The Preference Formation Playbook: Why Successful Subscriptions Shape Taste, Not Chase It
Strategic intelligence for media leaders who need to act, not just read about innovation
David Kreps spent decades watching economists assume consumer preferences were fixed laws of nature. His 2023 research "Arguing About Tastes" systematically dismantles that assumption with mathematical precision.
The work matters for publishers because it explains why subscription strategies that look identical on paper produce wildly different results. Some publishers chase existing demand through price optimization and content tweaks. Others systematically expand demand by shaping what readers actually want.
Most subscription advice focuses on the first approach. Kreps' research reveals why the second approach works better.
The Mathematics of Changing Minds
Kreps formalizes preference formation through a deceptively simple equation: P(t+1) = f[P(t), Behavior(t), Context(t), Identity(t)]. Preferences tomorrow depend on preferences today, recent behavior, environmental context, and identity considerations.
Traditional economics assumes the function stays constant—you either want something or you don't. Kreps demonstrates the function itself changes based on experience and context. The implications cascade through every subscription decision.
Consider how this plays out practically. Reader A encounters a paywall after consuming free content for months. Reader B encounters the same paywall after engaging with newsletters, creating an account, and building a consumption routine. Identical price, identical content, completely different psychological contexts.
The math suggests Reader B's willingness to pay has been systematically shaped upward through experience design. Reader A's preferences remain unchanged—and probably negative after hitting an unexpected wall.
Three Mechanisms That Drive Preference Change
Context shapes value perception in real-time. Social environment, visual design, and situational factors actively alter what people value rather than simply revealing existing preferences. The same subscription offer generates different responses depending on surrounding signals about community, quality, and social proof.
Behavior creates identity, which reinforces preferences. People infer their own tastes by observing their actions. Someone who subscribes doesn't just access content—they become "the type of person who subscribes to quality journalism." This identity shift creates psychological pressure for continued engagement that pure content access cannot match.
External incentives can backfire through motivation crowding. Kreps' models show that over-reliance on discounts and promotional pricing can actually reduce intrinsic motivation. The "overjustification effect" helps explain why subscription services focused primarily on price competition often struggle with retention compared to those building value around identity and mission.
The Psychology Behind the Numbers
Kahneman and Tversky's prospect theory reveals systematic patterns in how people evaluate subscription decisions. Loss aversion means people feel the pain of losing access approximately twice as strongly as the pleasure of gaining it. The endowment effect amplifies this—once someone feels ownership of subscription benefits, cancellation becomes psychologically costly even when rationally justified.
Mental accounting research adds another layer. Richard Thaler's work shows people treat identical money differently depending on source and intended use. A subscription framed as "professional development" competes against training budgets rather than entertainment spending, potentially accessing higher willingness-to-pay despite identical content.
Annual subscriptions leverage these insights by consolidating twelve painful monthly payments into a single transaction. After that upfront cost, the service feels "free" during consumption—temporal separation of payment from usage increases satisfaction compared to models where costs and benefits coincide.
Choice architecture research reveals how presentation format fundamentally alters decisions. Default options get chosen 80-90% of the time even when switching costs are minimal. Initial price exposure strongly influences subsequent value assessments. Social proof signals provide powerful decision-making shortcuts, particularly when the reference group appears similar to the potential subscriber.
How Identity Economics Changes Everything
George Akerlof and Rachel Kranton's identity economics framework shows consumption decisions serve signaling functions beyond direct utility. Financial Times subscribers don't just read business news—they become "FT readers," communicating professional sophistication to themselves and others.
This identity formation creates retention dynamics that content quality alone cannot achieve. When subscription becomes part of personal identity, cancellation threatens self-perception in ways that rational cost-benefit analysis misses entirely.
The Guardian's voluntary contribution model succeeds precisely because it positions payment as identity expression rather than content access. Supporters don't just fund journalism—they join a community defending quality journalism. The identity benefits can exceed direct content value, explaining how voluntary payments generated more revenue than traditional subscriptions for many publishers.
Observable Patterns in Practice
The New York Times evolved from simple metered paywall to comprehensive digital bundle, demonstrating systematic preference expansion. Digital subscribers now spend majority app time on games rather than news, revealing how non-news content shapes reader identity beyond information consumption.
Financial Times uses machine learning to identify behavioral patterns that predict subscription likelihood better than demographic assumptions. Their AI-powered personalization generated 6% ARPU improvement by discovering conversion opportunities that editorial instinct missed—often readers engaging with content editors hadn't marked as premium.
Denník N's recent anniversary campaign provides perhaps the clearest example of preference formation psychology at work. The Slovak publisher spent months researching reader needs, ultimately crafting 10 specific promises about strengthening democracy and making journalism more accessible. The campaign offered a radical "pay what you want" trial—including €0.
The results contradicted traditional subscription logic. Despite the free option, 78% of new subscribers chose to pay an average of €4. More remarkably, 72% continued paying after the trial ended—far exceeding typical retention benchmarks.
The campaign succeeded because it positioned subscription as identity formation rather than content access. Readers didn't just get news—they joined a movement to strengthen Slovak democracy. The 10 promises ranged from unlocking archives to providing free subscriptions to first-time voters, creating psychological ownership of a mission larger than journalism consumption.
The psychological mechanisms align precisely with preference formation theory. Context shaped value perception through mission framing. Behavior created identity as subscribers became democracy advocates. Social proof amplified through existing subscriber advocacy. The correlation between technological competence and subscription success suggests something systematic rather than coincidental.
The Implementation Reality
Understanding these dynamics requires moving beyond tactical optimization toward systematic experience design. Registration walls capturing first-party data multiply conversion effectiveness by 10x compared to immediate paywall encounters. The staged approach leverages commitment escalation—small initial commitments make larger ones psychologically easier.
Progressive engagement ladders transform anonymous visitors into community members through deliberate stages: email signup, registration, freemium access, paid subscription, community membership. Each stage includes specific triggers optimized for natural conversion points rather than arbitrary time limits. This is also not the only strategy that can be formed, and similar ideas can be implemented with membership or donation drives.
The publishers seeing sustainable subscription growth share common patterns: they treat reader relationships as strategic assets to develop rather than fixed constraints to optimize around. They invest in preference formation rather than preference satisfaction. They understand identity creation often matters more than content access.
The Strategic Choice
Publishers increasingly face a fundamental decision about their role in preference formation. Some treat reader tastes as unchangeable facts to work around through better targeting and pricing. Others recognize preferences as dynamic systems they can influence through systematic experience design.
The research suggests the second approach creates more sustainable competitive advantages. Preference formation compounds over time rather than depleting with use. Identity-based subscription relationships prove more resilient to competitive pressure than purely transactional ones.
Whether this insight translates into practical strategy depends on organizational capability and cultural willingness to invest in longer-term relationship building over shorter-term conversion optimization. The tools exist. The question is execution.
In the next few weeks I’ll be looking deeper into what kind of strategies news organizations employ and how successful they are with them.
Ali Mahmood
Understanding pricing remains a key ingredient, and I recommend the 2025 European Digital News Pricing Report by the Center for Sustainable Media for a comprehensive understanding of trends in Europe. If you would like a trial paid subscription to this newsletter, get in touch. First come, first served. Limited availability.
I’ve compiled a comprehensive AI Learning Guide for Journalists with courses, resources, and practical implementation strategies. Feel free to reach out with questions or suggestions also.
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