness and their ability to pay for a product over time.

Just to add on that really quickly, the acquisition pricing component of subscriptions is typically about 20 percent of the total pricing decisions. Almost 80 percent of the pricing decisions that you make in subscriptions are on the renewal side.

Robbie Baxter: That’s fascinating. I just want to say for the listeners, Elasticity of Demand is the concept that for how many more people will sign up or will continue to pay as you lower the price. And there are some products like tuna fish, which are not in demand doesn’t really change if the price goes down. And some are very elastic, like potato chips and soda. If soda’s on sale, you might drink more soda this week. Figuring that out is really important.

I just want to throw in my own opinion here that a lot of organizations ascribe more elasticity of demand to their customers than may be true. So in other words, as you said, once somebody makes that decision. Dropping the price by a tiny bit is not going to keep them if they’re not using the product. But I know you kind of alluded to that when you were talking about where elasticity is at the moment of purchase versus where it is at the moment of renewal. And I would love to hear more about that.

What we're really looking at is total elasticity, which is their combination of their willingness and their ability to pay for a product over time. Share on X

Matt Lindsay: Yes, absolutely. Thank you for explaining that. I know elasticity is not an easy concept for a lot of people.

When in a subscription relationship, it’s really interesting. They’re depending on the cost of your products. In many cases, like a content subscription where the article is already written or the video is already produced or the songs already recorded and so on, the subsequent copies of that content can be produced for almost zero marginal cost. There tends to be a trend for subscriptions of that nature to have very low introductory offers. And that’s because they can get you in the sample of the content and establish that relationship. Then their goal is once you kind of established that relationship to grow your engagement with their content. For products that have a more material element to them, like a box subscription, the marginal cost is much greater than zero. You have to be a little more cautious when you’re creating introductory offers.

You hit on an important topic, which is that price elasticity, people churn is a big concern, obviously, for subscriptions. And in my experience, I find that most people ascribe a lot more of the cause of churn to price than it really is in actuality. A lot of times it’s because there’s some other element. Sometimes it’s just what we call involuntary churn because people moved or their payment didn’t fo through or their credit card didn’t process for whatever reason. But yes, I would concur that price is usually not the main reason for churning.

Robbie Baxter: I wanted to go into another area around pricing principles that I’ve heard you talk about, which is the stages of pricing.

You’ve talked about there’s the acquisition moment, there’s the move to the standard pricing from any kind of promotional offer that brought them in, and then there’s pricing changes that need to happen, as well as the moment of retention, which you talked about a little bit earlier.

Are these the key moments or are there other moments and does this vary by industry?

Matt Lindsay: Yes. Those are the key moments. There’s the acquisition,there’s that transition from the promotional offer to what we generally consider the regular price. And then there’s annual renewal offers.

The magazine industry. They’re a platform from like many subscription businesses. They have multiple revenue streams, advertising is being a key one. And they actually have this interesting concept called a rate base, which means that they’re guaranteeing a certain volume of audience to their advertisers. They actually have perverse incentives on the subscription side, because they’re practically willing to give the product away just to get to that rate base number. The magazines will actually not consider it a paid customer until they’ve actually paid at the regular rate. They almost don’t even really count them until they’ve survived through that acquisition offer and then transition to the regular price and then actually made a payment on the regular price. Other industries will consider a new subscriber a customer right away. They just will indicate that they’re on their ARPU is a certain level. So sometimes industries will be tracking what category of subscribers are in the regular rate versus a promotional offer category?

Robbie Baxter: We’ll get to that when we start talking about controversy, but I think one of the controversial points that I hope we can allude to later is this question of what is a customer? What is a subscriber? And if they’re not paying, are they a subscriber or if they’re paying a highly discounted rate? I think there’s a lot of controversy there, but before I get there, how is pricing subscriptions different than what you learned as an economist or even in your time at UPS about pricing transactions versus pricing for subscription.

