Analyzing Disparities in the Unit Cost of Engagement

This is the second in a series on the importance and use of unit cost of engagement.

In paid content, a pricing disparity is defined as a subscriber paying too much or too little for the content compared to their peer subscribers. Pricing disparities are often hidden because fees are charged based on the contract period or quantity of users neither of which account for actual consumption (i.e., engagement). Because subscriber value is directly correlated with engagement, the unit cost of engagement can be used to uncover pricing disparities and opportunities for digital revenue optimization.

One of the easiest ways to visualize pricing disparities is to plot each subscriber according to their subscription fee and their measure of engagement during the term of the subscription. At each of the publishers in our recently announced research, Scout Analytics found the subscriber distribution to look similar to this scatter diagram. The pricing disparities jump right out when you consider the difference in value received by a subscriber in the upper left vs. a subscriber in the lower right of the diagram.

Now of course not every subscriber will have exactly the same engagement for a specific fee, so some amount of pricing disparity will always exist. But can pricing disparity be used to predict subscriber behavior? And what is a reasonable range of disparity? The answer to the first question is yes. The answer to the second question depends on the publisher and their target market.

Scout Analytics employs proprietary algorithms to establish minimum and maximum unit costs of engagement and define a reasonable range of pricing disparity for subscribers of paid content. The output of the analysis is called a Demand Map™, which looks similar to the diagram on the right. The minimum and maximum unit costs are used to predict a minimum and maximum subscription fee at each level of engagement. Subscribers above the maximum fee are retention risks (i.e., likely to churn). Subscribers below the minimum fee are up-sell opportunities (i.e., likely to accept a higher price). The subscribers in between are ones that can be nurtured into higher adoption and make good cross-sell candidates.

The Demand Map™ not only quantifies the number of retention risk and up-sell subscribers, but also the revenue potential they represent. Our research indicated a 20-30 percent potential uplift in subscription revenue. I’ll discuss how Scout Analytics calculates that number in the next post.