The Behavioural Economics of Subscription Monetization

Subscriptions live and die on behaviour, not features. Last week at Appsforum San Francisco, Daniel Saxon, Senior Product Manager for Subscriber Acquisition at CNN, explained how small quirks in human psychology shape conversion, average revenue per user (ARPU) and retention, and how product teams can use them.

The subscription page that shouldn’t have worked

Saxon opened with a well-known experiment built on an old Economist subscription page. Students were shown two options, a digital-only subscription and a print-and-web bundle, and asked which they would choose. A second group saw the same two options plus a third: print-only, priced the same as the bundle.

“Economics as a study would tell us, no, there should be no change in how anybody should have selected,” Saxon said. “Our resources have not changed. How much money I have to pay for a subscription has not changed, nor have what I’m getting from each of the packages.”

“And yet,” he continued, “there was a massive change in how students selected.” The digital-only share fell from 62% to 16%, most students switched to the print-and-web bundle, and nobody chose print-only''.

This is the decoy effect. The print-only plan existed only to make the bundle look like a bargain. Resources and incentives stayed the same, so the difference has to come from the people. Behavioural economics, Saxon explained, is “the study by which we look to understand how real people make decisions.”

He cited Richard Thaler’s distinction between “econs”, the perfectly rational actors of theory, and real people. “Knowing that users are not econs, and understanding that people, which is who we’re actually trying to solve problems for, commonly misbehave, will allow us to go a level deeper in really thinking about how we set up our products,” he said.

Saxon set out three ways he has applied these ideas in his career.

1. Libertarian paternalism: offer every choice, nudge towards the best one

The term sounds academic, but Saxon described it in practical terms: “How can we make

sure that when users or visitors are coming into our site, we’re presenting them with as much choice as possible,” while “ultimately nudging them towards the best outcome, both that we know in terms of monetising for the business as well as that we know is best for them.”

The tool for this is the nudge. “We give them certain guardrails or certain visual distinctions in order to allow them to see exactly where we want them to go,” he said, “but not at all restricting them in getting there.”

He used Babbel’s pricing page as his example. Babbel offers about seven plans across billing periods, plus group plans, but the page shows only two by default. A “Show all plans” button reveals the rest. A toggle defaults to individual plans, and colour and design draw the eye to the 12-month plan.

“While they have all these options available to you, they largely know that a majority of their audience is coming in to purchase individual plans, and they’re trying to nudge them towards the twelve-month,” Saxon said.

During his time at Babbel, Saxon’s team also tested the order of plans on mobile. They reversed the original three-month, six-month, twelve-month order so the longer plans came first.

“In testing flipping that in reverse, we were actually able to see minimal hits in conversion rate while improving average revenue per user,” he said. Together with the other nudges, the change raised ARPU and lifetime value (LTV) and kept the top of the funnel healthy.

2. Intentional friction: when slowing users down pays off

“One thing that I think often comes to mind when people think about friction is friction is bad,” Saxon said. In places like payment-update flows, he agreed, that’s correct. Elsewhere, “it really becomes a question of what is good friction to introduce versus what might be sludge.”

Sludge is friction that works against the user, such as excessive steps to cancel a subscription (increasingly a legal issue) or forms that should have been opt-ins. Good friction gives users a moment to think and reaffirm their decision.

At several companies Saxon worked for, teams tested longer onboarding flows with more questions before the first moment of value. “Each time we tested it, we saw increased conversion rates and increases in subscriptions,” he said. “It’s not always a given that reducing the steps in a user flow may improve conversion rate or LTV.”

At Dow Jones, the publisher of the Wall Street Journal, Barron’s and MarketWatch, his team added a review step to checkout. It restated the chosen plan’s value proposition and billing terms, and repeated an “upgrade and save” offer that users had already seen on the pricing page.

“No new information was employed here,” Saxon said. “But by introducing this friction in the review step, we were able to drive more users to upgrade and ultimately improve average revenue per user.” The step also improved conversion and lifted LTV slightly.

3. Ownership: make users feel it’s already theirs

Saxon’s third pillar draws on loss aversion. A rational actor would value a product the same before and after owning it. In practice, he said, “for users, the loss of something that they own looms larger than its gain, and this often distorts its perceived value.”

At Fabulous, a habit-building app, the team asked users to sign a commitment “contract” during onboarding. After answering a series of questions, users held their thumb on a circle until it expanded to confirm they had committed. The aim was to make users feel “that they now owned the health outcome that they were trying to work towards, and that they would be responsible for it.” The step improved free-trial starts and free-trial conversion.

The team then built the pricing page around the app’s storytelling. “We said, ‘Not only do you own your health outcome, but we’re actually calling you from the future,’” Saxon explained. The paywall told users they had kept up their healthy habits for a year and that things had turned out well.

Taking it forward

“We do not need to be a behavioural economics expert,” Saxon told the audience. “What you do have to be is absolutely curious.” He left them with four principles:

• Be curious. Look at your flows and ask how users might react to a different presentation, not only what you’re designing.

• Challenge conventional wisdom. “Don’t just go with the conventional wisdom,” he said. Try flipping a plan layout, and judge the result on LTV as well as conversion rate.

• Study psychology and competitors. Behavioural insight explains why another company’s approach works, so you can form your own hypotheses instead of copying.

• Test, test, test. One of Saxon’s flows succeeded in the US, UK, Canada and France. “Germany, it failed. We had to test it three or four times before getting it to click.” Localisation was part of the problem, but so was culture: “There was something in terms of the ownership value that wasn’t connecting with them. Not everything carries over one to one.”

  
  

Saxon concluded that behavioural economics is a way to think carefully about the choices you put in front of users, including information “sometimes they don’t even understand that they’re consuming.” The goal, he said, is to “find ways to help them make the choices that both you and they want to make.”