Matt Lindsay: It was really when I first got into subscription pricing. I was naive to how complicated it was. I really thought, “Oh, I’ve done pricing in all these industries and I’m a pricing expert.” What I quickly became aware of is that it’s a very complicated problem because you are acquiring consumers. And when you are acquiring subscribers, there’s a quantity versus quality trade off. If you drop the price to get people to subscribe, they’re usually more marginally engaged with your product or interested in your product. And so there’s going to be higher churn. The first tricky question to solve is what’s that balance of quantity versus quality? Should I have a higher price and acquire fewer subscribers however they’re going to be very engaged and they’re going to retain very well? Or do I lower the price and get more marginal customers in? Then subsequently to that, what you can look at is how engaged are these consumers in our product and how does that translate to price elasticity?

In many cases, there are motivations for subscriptions that I’ve found that are pretty consistent. There’s really kind of the people that are content focused. There’s people that are community focused. There’s sometimes there’s people that just sort of cost focused and they want this product to exist. News media is a great example of that. People want their local newspaper to survive and thrive, and so they’ll subscribe. In many cases, just to support the journalistic mission. And then there’s a subset which are price driven and so they’re cost conscious. You can identify what their motivation is by the channel they come in through when they subscribe.

And sometimes you can have different prices, however, you want to make sure you don’t have channel conflict. You don’t want to have a lot of confusion in the market where you get one price if you come in this way and another price if you come in that way. You can do that to some extent, but you really want to have a pretty consistent and easy to understand acquisition offer. But at the same time, you want to be able to observe that customer’s interaction and take appropriate action with that consumer to maximize their lifetime value. Pricing is one of those actions that you can take. There’s several others that you can take as well but that’s what makes pricing different from when you sell somebody a car, you’re really just pricing that car. You’re negotiating one time and then the transaction is complete and they own the car and you get the money. That’s the story.

Robbie Baxter: Understanding intent becomes more important in subscription and balancing short term versus long term revenue becomes really important. The person who buys the car, they might not come back for 5, 10, or 15 years. They may have totally different needs when they come back, whereas in subscription, you’re really starting a relationship.

You brought up the point of different prices by different channels because there’s different missions or different willingness to pay, but you want to be careful of putting complexity in the system and having conflict or having some complexity that I always think of it as, if you ask the consumer to keep their wits about them and figure out pricing, they’re not going to be able to relax into the subscription and trust you. They’re going to be like, “Oh, wait, it’s five cents for the next three month then it’s 20 and then it changes again so I do need to pay attention to this.” As opposed to, “This feels fair. I’m not going to worry about it anymore.”

Matt Lindsay: A lot of my clients and I talk at about that trade off between complexity and efficiency and there’s absolutely the trust component of that as well. We’re big proponents of you need to be transparent. You need to communicate. Don’t make it unnduly difficult to cancel a subscription because that’s breaking that trust. We actually encourage people to make it easy to cancel because people will remember that and they may come back to you. Whereas if you make it unbelievably difficult, they’re not going to do that.

This may be getting into the real meat of this conversation, where is that complexity? Where is the return on investment for complexity?

We encourage people to make it easy to cancel because people will remember that and they may come back to you. Share on X

Complexity can mean a lot of different things. It can mean a lot of different price points. It can mean different terms and how you execute it and so on. Another element with subscription pricing is that a lot of times the marketing efforts that you’re making today will have payoffs that occur in the future. That can be a 6 months, 12 months, or 18 months return on investment. And in many businesses, they’re measured on current fiscal year. A lot of my clients, they’re like, “that sounds like a great business idea, but I’m not going to really get the benefit of that until a year or two from now.I don’t know if I can make that investment.” And so that’s an interesting element too, that you hit on and I just wanted to make sure we captured that.

Robbie Baxter: Actually one of my other guests this coming season. It was the CFO during the Adobe’s switch from perpetual license to subscription. One of the things that we talked about is how do you set expectations with your leadership team and with your investor if you’re moving to subscription? A lot of the reasons that people want a subscription in the first place is for predictable recurring revenue, which allows you to run your business better and should you want to sell your business allows you to sell it at a higher multiple. But it doesn’t come for free. You do have to take a long term approach and not everybody is willing to do that and your point about some executives say either I can’t afford to do that because I just don’t have the money to do it or what I see more commonly is “My boss isn’t going to go for it. My board’s not going to go for it.” It is really true that pricing is about more than what makes most sense in the long term. It’s also about what can your organization stomach.

