← The Agile Brand with Greg Kihlström®: Expert Mode Marketing Technology, AI, & CX
The Agile Brand with Greg Kihlström®: Expert Mode Marketing Technology, AI, & CX
#834: Encore CEO Michael Gants on the importance of the paywall experience
00:27:27
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- [00:00]
A
Today we're going to talk about one of the biggest blind spots in the subscription economy, the paywall. For most apps, this is a binary all or nothing moment where up to 95% of hard won users say no and are effectively treated as a lost cause. We're going to explore why that moment of decline isn't the end of the customer journey, but potentially the most valuable opportunity to build a different kind of relationship and unlock new revenue. Welcome to Season eight of the Agile Brand Podcast. This season we're going all in on Expert Mode, MarTech, AI and Customer Experience, talking with the people and platforms behind the brands you know and love. Again, I'm your host Greg Kilstrom and I help Fortune 1000 companies make sense of martech, AI and marketing ops. Hit, subscribe or Follow to make sure you always get the latest episodes and leave us a rating so others can find us as well. The this episode is brought to you by Encore, an iOS SDK that helps subscription apps monetize paywall declines. More than 90% of users decline a subscription paywall, and most apps treat that moment as the end of the customer journey. Encore turns those declines into revenue by presenting brand safe partner offers that keep users engaged and improve lifetime value. Learn more@encorekit.com to help me discuss this topic, I'd like to welcome Michael Gantz, founder and CEO at Encore. Michael, welcome to the show.
- [01:25]
B
Great. Excited to be here.
- [01:27]
A
Yeah. Looking forward to talking about this with you. Before we dive in though, why don't you give a little background on yourself and your role at Encore?
- [01:34]
B
Yeah, grew up in Boston, went to Harvard and Stanford. I was a consumer founder first. So out of Stanford with a friend, started a AI shopping assistant and that's how I got to understand this whole onboarding, paywall, customer acquisition problem. We started as part of building that AI shopping assistant, building relationships with brands like Disney, Paramount, Hulu and integrating those offers into our shopping experience. And we were making over a dollar a day per user sometimes on these free offers. So offers that didn't require anything out of pocket. And that what inspired us to move to the larger consumer space and say, okay, we're really good at monetizing consumer products. We're not as good at growing our consumer product. Let's help consumer products that already have scale monetized. And so I built sort of all of our offers, our technology, everything we're doing at the paywall that was working, I built it into a product called Encore that's integrated into a bunch of apps now. And the moment I decided to focus on was the moment someone clicks that X on the paywall. And the reason I decided to focus there was because CAC is so high. Everyone knows that. And you've paid to get this person all the way through this onboarding flow. They've gotten all the way to the paywall. They just had maybe second thoughts, they click that X. And what I saw other apps doing is essentially nothing. When someone clicks that X, nothing happens. There's no win back, there's no communication and the relationship's over forever. And I thought we could do something better.
- [03:10]
A
Yeah, love it. So, yeah, let's, let's start there then. And really it's this, you know, as you describe it, this strategic blind spot. Right. So it's, you know, most subscription apps lose over 90% of users at the paywall. So, you know, I guess why is that number? I know, I think we've all been one of those, those 90% at some point. But, you know, why is that number so stubbornly high? And, you know, why don't most growth teams do what you just said and, you know, try to do something about it, try to treat it as a solvable problem?
- [03:43]
B
Yeah, it's a really good question. I think it goes to how teams are structured. So basically, if you're running a marketing team at a, at a big app, there's two types of focus. One is the product. So, okay, how can we make better features when they already have subscriptions? And then how do we lower cac? What's the next viral thing? What's the way to get capped down? What's the best? There's no one on your team who says, okay, 90 plus percent are lost somewhere in this funnel, who's in charge of designing their experience and building the best experience possible? So there's no one assigned to this. There's no one who's tracking this metric every day and obsessed with it. And so it naturally falls through the cracks and it has remained high for a long time. It will continue to remain high, but the fundamental limit is just attention. Right. Like you're putting these ads out there. Someone's looking at this ad for three seconds, they're clicking, they're going through your onboarding in a few seconds. It's very natural that in that five second interval, not everyone is going to be convinced to reach into their wallet. Right, Right. But that doesn't mean that they don't want to pay for your product. It means the first five seconds didn't get them good.
