Reducing and Leveraging Bad Debt.

Times have changed in the newspaper industry even in the short 12 years that I have been in the business. Gone are the days of advertising producing the bulk of the revenue while circulation was bought through low priced specials and extremely long grace periods. Circulation directors have seen their jobs change from one of operation to one of revenue generation. Circulation revenue is now the name of the game. Bad debt from unpaid subscriptions and extended grace periods are being scrutinized more than ever.

I am the Senior Vice President of Impact Marketing. We have been in the subscription acquisition business for 17 years and operate a call center that works for media companies across the nation. This provides a unique insight into different strategies that are being employed to increase retention, loyalty, revenue, and decrease bad debt.

We have all seen the rise of revenue generating tactics such as premium editions and activation fees. Loyalty programs with advertising tie-ins have provided additional value to our customers. Increased auto pay/EZ Pay sales have helped to reduce our churn and raise our retention. Those are all great programs and should have a place in every newspaper circulators playbook, but today I am going to discuss three strategies to reduce and leverage bad debt.

Slow down the accumulation. The first strategy is very straight forward. Reduce bad debt by promoting EZ Pay programs. EZ Pay should be the focus of any and all sales channels. They have the highest retention on the long term and require your customers to make a conscious decision to stop the paper instead of a conscious decision to continue the paper. Here are three ideas to promote EZ Pay:

1. Waive activation fees for EZ Pay orders. There are three important reasons to consider this. The first is to use the EZ Pay offer as an option for customers that object to the activation fees. The second is that it allows you to use a higher recurring charge because most customers that sign up think about the pricing on a monthly basis. And the final reason is that this is a simple way to gently nudge the customers to your preferred billing method.
2. Tie in EZ Pay continuation to any and all prepaid specials you offer, especially deep discounting. If you are going to offer a deep discount and require prepayment why wouldn't you use this as an opportunity to forge a lasting relationship by informing the customer that their paper will auto renew at the end of the deep discount to a predetermined tiered rate? EZ Pay is a great buffer for sticker shock on specials like this because they break down the increase to a monthly price.
3. Offer EZ Pay as the best option to avoid competing with the billed option. I recommend to most of my clients that we offer billed customers the full priced rate or something close to it. This helps to legitimize the call because the customer is making a choice to give their credit card to receive the discount.

Reduce bad debt due to non-pay starts. The next strategy involves re-accessing what a billed order is. You probably noticed above that we are using a high priced billed option to legitimize our offers and drive sales to the EZ Pay option. Potential customers that are contacted over the phone and in person are extremely hesitant to provide their credit or banking information. Having a billed option even at twice the price of the prepaid option allows the customer to make a choice in their payment method and feel more assured that the offers are indeed legitimate. Unfortunately many customers do not pay their bills and the higher priced billed offer will accumulate bad debt at a faster rate than a normal grace customer.

How can we use the billed option to drive sales to EZ Pay and legitimize our sales while not increasing our bad debt? That is where we change our strategy entirely in regards to billed customers. In several markets we have changed how the billed customers are entered into their circulation systems by tying them into the newspapers sampling program. All billed subscriptions are entered with a rate code indicating they are on a 30-60 day sample with an offer generated that mirrors the billed option in our pitch. Our sales campaigns never indicate that the orders are merely samples so the pay rate of the customers should remain consistant as if they were started on a normal billed order, however the bad debt does not accumulate for those that do not pay. Since these are samples an extremely low rate is charged for the production of these orders.

Leveraging your existing bad debt. Years ago I was running a normal shift and began to be called to the phone by sales agents at an unheard of rate. Apparently the newspaper had hired a company to send debt collection letters to their past subscribers for grace debt. The letters were written to resemble collection letters and were sent as a tactic to collect unpaid money. I was not aware of the letters before we began calling and needless to say I was cursed and screamed at by many people that were enraged that a $5 or $10 charge would negatively impact their credit ratings. The next day I brought the subject up with the circulation director and she assured me that none of the customers would be reported to the credit agencies, but the damage had been done.

We spent the next several days brainstorming a better way to either collect or use those balances without upsetting the customer base. What we finally decided on was leveraging that debt to drive sales. We set up a non-pay to EZ Pay conversion campaign. We targeted customers that owed more that $10 and had been inactive for more than 90 days. For this campaign we set a threshold of the debt that was owed by the customers at $20. This campaign was 100% prepaid. If the customer owed less than $20 we would forgive the debt entirely if they signed up for EZ Pay and would forgive 50% if they made a one time payment. For customers that owed more than $20 we would forgive 50% if they signed up for EZ Pay and would collect 100% if they wanted to make a one time payment. The campaign was extremely successful!

Thank you for taking the time to read my article and I hope that I was able to give you an idea or two on how to turn a negative into a positive. If you would like any additional information on these types of campaigns, have ideas or suggestions that you have used in the past or would like us to perform a no-obligation test in your market please contact me directly by phone at (530)591-3313 or by email at Slade@NewspaperTelemarketing.com.

I would like to thank Jerry Byrnes, Paul Searcy, and Dirk Dunkle for their feedback on my article as well as all of my past and current clients for helping us come up with best practices for the industry.

By Slade Brown, SVP Impact Marketing