So now I wanted to get into some of those more controversial topics, following along the customer journey as we go. Let’s start with low intro fees. So we’ve seen a lot, especially in the media world and in the news world the five cents for the first six months and then a hundred dollars a month. I’m exaggerating. But this idea of almost free followed by a very steep increase up to the standard pricing. Is that a good idea or a bad idea?

Matt Lindsay: Well, I’ll mention the innovator of that was The Boston Globe. They were the ones that pioneered the 99 cents for six months and then it went to 99 cents a day. That is not as extreme as the example you used, but it’s very similar in a lot of respects. What they found was that there is a financial component of that transaction and there’s a non financial, there’s the information exchange that’s happening. And so what that 99 cents is accomplishing for that particular type of organization is either getting a credit card and they’re getting an email address and they’re establishing that relationship. In many cases, the marginal cost of a digital subscription to a newspaper is practically zero. The marginal cost is very low and so the marginal revenue that optimizes that transaction can also be pretty low. But what they also are doing is putting a value on the fact that it’s almost like an option. It’s like, if I’m making a bet that I’m going to get you to be such a fan of our content, that you’re going to be willing to pay a dollar a day by the time you’ve lived with us together for six months. And they’ve done really well with that. That’s actually been an imitated and very widely imitated strategy. Many of our clients are utilizing that in the news media industry. There’s some variations on do you have to go for six months? Can you do it for three months? Do you do 99 cents? Do you do 25 cents? Do you do $9.99? It’s not the same answer for everyone obviously, but in many cases that type of strategy does actually optimize their subscription life cycle.

Robbie Baxter: Does it work for all industries or is there something unique to news media that makes it more effective in those situations?

Matt Lindsay: It definitely varies by industry considerably. A lot of it is the economics. There’s the cost structure but there’s also in many cases the terms of the relationship. News media like The Boston Globe are produced every day so it’s a daily habit. Some magazines are a great example. They’re only produced monthly or weekly, but often they’re only monthly and so that gamble of: I’m going to get you so engaged in this content is much more difficult proposition with a magazine because you don’t have a daily habit.

Some magazines like The Economist are evolving their digital business so that they actually have a cadence of complicate. Even though that magazine comes out once a week, they produce content every day and they send it to you in a newsletter. They’re trying to replicate that daily habit type of a product. Different types of subscription products like boxes, they only come once a month. You can’t make quite as such a low price intro offer, you have to get more of a return on that right away.

Robbie Baxter: Although I would jump in there and say, we’ve seen a lot of the meal kits offering a week of free meals as an introductory offer where they’re banking on it becoming a habit like The Boston Globe because I do think that I agree with you that habit, if you think your products are going to become a daily habit, then you have more of an incentive to offer a very low introductory price to entice them to see if the habit is really going to stick. But they have the other problem that you brought up, which is if you have high variable costs, meaning every time I send out a box, I actually am spending my own additional money. When The Economist sends out a newsletter, they’ve already paid for the journalists. They’ve already paid for the content design. Sending it out is virtually free. I hope that people listening, as you’re thinking about this low introductory offer, I think two questions to ask yourself are, one: “What are my variable costs of doing it? How much is it really going to cost me to do it?” And two “Do I really think my product’s a habit for a lifetime?”

I’ve been subscribing to the same newspapers pretty much since I graduated from college. Okay, so the next question I have for you is around free trial, related to the low introductory offer but free trial or freemium.

Free trial is a taste of the best that you’ve got for a very short period of time so that you build credibility, understanding of what the product is. And freemium is ongoing value, not the best you’ve got, but something that’s valuable by itself, even if you never upgrade. Are there businesses that shouldn’t do this?

