Customer Lifetime Value (CLV) Mather Economics LLC

1. Customer Lifetime Value (CLV) Mather Economics LLC September, 2014

2. Agenda • Firm overview • Customer Lifetime Value (CLV)

3. Mather Economics – Firm Overview • Founded In 2002; leading practices in applied microeconomics • Extensive experience in price optimization for subscription services • Pricing strategy & analytics: Market based pricing process • Customer profitability & customer lifetime value (CLV) • Marketing effectiveness • $4billion in subscription revenue under management • Data on 30 million subscribers received weekly • Additional suite of economic services • Predictive Modeling & Forecasting • Econometrics: digital and print advertising • Market Analysis • Digital Analysis: meter optimization, paywall strategies, web advertising yield • Industry Benchmarking • 35 Employees and 10 academic affiliates

4. Mather Economics – Publishing Experience Locations of Mather Clients in North America Mather Economics has advised over 400 publishers in North America, including 36 of the top 50 and the largest media holding companies at the corporate level. Locations of Mather Global Clients • Include Publishers in: Toronto, Ottawa, Montreal, Vancouver, Halifax, Calgary, Edmonton, Windsor, Sydney, Melbourne, Auckland, Helsinki and Tampere, Finland.

5. Mather Economics – Services Offered • Targeted renewal pricing • Customer lifetime value (CLV) Targeted acquisition and reacquisition Customer segmentation Targeted upgrade offers • Digital subscription pricing and monetization strategy Dynamic paywallsMeter monetization • Advertising pricing and reporting(print and digital) • Benchmarking and digital dashboards

6. Customer Lifetime Value (CLV)

7. Customer Lifetime Value (CLV) – Introduction The power of CLV (the present value of a customer’s total contribution to cash flow) is that it clarifies key strategic considerations, such as: • What is the likelihood a specific customer will leave? • How is a customer’s value affected by attributes or targeted incentives? What will happen to my bottom line if those attributes change by 10%? • What customers should we acquire? What incentives should we use? • What specific conditions optimize profitability for a given level of risk? • How do we operationalize CLV to impact retention and drive increased customer satisfaction through targeted customer experiences? CLV allows you to conduct marketing analyses with increased rigor and develop a scoring system to drive optimal action based on individual customer value.

8. Likelihood of Survival: New Customer Expected Lifetime (Area Under Curve) Customer Lifetime Value (CLV) – Definition CLV is the risk-adjusted operating margin for an individual customer CLV = [(Circ Rev + Advrev – Del Cost – Prod Cost)*(Expected Retention)] – Acquisition Cost CLV metric allows you to allocate acquisition and retention resources to their most profitable use through fact-based analysis

9. Customer Lifetime Value (CLV) – Building Model Once the source data is identified and available in a central location, the CLV model can be implemented in a scientific way • Construct a customer service history • Start and end date • Usage statistics (e.g., prices, payments, service changes, print/digital/bundled) • Attach indicators to the service history • HH demographics (e.g., income, age, gender, children, education) • Marketing-specific metrics (e.g., insert revenue, ROP adv. value) • Organization-specific metrics (e.g., acquisition response rates and costs) • Digital metrics (sub and non sub web traffic consumption and usage patterns) • Develop a retention (survival) model • Calculate “best fit” (regression) model correlating customer variables to retention • Calculate the CLV using the retention rates, revenue and cost metrics How the model is built – and implemented – is crucial to making CLV scores actionable and statistically significant

10. Customer Lifetime Value (CLV) – Building Model

11. Customer Lifetime Value (CLV) – Acquisition CLV = [(Circ Rev + PP rev – Del Cost – Prod Cost)*(Expected Lifetime)] PV – Acquisition Cost

12. CLV Dashboard – Sample screen shot

13. CLV Dashboard – Sample screen shot

14. CLV Dashboard – Sample screen shot

15. CLV Dashboard – Sample screen shot

16. Customer Lifetime Value (CLV) – Distribution of Operating Margin Shows Profitable vs. Unprofitable Subscribers

17. Customer Lifetime Value (CLV) – Acquisition • Targeted acquisition lists developed specifically for channels such as: • Direct mail and Email • Samples and Inserts • Telemarketing • Social media • Reflects the cost-per-order and offers to be employed by channel to determine sales source efficiency by geography and households • Non subscriber HH’s are scored based on projected profitability to the organization • Granular reporting of results and strategic insight

18. Customer Lifetime Value (CLV) – Retention • Targeted lists for retention campaigns • Upgrade or bundled pricing offers for multiple publications • Custom approach developed for subscribers deemed at risk in survival model • Prioritize service to most valuable subs • Metrics available to CSRs that will guide them in assigning stop-save offers, credits, and premiums • CSRs talk to customers more than anyone else, yet normally have access to least information • Proactive and reactive with CLV scores integrated into CIS • Can develop customized call center scripting around CLV scores • Can develop custom call center strategy around pricing reverts with appropriate fall back steps by CLV score • Improve subscriber relationship matching skills based call center routing with custom messaging for renewal, retention, and upgrade efforts • Reporting of results and strategic insight

19. Customer Lifetime Value – Conclusions • Retention is modeled using survival analysis • Calculate “best fit” (regression) model correlating customer variables to retention • A/B testing validates price elasticity for customer segments • Calculate the CLV using the retention rates, revenue, and cost metrics • Every customer is tracked as they enter the billing cycle • Recommendations of strategy and best practices continuously provided • Regular phone calls and communication with analysts and clients • On-site visits can be arranged

20. Contact Information Matthew Lulay Manager Mather Economics LLC main:  770-993-4111 direct:  678-585-4132  fax:  770-993-4977    matthew@mathereconomics.com