- [04:57]
A
Yeah, well, and I wonder, to that Point is it just kind of assumed that, I mean, maybe not 90%, but maybe you can get to 88%. But in other words, is it just kind of assumed that, okay, we're going to lose 80 to 90% of people no matter what, and that's kind of unsolvable. Is that, you know, is that another reason why these apps are just kind of ignoring it 100%?
- [05:22]
B
Yeah, everyone's had the experience, if you run a consumer company of you have one piece of content that goes viral, all of a sudden gives way lower, you haven't had. That's working really well. So we know CAC is variable to some extent, right? Maybe it averages out over time back to what it was, but we've seen variance in that. And so we believe it's possible to reduce CAC. Right. But if you run a consumer app for 10 years, maybe you've never seen a dent in that number. Like, maybe it's always been 96% every single year. And so because you haven't seen improvement in it, you just believe it's a law of physics. But if you look across apps, it varies dramatically, right? So it's like maybe you haven't seen in the last few years, your numbers change. But look at your peers. They might be doing drastically different conversion numbers than you. Why is that? And so we really encourage every app to, whether they're using our product or not, to just design experiments on the X on the paywall when someone clicks that X have two things in your shine. One is we try to do a push notification. One is we do a text campaign. One is a text with this messaging in that. And the reason why we encourage that is because you start to identify the problems very quickly. For example, no one's opening your text, no one's clicking on your push notifications. Your E out open rate is really low and people are opening the email for two days after the moment they decline. So once you start running experiments around what happens after you click the X, you very quickly narrow in on the core problems that, okay, we're not communicating with these users. We're not getting their attention in the first place. Not to mention our offer isn't good enough. Right. And so when I design our core, I was like, we have to show up right when they click dx. So we show up to 100% of users with our attempt to win you back. And what we do is we say, we're actually going to have Disney plus sponsor the next two months of your subscription or Paramount plus or ClassPass get a free month of Disney plus two months of this app premium. And we found that really compelling. But really, any message that reaches 100% of people to the FX is better than what you're doing now, because probably you're sending an email or a text that no one is opening. Even if it was the greatest message on earth, it's not going to work.
- [07:39]
A
Yeah. Yeah. Well, yeah. And so, you know, in that. In that moment, you know, when a user declines the. The subscription, you've kind of referred to this already. But, you know, it's. It's not even necessarily a firm rejection. It's just, you know, what's the psychology in that moment? And, you know, is there something nuanced that can be, you know, you know, influenced?
- [08:03]
B
It's almost an instinct. Like a flinch. I don't know if you've ever. When I was running a consumer app, I would walk up to people in coffee shops and I would be like, hey, you know, I'm Michael. I'm founder. Can you try my product? And the initial reaction would always be like, some amount of, like, whoa, what's happening?
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A
Right.
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B
And, you know, then it's like, people were ultimately. A lot of people were ultimately comfortable and like, hey, I'd be happy to help you out and try it out. But there's kind of this initial, like, almost like stepping back or like, flinch. I think about that. What happens digitally is just you click the X. It's like, whoa, someone's asking me for money. Click the X. And it's kind of like a reflex that's been built in. And it's a protective reflex. That makes sense. Right? If we didn't have that reflex, we'd have 100,000 subscriptions because we're constantly being bombarded with messaging. Right. So it's almost like people have evolved this natural just no reflex when anything is asking them for money online. And that's what you're running into. It actually has very little to do with your product. They're at the last step of your onboarding flow for a reason. And the reason is because they actually are pretty interested in your product. They kind of like it. They just have this sort of protective reflex. I'll say no for now, and then maybe if I really want it, I'll come back later. And they never come back because they're distracted by really another thing.
- [09:29]
A
Right, Right.
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B
That's what you're running into. And I think founders are very confused by that moment because they think, well, let's just make the best pitch. Have the Best onboarding screens have the best paywall. And then if we don't get them, we lost. It's over. It just wasn't good enough. It wasn't the right user. That's not quite the case. And I'm sure every founder has seen this, right? You've redesigned your onboarding flow 70 million times, you've changed the paywall, and you still have roughly the same numbers saying no. Right. So it's not really a communication issue. It's just I have this reflex right now. I'm not ready to pay now. And we try and basically shift the timing of that and say, okay, fair enough, you don't want to pay now. We're not asking for you to pay anything. We're going to give you a gift. So we're going to give you a free month of class pass, and we're going to give you two months free of premium for our app. So instead of them having that reflex, someone's asking me for money to say no. It's something different. Wow. I have this thing I actually want free month of Audible. I can listen to any book. Lots of a free trial of this product, which I was hoping to try. And so instead of that having that reflex, they're willing to reconsider once it's not like, give me money and it's not in their face. And that's why what we've been doing has been working so well, because when you shift it to, we get. You're not ready to pay. We're going to give you this for free, and we're going to give you something else you want for free. People are very open to that because they do want to try your product.
