In blog one of the Mobile Subscription 101 set, we shared advice on conversion rate improvement. Next important subject to cover is the partial billing model that enables monetization of users who can’t be fully billed due to insufficient funds or limitations on their mobile accounts. This results in increased user satisfaction and affects both merchants and mobile networks operators.
In turn, user satisfaction has a high impact on their lifetime value (LTV) which is, for subscription models, equally if not more important success measure than conversion rate. Research finds that a 5% increase in customer retention can increase profits by 25% to 95%. The same study found that it costs six to seven times more to gain a new customer than to keep an existing one. This is why flexible charging in subscription business models plays an important role – enable users to convert when they are willing to do so, and use customer experience to retain them.
One of the things that can be done to impact user satisfaction is enabling users to activate or to renew subscription in situations where their mobile account can’t be charged the full amount for the subscription to an online service. There are two main reasons why users can’t be fully charged for the subscription: 1) prepaid customer doesn’t have enough credit, 2) postpaid customer has hit his monthly limit. With partial billing options online merchants, as well as mobile network operators, can still monetize those users.
For content providers or online merchants whose cost of production and distribution doesn’t depend on sales volumes, it is more affordable to charge the portion of the price and provide full content or service and gain an additional subscriber than to charge nothing and to potentially lose a long term subscriber. In direct carrier billing subscription model, this is managed with split billing feature which is activated when a user can’t pay the full price defined for subscription activation.
The split billing model is defined for each merchant separately and it takes in the consideration MNOs regulations and market rules. The minimum viable price for split billing activation is defined with the merchant and number of charges allowed per user or spending limit in the certain period is regulated by a mobile network operator.
For example, access to a gaming portal costs 5 EUR per week, but the user can’t be fully charged for the activation or subscription renewal, split billing will be activated. The user will be charged 2 EUR if that is the minimum charge agreed with the merchant, and the payment platform will try to charge the rest during the next 7 days. If the mobile operator would allow 5 charges per week then the payment platform will have 5 attempts at charging the user with 1 EUR per attempt. In this case, the tactic is to try to charge the smallest amount that is allowed in the most number of charges allowed. This doesn’t prevent the user from entering the portal since he got the access for the whole period regardless of the final amount that will be charged. This is just one of the potential scenarios.
An example of split billing impact on the revenue is seen with digital service merchant providing its services in Spain that had an increase in revenue during the first month when split billing was activated. 12% of his total revenue in the month when split billing was activated is related to direct carrier billing subscriptions charged with split billing model. Since this feature is part of the subscription management there was no need for additional investment.
Some digital content providers, like Spotify, pay royalty fees for content distribution. Because of the effect that it will have on user LTV, such providers may also find value in flexible charging options. It’s pretty much the same for online merchants whose production costs depend on the number of users.
For companies with these and similar business models downscale billing is the optimal solution. With downscale billing, all users that can’t be charged the full price for subscription activation or renewal will be charged part of the full price and would get the proportional part of the content or access period to an online service.
For example, a video on demand service that promotes a price point of 10 EUR monthly, can provide access for 15 days for users that has only 5 EUR on his account. After 15-day subscription, the management system will again try to charge 10 EUR and provide access to additional 30 days.
The downscaling scheme is defined with merchants and mobile operators with the goal of providing the most for all sides – end user, online merchant and mobile network operators.
Partial billing is especially useful in markets with a high percentage of prepaid users. Regions with more prepaid users than postpaid are Africa, Asia, East and South Europe, Central and South America, meaning that merchants and mobile network operators on those markets can increase revenue by activating partial billing.
On markets with a high percentage of postpaid users, such as North America, Oceania, North and West Europe, users can have limitation for spending on added value services set by mobile network operators (for example in Spain the limit is 50€ per month). In this case, partial billing is usually activated in the second part of the month, after the limit has been reached.
Partial billing has a high impact on subscribers lifetime value, their loyalty and user satisfaction in general. Finally, content providers and carriers gain revenue that they might lose out on if these features are not enabled.
Author: Aleksandar Brankovic, CTO, Centili Mobile Payments
Read all blog posts from "Carrier Billing Subscriptions 101" series: