By: Matt Lindsay
President Mather Economics
A few years ago, in 2014 to be exact, I wrote a post about what publishers should be doing to transform their businesses to a new multi-platform business model. Many of the tasks mentioned in 2014 remain the same in 2018, but a few have changed in light of new innovations and best practices. An updated list is presented in this post.
It should be noted these items apply to both print and digital products. We believe the discontinuation of print editions is not a foregone conclusion, and they can remain profitable components of the long-term news media business model.
1. Use targeted subscription pricing. Many of you know Mather Economics for our work in this area, which we call market-based pricing. Just as airlines sell tickets at different prices, publishers should not have the same price for all subscribers. Individuals vary in their ability and willingness to pay for your products. Forcing one common price on all subscribers overcharges customers that are not able, or are not willing, to pay the stated price, which will cause them to stop their subscriptions.
The one-size-fits-all price undercharges some customers that are willing to pay more and overcharges others who would subscribe at a lower but still profitable price point. Price elasticity declines over time as subscribers become more engaged and loyal to your product. Age and income groups are also correlated with price elasticity as are interests and online behaviours. Targeted subscription pricing should also reflect the different advertising revenues and costs to serve subscribers.
2. Measure operating margin by current and potential customer. Knowing which customers are the most profitable enables publishers to focus on acquiring and retaining these individuals. Print customers living in areas with high density close to the distribution facility cost less to serve than others in low-density, far-away locations. Similarly, customers who are often targeted by advertisers, both digitally and in print, yield much more revenue than those who are not.
Combining these variable revenue and costs with expected retention by customer to determine the expected operating margin will show significant variance between high-profit and low-profit customers. Advertising that is targeted (often called zoned in a print context) is growing in share of total advertising. Understanding what parts of your audience are most important for advertisers is vital to improving profitability.
3. Estimate propensity to subscribe by customer. Customers have significant variation in their likelihood of subscribing to your product, particularly the digital version. Making sales attempts to all customers in the same way, and at the same point in their digital consumption path, is an inefficient use of resources. It also creates a big opportunity cost in lost digital advertising revenue. Combining propensity to subscribe with customer operating margin enables the most effective targeting of acquisition campaigns.
4. Understand what content you are publishing that your core audience is reading. Data on audience content consumption is an incredibly valuable resource publishers are using to transform their digital and print products. Creating more of the content that is valuable to your most loyal audience has been found to increase engagement, customer retention, and customer revenue.
Content can have economic value from audience revenue, either from acquisition or retention, and advertising revenue. In the case of investigative journalism, the value can come from brand building, which connotes value and trust to other content. Case studies from Amedia on Norway and Fairfax in Australia are good examples of product innovation supported by audience consumption data.
5. Capture the right data on your digital and print business. Publishing across platforms, including print, mobile Web, standard browser, native application, and tablets is a data-intensive business. Publishing has always been a platform business, acquiring an audience in order to sell advertising, and it will continue to be so in the digital age.
The changing competitive environment created by the ubiquity of Internet connectivity means margins will be thinner, requiring publishers to understand where they can earn profits. Understanding your audience and your advertisers is critical to running a profitable publishing business. When deciding what data to capture, start with the end in mind. How are you going to use this data in your business to make money?
6. Right-size your operations for changing business levels. Understand how many advertising sales people you need, how to configure your delivery operations, and how much to spend on editorial. Outsourcing can remove costs from your organisation or turn fixed overhead into variable costs that will change as business increases or decreases. Benchmarking your organisation against others of similar sizes and operating structure can help guide staffing, outsourcing, and other operating decisions.
7. Apply yield management pricing tactics to advertising inventory. Advertising inventory is perishable. Once the newspaper has been printed or the Web page loaded, the inventory is gone forever. There are differences in the nature of advertising inventory relative to airplane seats or hotel rooms, notably that the product can change to accommodate more or less demand, but the principles of revenue management can be applied. Knowing which inventory has value to advertisers enables differentiated pricing by customer segment.
Today more than ever, marketing is driven by targeting. Advertisers want measurable results, meaning incremental lift in sales, from their marketing investments. Offering audience targeting and performance measurement will increase the revenue publishers can earn from their inventory. In our experience, the sophistication of pricing analytics for advertising inventory remains an area of opportunity for publishers to improve business performance.
There is much greater innovation and transformation taking place in 2018 than there was in 2014. I am optimistic that the next post in this series, to be posted around 2022, will reflect the state of the industry as one of optimisation and growth instead of dramatic transition.
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