- [11:00]
A
Yeah. Yeah. Well. And so, you know, given. Given that. That user experience there. So, you know, to your. To your point, you know, someone's ready to. Ready to hit the X and, you know, that thing be. Be out of their lives or whatever. But how do you, you know, how do you. How do you make this feel premium and non, you know, disruptive and, you know, maybe not like an ad that pops up or something. You know, how do you. How do you create that. That optimal user experience that, you know, to your point, you know, converts so well?
- [11:34]
B
Yeah. So when I think about what's wrong with ads. What's wrong with ads is really two things. The, the timing. You usually when you see an ad, it's when you're in the middle of something you want to be doing, you're in the middle of watching a show, you're in the middle of playing a game, and then there'll be an ad that disrupts, takes your attention. It's something you don't want. It's not offering you anything. It's just saying, give me money. Right? So that's ads. And I think people don't like that. What we think of ours is more of like, a negotiation. So we don't show anything unless you've already said, I don't want to pay. So unless you've declined on that, they won't click that X button. And what we're doing is we're saying, greg, I get you don't want to pay. Can we work out some deal? And the deal is try a free trial of any of these products that are products you probably already use and love. Amazon Music, Audible, Paramount plus Disney, ClassPass. Hey, do you want to do any Barry's Bootcamp class this month? We'll cover it and we'll give you our product for free. So it's like a negotiation of saying, I get you don't want to pay. I'm going to meet you where you are. I'm going to give you our product for free. Don't worry about that. And I'm going to give you another gift. Pick out your gift. And so these are not offers that are available publicly. You know, these type of free trials, you know, you can't get just online. It's from a premium brand you already know and probably already use. And it's seen as kind of, you know, a gift, like something free that we're giving you as part of this attempt to convince you to come back. And it's very different than an ad in that way, because when you click the X and you decline to pay, you're not in the middle of something. You're actually leaving. So there's nothing that we're disrupting. And what you're telling us is we don't want to pay. And we're not saying, no, please pay. We're saying, we get it, you don't want to pay. Let's work something out, because you do like this app. You want to use it. We want you to use it, and you don't want to pay. And we understand that. So let's figure out a way to make that happen where you can keep using this app without pay. And so ads are kind of like this disruptive, annoying thing. What we think of ours is using these offers as a form of negotiating and meeting someone where they are.
- [13:52]
A
Well, yeah, and I think some businesses, they try to, you know, as an alternative, they try to offer a steep discount when a user tries to leave. But you know that, that can have a long term, you know, impact on, on the business. You know, what, what is the impact of something like that versus what you're talking about, which is creating a, basically a new value exchange at that moment.
- [14:18]
B
Yeah. So I would say two things. One is discounts don't really work very often and you should test it on your own product if you're a founder. The reason they don't work is because of that instinct that I was talking about that sort of triggered. It's like, oh, someone's asking me for money, click the ax. So if I feel that way, if you say, okay, well, now I'm asking me for half the amount of money, I'm still clicking the X because that instinct was still triggered. So what we do kind of feels very disarming to the user. It's like, wait, you're not asking me for money. You respect it. I don't want to pay right now. That's pretty interesting, right? Yeah, that's what we see works. And I would say discounts train the user to think, oh, they were saying that their product was worth, you know, $10 a month, but actually they'll give it to me for anything. It communicates desperation and fundamentally shift the psychology. They were saying no because they had this reflex of I don't want to pay for stuff. They still have that reflex. So, yeah, we think of it as kind of desperate, not shifting the psychology of the user, fundamentally undermining the value of your brand. And we recommend this, you know, shifting things. And that's what we do with, with our product is we say, fair enough, you, you don't want to pay. Now, I believe in my premium version of my product, and so I'm going to give it to you for free and when you're ready to pay 5. And I'm also going to give you this other thing you probably want just for trying us out. And so it feels generous and confident. It doesn't feel like it's undermining the, the price point of your product because after the free trial funded by Disney plus or Paramount, you're charging the full price. You're saying, my product is valuable. You're going to see that in the end. I just get that you need some more time.
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A
Yeah, yeah. I definitely think the, the immediate, oh, well, we'll take, you know, 75%, 50% of, of what we literally just asked you. It, it definitely devalues the brand. It's like, you know, why didn't you lead with that, you know, with that price or whatever, Right?
- [16:33]
B
So imagine you're sitting in line at Starbucks and you know, the person pays $5 for their latte, right? And then you say, actually, never mind, I don't want to pay, I'm leaving. They say, actually, $1. How's that person sitting there waiting for their latte, watching this interaction going to feel like I'm a sucker? Right? That's kind of how it feels.
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A
Yeah.
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B
Yeah. Whereas if Starbucks says, you know, if you walk away and Starbucks says, here's a free sample, that person who paid $5 isn't gonna, isn't gonna feel bad. It's like, hey, I get, you're walking away. Try a free sample, you might like it and come back next time and want to pay the $5. That feels confident. It feels very different than if you immediately undermine your price.
- [17:11]
A
Yeah, yeah, well, and you know, to, to your earlier point, you know it works, right? So you're seeing re engagement rates around 10% for users who initially said no, which is orders of magnitude higher than the typical win back campaign. So, you know, I know we've talked quite a bit about the psychology behind that, but what are some of the key drivers that you think are really behind that dramatic difference in performance?
- [17:40]
B
Yeah, number one, and I know I talked about this earlier, but I can't emphasize it enough, it's that 100% of people are seeing our win back technique. So when you click the X, we immediately say, great, we're going to give you two months free funded by ClassPass and we're going to give you a month of class pass. Everyone sees that. Whereas any other win back technique, push notification text email, has very low open rates. And you can check it yourself. If you're doing a push notification, probably 1 to 3%. If you're doing an email, probably 15% open rates. The second is timer, right? Like, yes, Your email has 15% open rates. It's better than a push notification. That being said, check. And you know, there are tools where you can check. When are they opening it? Are they opening it right after? Probably they're opening it two, three days later in the middle of a work meeting that they're bored of. They're clicking in and clicking out in one second. They're not even in a mindset where they could come back to your thing and they've forgotten about it. It's been a day, two days, a week. So that's the second thing tied in. We show it immediately, we show it to 100% of users. And then the third piece is that we're not just chasing them on the same thing they already said no to. So they have this instinct, I don't want to pay. It's actually not quite about the price point. So it's really saying, I don't know, I haven't thought about it enough. I'm not ready to reach a wallet. And so other techniques that, like, come back, come back, please pay, please pay, they don't really shift the psychology out of that. It's like, I still haven't had enough time to think about it. Still not ready to pay. Leave me alone. So this whole we actually want to give you premium for free, and we want to give you something else you probably already want for free. It shifts the user psychology in a way that feels real and authentic. It doesn't feel like, please, please, please come back, come back. You know, it feels like. And the messaging is like, hey, ClassPass wants to sponsor your free trial of this product, and they want to give you a month free of ClassPass. Right. So the messaging is, we have these brand partners who will give you this gift. Do you want to play the game? And it's very compelling messaging that shifts them out of that defensive mode.
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A
Yeah, yeah.
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B
So let's.
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A
Let's talk a little bit about the future of monetization here. You know, as subscription fatigue becomes a factor for consumers or maybe a bigger factor for some, how do you see monetization models evolving beyond the, you know, kind of binary subscribe or leave choice over the next few years?