Matt Lindsay: Those are tactics that are widely used. And I think in the freemium cases, content subscriptions as a great example, because it’s real widely kind of experienced, Netflix is a great example. They have some content that’s free and then they have some content that it’s paid. It’s an effective customers segmentation tactic in a sense, because that’s the people that are willing to have a base subscription. And in some cases that base subscription can be free, but if it’s free, then you’re giving it your time and attention. Some of these non monetary things that we’ve talked about, like your personal identity, your email address, or some way to contact you. And those are often supported by advertising types of economics, where there’s another revenue stream that’s monetizing that relationship if it’s free. One question I would ask your audience: Is there another revenue stream that you can use to offset some of that cost?

For freemium, the other benefit is that it’s a way to mitigate risk. When people are consuming or contemplating a subscription, there’s a lot of uncertainty around how much utility or enjoyment they’re going to get out of this relationship so they will discount. They think they’ll like it, but there’s a lot of discount that they discount that future enjoyment. So what they’re really trying to do is by lowering the price and eliminating as much of the friction as possible of letting them sample, then that’s what you’re investing in the relationship is you’re saying, listen, we think you’re going to like this so much, we’re going to let you try it then we are confident that you’ll ultimately purchase more from us in the future.

Robbie Baxter: Yeah, so it depends.

A big thing I heard is to think about what the role is that freemium is doing for you. And I think that’s something that we agree on that. I’ve seen a lot of companies be told by their leadership or by their board, “Hey, we need to offer freemium because that’s what companies do.” But it is really important to be able to point to the ROI on that freemium offering. Is it resulting in more conversions to paid? As you said, is it resulting in some other part of the business being more effective? Is there a viral effect? Are they our marketing channel?

But if you don’t have a good reason for it, it’s okay not to do it. It’s okay to say we’re never going to have freemium because it doesn’t make sense in our model. What about asking for information in a freemium or a free trial offer? A lot of people call it like tip for tat. Well, I’m giving them something for free so they need to tell me their life history and all of their children and give me all of their credit cards and a whole bunch of other things in exchange for my free content.

Matt Lindsay: Yeah, that’s particularly important in today’s age of data privacy. That’s a big question we get asked a lot, which is what is an email address worth to a company? If somebody is registered for a product. There’s actually instances where giving that email address is beneficial to the consumer because it allows them to personalize that offer for you and communicate to you in a way that they can do more specifically or personalized to you than the general public.

 

The downside, obviously, is that just an entire market for data out there and email addresses, and sometimes it gets handed off from the person you gave it to to lots of other people. In Europe, that data privacy is hugely top of mind for consumers. And if you’re ever in Europe, I’m sure you’ll notice when you go to a website, there’s a consent element to that, where you almost have to always click, yes, I agree for them to track me. Where in the United States, we’re a lot more tolerant of that type of information gathering on the web. I think it’s an important way to consider that there is a non financial part of these transactions, and that’s certainly one of them, information exchange is a cost to the consumer, and it’s a value to the company, and so it does play an important role in that relationship for marketing efforts.

Robbie Baxter: Yeah. There’s the legal and regulatory aspects of it and then there’s also the relationship building and ethical aspects. Hopefully organizations are thinking about the latter before they get pummeled by the former. Try to do the right thing and have it make sense.

Something that you talked about is the change in pricing elasticity at the moment of renewal. I think there’s a lot of controversy about lowering the price to keep a customer. And I would love to hear your thoughts on that. Do I just lower it because they told me that they were more elastic? In other words, I can’t pay that price anymore. I need a discount. And so I get a discount. Is it worth or is there a more sophisticated way to figure it out?

Then if you want to talk about pricing changes in general, this idea of raise the price and make a big price change and make it infrequent or make lots of little price changes and make them frequent. Be really transparent and say, “Hey, we’re about to change the price.” If you don’t like it, cancel or hoping that they don’t notice. What are the best practices in what can be really a heated and controversial topic around the leadership table?

