Posted by: Matt Shanahan
In the book Super Crunchers, Ian Ayres looked at hundreds of tests evaluating how data-based decision making (i.e., quantitative) fares in comparison with experience- and intuition-based decisions (i.e., qualitative). We were interested in doing the same thing regarding license revenue optimization in paid content.
When a publisher designs a license for paid content (i.e., packaging and pricing of access to media and information), they do so with an expectation of how much media or information will be consumed (i.e., the level of engagement). Typically, the license is defined in terms of sections, volume, numbers of users and usage rights. When a new license is introduced, the initial price is usually based on previous experience and intuition of product management. The license definition is refined initially through feedback from sales and marketing campaigns. Overtime renewals and customer satisfaction surveys also act to influence packaging and pricing. So how well does this qualitative approach work? That is what we wanted to know.
Scout Analytics developed a qualitative technique called a Demand Map™ to gauge how well engagement aligns with licensing. A Demand Map™ is a scatter diagram where one axis is the revenue a customer has paid and the other axis is the level of engagement the customer has had. All the customers can be charted onto a single scatter diagram and end up in one of four quadrants. If licensing was performing correctly, the scatter diagram would have a cluster of data points in the lower left hand quadrant that extended along a gradually decreasing slope to the upper right quadrant. Essentially, the slope of the linear correlation through these quadrants represents the unit cost of engagement (i.e., uniform pricing) with volume discounting represented by the decreasing slope.
The lower right-hand and upper left-hand quadrants of the Demand Map™ uncover pricing disparities in the unit cost of engagement. The customers in these quadrants represent revenue optimization potential. The lower right-hand quadrant is over-engaged but underpaying (i.e., great up-sell potential). The upper left-hand quadrant is under-engaged and overpaying (i.e., big churn risk). Migrating customers out of these quadrants represents the ability to optimize publisher revenue.
What the Demand Map™ shows is that the qualitative approach consistently missing revenue opportunities, but just how much? We’ll be issuing a press release on that shortly.
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