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B
Yeah, I would say first, we're going to see a lot of more modular pressing. And so what I mean by that is, right now, the calm apple says, we have meditations to help you sleep. We have meditations to wake up. We have meditations to help you focus at work, there's going to be a lot more modular packages, which is like, hey, you just went through a breakup. This is $2 to get you through the first two weeks of a breakup. And we do share those meditations with you. And the reason why there's going to be more of these modular pricing is because it's harder and harder to get people's attention. And so communicating to them the value of meditation is a lot harder than, you know, getting a bunch of data on who recently had a breakup, targeting them with an ad about a breakup, and then getting them to say, this will help you through this acute moment of stress. And so a lot of products, just because of the difficulty of communicating the full feature set to their customers. And because of the nature of customer acquisition, where having one modular problem is way more compelling than having a suite of features, we're going to see a lot more of these modular pricing, a low price point for a very limited feature set that's very understandable, but meets people at a moment of pain and gets them to pay. And then sort of you explain the other features later, right? It's like, okay, you're really enjoying these meditations. You feel better after two weeks of the breakup. By the way, how are you sleeping? We have a whole package around that. Do you want to subscribe to that? So we're going to see a lot more of those sort of modular pricing models. The second thing is, and this is where we are, we're going to see a lot of brand sponsored trucks. So this brand will pay for you to use on a product if you do a free trial of theirs. And a significant percent of subscriptions, we think are going to actually be sponsored by another subscription or another brand. And the reason for that fundamentally is because costs of customer acquisition are just rising exponentially for every subscription product. So instead of continuing to just hammer on TikTok and Meta and pay exponentially rising tax, subscription companies are going to start to work together and say, hey, I'll sponsor your folks, you sponsor mine. We both have lower CAC and it helps everyone. So I think that's a trend that we're playing in, but we think that's going to expand a lot. And I think a third final trend we see is, you know, there's going to be a lot more subscription economy startups that say, okay, we need to be, you know, we used to work outside of Meta, TikTok, Google, because we're seeing exponentially rising costs. So we need to explore other ways of acquiring customers for our subscription product outside these channels. And I don't know exactly what those channels are going to be, but I mean, everyone's seeing it, right? Like, look at your CAC three years ago, look at your CAC today on TikTok or Meta or Google, it's probably double or more. Are you making twice as much in lifetime value per user than you were three years ago? Probably not. So you're going to have to try to look to creative ways to fire customers outside those three main channels. And I don't know exactly what those channels are going to be. Maybe it's a product that is not invented yet, but I think it's inevitable that it's going to happen.
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A
Yeah, yeah. Love it. Well, Michael, thanks so much for joining today. I got a couple last questions as we wrap up here. First one, if we were having this interview one year from today, what is one thing that we would definitely be talking about?
- [23:44]
B
Yeah, I think what we're talking about is the supply side of people trying to get your attention is in a year from now it'll be 10x the number. It's so easy to make an app, so easy to make a website. This first thing you do after you make an app is I need to get people's attention and do ads. So we're going to have 10 times as many apps and subscription products vowing for attention and making content is way cheaper than before. Right. You know, you can have an AI influencer for one set, you can make tons of content. And so the, the, a number of people who want your attention, the number of techniques that trying to get your attention, it's all vastly increasing. But the, the ways to get your attention are still TikTok, meta Google. And so as much as we've seen CAC rise over the last years, it's going to be way worse in a year. It's going to be sort of this crisis of cac. But every marketing person is feeling at a very acute level and it's going to be way harder to get people's attention than ever before. It's going to be way pricier. And every marketing person is going to be being pushed by their CEO. You have to fix this, right? They're going to treat it as your problem as a marketing person. Why is hack exploded? Greg, you just took over this position a year ago. We've seen CAC rise. You know, free X, like that's the opposite of what we wanted you to do. And so every single marketing person is going to be under insane pressure in a year from their boss to fix this problem.
- [25:12]
A
Yeah, yeah. And so last question for you here. What do you do to stay agile in your role and how do you find a way to do it consistently?
- [25:21]
B
Yeah, for me, my morning meditation is something that's important. I think the second you go into Slack, when you're writing a startup, there's a million problems and things you're fixing and it's very easy to. This is wrong and this needs to be better. And so I like to have one space where I'm focused on gratitude, what's right in my life. And I think when you're running a startup, the mindset and the attitude and the energy you bring is really important, Right? Even if there's a crisis and a problem and an issue, fundamentally, you need to bring that energy of I'm okay, we're okay, things are actually good in the world. And that enables you to be creative, to be optimistic, and to get to that solution.
- [26:07]
A
Yeah, Love it. Well, again, I'd like to thank Michael Gantz, founder and CEO at Encore, for joining the show. You can learn more about Michael and Encore by following the links in the show Notes this episode is brought to you by Encore, an iOS SDK that helps subscription apps monetize paywall declines. More than 90% of users decline a subscription paywall, and most apps treat that moment as the end of the customer journey. Encore turns those declines into revenue by presenting brand safe partner offers that keep users engaged and improve lifetime value. Learn more@encorekit.com and thanks again for listening to the the Agile Brand podcast. If you like the episode, hit subscribe and drop a rating so others can find the show too. And if you're interested in consulting, advisory work, or if you need a speaker for your next event, feel free to reach out. Just visit GregKilstrom.com that's G R E G K-I H L S T R O M.com the Agile brand is produced by Missing Link, a Latina owned, strategy driven, creatively fueled production co op. From ideation to creation, they craft human connections through intelligent, engaging and informative content. Until next time, stay curious and stay agile.
- [27:25]
B
The Agile brand.