Matt Lindsay: Yeah, this is where I think most of my work has been over the past 20 years has been looking at this renewal pricing strategy and how do you execute that? One of the things that I started working with news media companies, as I mentioned, when they were starting to become disrupted by the internet and in the print days of newspapers, they were the consumer revenue stream was really an afterthought after advertising. They were making so much money on advertising that they just kind of had this very low subsidized price. Everybody paid the same amount of money. And when that advertising revenue stream started to go to the internet, they suddenly realized, my goodness, we need to replace that revenue with consumer revenue. And so how do we go about doing that? And being the economist, I came into these companies and I was like, you deliver a product to their house every day. You really know where these people live and you can attach a lot of information to that person based on that address. And you don’t necessarily have to have a same price for everyone. If you look at a subscriber base for a local newspaper, it’s a pretty broad cross section of that community. You’ve got school teachers, and you’ve got secretaries, and you’ve got waiters and cooks. And then you also have the doctors and lawyers and bankers and private equity people and all the other types of folks.

And going back to my earlier comments about there’s income elasticity and there’s price elasticity. What I was really advocating for newspapers is that let’s look at who in your community is willing and able to pay more. And maybe we have instead of a 1 tier price. Maybe we have a 3 tier price. There’s the average, then there’s maybe a discount and maybe there’s a premium and what we can do is 80 percent of the people in this market will be getting the same average increase, but maybe there’s 20 percent that can’t afford that increase and maybe we give them a we proactively give them a lower increase on the other end of the spectrum. Maybe there are people we would surmise that would probably pay a little bit more To make the math easy, a 10% price increase. Some people will get 5%, some will get 10%, some will get 15%. And so that type of price discrimination is often where this type of controversy comes from.

Robbie Baxter: Well, so one example, let’s say by zip codes and you say, this zip code has a lower ability to pay. So we’re not going to increase it by as much. That’s one thing if you have neighbors, right? And you say, Robbie doesn’t seem to be paying as much attention as her next door neighbor so we’re going to raise her price, but we’re not going to raise her neighbor’s price. And the two of us bump into each other at the mailboxes, picking up our newspapers, and we have a chat about the price increase. And I realized that somebody that lives a very similar life to me is paying a lot less. There is a challenge with how transparent and efficient the market is. Do I know what other people are paying or don’t I? I’ve talked to other pricing strategists who’ve talked about kind of the new challenge that’s coming from a community that’s much better at figuring out what other people are paying. You can do pricing discrimination if I have no idea, unless I actually asked other people what they’re paying, which is not likely to come up. That’s very different than if I can go online and say, is $9.99 a month a fair price for the 94025 zip code for this product?

Matt Lindsay: You’re absolutely correct. The concept of marginal revenue. When you drop the idea of marginal revenue is how much do I actually gain in revenue if I drop my price? And what happens is when you drop your price to your point earlier, sometimes you’ll get an incremental lift in sales. But you also have to drop that price to other subscribers that may have been willing to pay you more. There’s a net effect there. In the case of a market where consumers don’t know what each other’s prices are, that negative effect is limited because you don’t necessarily have to give everybody that lower price. You can only give just the targeted people that lower price. And that exists in some elements and not others.

In a digital environment, there’s a little bit more price communication that happens in the market, and that tends to affect that marginal revenue.

Robbie Baxter: I recently got a letter from a newspaper that I get that they were raising the prices a lot and I was angry and I called and I told them I wanted to cancel. And they said something like, “Oh, are you saying you don’t want the price increase?” I didn’t even understand what they’re saying. I was like, “Well, who wants a price increase?” But my consultant antennae went up and I thought, “Oh, this call center person is allowed to do something. If I respond yes to this crazy question, yes, I do not want a price increase.” And then they said, “Okay, what if we kept the price as it is? In fact, what if we lowered it for six months and then brought it back up to where it is now?” Effectively, that’s a save offer, right? They were concerned about losing me. They saw probably how long I’ve been a subscriber. And they gave me a really generous offer because I threatened.

What are your thoughts about save offers and responding to threats to cancel?

Matt Lindsay: Saving an existing customer, there are some bullet points out there that’s like saving an existing customer is more effective than acquiring 10 or something like that. So. I generally am a big fan of saving the customers you have.I think that where a lot of my clients run into some challenges is they don’t give their customer service representatives enough guidance into how to do that. They’re measured on their performance of the ability to save, not at the rate that they’ve saved people at. And so a lot of times they go way straight down to the bottom and they’re like, we’re going to make sure we save you at any cost. And I think what happens there is that people don’t realize, but that gets out in the world of people like you saying, “My God, I called this local newspaper and I got this tremendous offer.” So other people are going to call and get that offer too. I think it needs to be managed appropriately, but I think it’s a valuable tactic.

Robbie Baxter: Yeah. It’s interesting. My friends are always asking me, “you work in subscriptions. How do I keep my prices?” And I always say to them, if there’s a phone number call and say, “I was thinking about canceling. I’m wondering if you have a better price for me.” Both of which are true, right? I may not be canceling, but I’m thinking about it. I’m thinking about canceling, you have a better price for me and how a lot of times the ones that have phone numbers often have some leeway there.

Matt Lindsay: When we actually do our econometric modeling of retention, we use a technique called survival analysis, which was actually borrowed from the healthcare industry and we control for all these factors and we look at what is the impact of changing one factor on a person’s likelihood of retaining. And when we actually look at people that call to complain, we actually find that as a positive factor on retention, that people that care enough to call actually are much more engaged and much more likely to remain a subscriber. A lot of my clients are like, “God, these people complain and it’s terrible.” I’m like, you should really be actually pretty happy they’re calling you because the people that call are the ones that you don’t have to worry about. It’s the people that aren’t calling you are the ones that you should be worried about.

When we look at people that call to complain, we find that as a positive factor on retention, that people that care enough to call actually are much more engaged and much more likely to remain a subscriber. Share on X

Robbie Baxter: That’s an interesting counterpoint. I love it.

Let’s talk about seasonal pricing. You have a hockey league, you have a holiday present wrapping support, or something like QuickBooks where it’s a subscription based offering that works all year round for tracking your budgets and your tax implications. Vast majority of people sign up sometime between January 1st, and say I’m going to be a better person this year and tax day. How do you think about subscription pricing when the natural use case is very seasonal?

Matt Lindsay: It’s a great example is sports leagues. We work with some of the sports leagues, like we’ve worked with the NBA in the past, and they have a streaming product called Lead Pass. It’s a really wonderful product and they have a very seasonal trends in their subscription business. And one of the things they’ve been doing is they will have prices that fluctuate throughout the season. As the season goes on, they will have promotions. It’s the All-Star break, we’ll give you a discounted subscription for the rest of this year. The other thing that NBA has been doing is they’ve been actually doing some things in the off season that add value like the NBA Draft. It is a huge event that occurs in the offseason.

And so they try to create value propositions that are annual. I think the short answer is that for seasonal, you have the ability to target the term and the price. And as a company, if you realize this is a short term subscriber, youu should charge them a higher price per month for the shorter month, but you obviously would, if somebody’s willing to commit to an annual subscription, give them a slightly better offer on a per month basis to get them to sign up.

Robbie Baxter: The points that I think about whether you can offer something in the off season so that it stops being quite so seasonal, like that NBA Draft coverage. The other is to think about. what is the real natural lifetime of somebody and where are they likely to leave and price accordingly. Compared to other places where it might not be as spiky, difference between annual and monthly might be quite different. If you know it’s seasonal, but it is sort of a controversial question of how much did you charge for monthly? By the way, if you know they’re going to cancel after seven months, is it really a subscription or is it something else?

I have like a lot of other questions I could ask you, but I’m going to pause for now and hope that you come back again in the future for more conversations. The last thing I want to ask you is if you have time for a speed round.

Matt Lindsay: Let’s do it.

Robbie Baxter: Okay. First subscription you ever had?

Matt Lindsay: The magazine for kids that’s Highlights, I believe.

Robbie Baxter: Highlights. Popular answer.

The subscription that you’re using the most right now?

Matt Lindsay: The Economist.

Robbie Baxter: Your favorite perk of being part of the American Association of Wine Economists.

Matt Lindsay: Well, it’s a great excuse to try more wine, I guess.

Robbie Baxter: Favorite wine?

Matt Lindsay: I’m a big Pinot Noir fan.

Robbie Baxter: The most interesting pricing move or counterintuitive pricing move that you’ve seen in the last five years?

Matt Lindsay: That’s a good one.This probably is pretty controversial, but the whole concept of pharmaceutical pricing. I just find that it’s a hugely confusing mess that I would really love to help people in that world sort that out. I’m sure they’ve got very smart people working on it, but I’ve just seen this latest with all of the type medicines that are out. They have such huge benefits to society and I’m always shocked that insurance companies don’t cover it. If you were to take the entirety of that economics, you would think that they would be practically subsidizing those widely to get people from becoming diabetic and so on.

So I guess I’ll just throw out their pharmaceutical pricing is totally kind of counterintuitive to me.

Robbie Baxter: It’s a total mess. I think part of the reason is that their incentives don’t line up with the customer incentives, right? Our incentive is to have as many happy and healthy moments. I think Dr. Peter Attia calls it your healthspan, right?

How long can you be able to do the things you want to do and I think the pharmaceutical companies and the insurers often set the pricing focused on profitability and managing their costs. I hope there’s greater alignment in the future.

Any piece of advice for people right now who are struggling with pricing?

Matt Lindsay: I’m always a big advocate of testing. We find that there’s a lot of gut instinct that people use in pricing and pricing is also one of the things where people keep it really close to the vest. Companies feel like pricing is the core of their secret strategy but they’re not. I always find that there’s a lot to be gained from talking about pricing openly with peers. You can learn a lot by hearing what other people are doing. And then I would also say A/B testing, it is a wonderful thing because it gives you a lot more data points and facts to make a decision from than maybe perhaps you’re using today.

Robbie Baxter: Yeah. Don’t be shy to share and experiment. Great advice, Matt.

Thank you so much for this episode. It is full of tips and insights and considerations for better pricing. Thank you so much for being a guest on Subscription Stories.

Matt Lindsay: My pleasure. Thank you for having me.

 

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That was Matt Lindsay, founding partner of Mather Economics.

For more about Mather, go to www.mathereconomics.com. And for more about Subscription Stories, as well as a transcript of my conversation with Matt, go to RobbieKellmanBaxter.com/podcast.

Also I have a favor to ask. If you like what you heard, please take a minute to go over to Apple Podcasts or Apple iTunes and leave a review. Mention Matt and this episode if you especially enjoyed it. Reviews are how listeners find our podcast, and we appreciate each one.

Thanks for your support and thanks for listening to Subscription Stories.

 

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Important Links

• Matt Lindsay, CEO of Mather Economics
• Mather Economics
• Arthur Andersen Business Consulting
• Knight Ridder
• Elasticity of Demand
• Rate Base
• The Boston Globe
• Survival Analysis
• Lead Pass
• NBA Draft
• Highlights
• American Association of Wine Economists
• Healthspan
• A/B Testing

About Matt Lindsay

Matt Lindsay brings over 25 years of expertise in leveraging economic modeling and analytics to help businesses enhance operating margins and drive revenue growth. He has developed innovative pricing strategies and predictive analytics models for a diverse range of clients, including dynamic subscription pricing for news media publishers. Mather Economics’ Market Based Pricing service maximizes the lifetime value of millions of subscribers each month. Matt has helped hundreds of publishers with digital product bundles and pricing strategies.

Matt began his career with United Parcel Service’s Corporate Economics Group, focusing on optimizing profitability through price elasticity analysis and marginal network cost measurement. He later joined Arthur Andersen’s strategy practice before founding Mather Economics. Throughout his career, Matt has specialized in optimizing marketing spend, improving customer retention, and developing predictive models to inform pricing, marketing, and customer acquisition strategies. His work has consistently delivered significant incremental profits for his clients.

In addition to his professional accomplishments, Matt is the author of The Relationship Economy (2017), which he co-authored with two long-term clients based in Amsterdam.

Matt earned a Doctorate in Economics from the University of Georgia, a Master’s in Economics from Clemson University, and a Bachelor of Business Administration in Economics from the University of Georgia.

 

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