By: Matt Lindsay
President Mather Economics
The use of premium days as a tactic to grow audience revenue has caused customer relationship issues, and many publishers are seeking ways to maintain the revenue while moving away from the practice.
What are premium days?
“Premium days” refers to the delivery of premium products to home delivery subscribers that were not requested by the customer. These products can include puzzle books, emergency preparedness plans, sports season previews, and historical summaries, among many other items. They often have a cover price of US$3 to US$5, but customers are usually charged less than the list price.
The charge is deducted from a customer’s paid balance, and this extra charge shortens the length of their subscription. Most customers do not recognise the shorter term, so the revenue is essentially “free.”
The practice started several years ago with publishers charging a Sunday rate for the newspaper delivered on Thanksgiving, a holiday that falls on a Thursday in the United States. Publishers began charging customers a Sunday rate for the Thursday Thanksgiving newspaper due to the size of the newspaper, which kicks off the traditional holiday shopping season and is full of advertisements.
The success of this practice in generating incremental revenue from home delivery subscribers led to other days being designated “premium” deliveries with new products created for these days. What started with a single day per year has now become more than 20 days in a year for some publishers, which has caused substantial incremental costs to subscribers and confusion over when their subscriptions expire.
Why not just raise the subscription price?
The practice of premium days has grown in recent years while publishers were also raising subscription prices substantially in the United States. The perception is the incremental revenue did not have the same risk of subscription loss as additional price increases, particularly when subscription prices were already increasing. So the tactic was widely adopted and expanded.
The other reason it was attractive to publishers was the amount of revenue is recognised immediately. Each premium day yields a few dollars from each customer on the day the premium product is delivered. A traditional price increase yields incremental revenue when customers reach the end of their subscription term and begin receiving newspapers at the new price, which is usually a few cents higher per day.
The amount of revenue received for these premium deliveries can be significant to total home delivery revenue, which makes removing these premium days from the budget difficult.
What to do now?
Publishers have a few options to consider for replacing premium day revenue from their home delivery subscribers.
1. They can raise the subscription prices to offset the lost revenue. This is the easiest to implement, and these increases can be applied to subscriber segments using targeted pricing actions to minimise price-related losses.
The challenge with this approach is it often requires combining revenue from the premium days with revenue already being sought from a price increase. This can cause the average price increase to be substantial. For instance, if a 10% price increase is needed to generate sufficient revenue to offset premium days, and the publisher had already budgeted a 20% price increase, the total change in prices will average 30%.
2. Publishers can adjust expiration dates to reflect the accurate expiration date with the premium day charges included. This minimises the customer relationship issues by being explicitly clear on what amount of service the customer is purchasing with her subscription.
3. Publishers can shorten the customer’s subscription term while raising the subscription price. The shorter term will offset the higher price per week, so the total bill amount will change less than the average increase in price.
For example, if a customer’s subscription term is shortened from 13 weeks to 10 weeks (a 23% reduction) while the price is increased from US$2.00 to US$2.60 per week (a 30% increase), the bill amount will remain $26 (13 weeks * US$2.00 = 10 weeks * US$2.60.) The customer is notified of the change in subscription length at the time they pay for their subscription renewal, and customers are often given choices of different subscription lengths on their renewal notices.
The answer is: It depends.
As economists like to say, the right course of action depends on your particular circumstances. Do you have a large home delivery price increase planned this year? What billing options does your circulation system support? How effective is your customer service operation? These are all relevant factors to consider.
Moving away from premium days toward an opt-in form of premium product is a tactic used by several publishers, notably Newsday on Long Island. The company does not charge for the opt-in products but delivers them for free to existing customers.
Newsday has found customers who opt-in to premium products have a higher retention rate than similar customers who did not opt-in, suggesting these premium products are valued by customers who receive them. This added value will be reflected in the higher revenue received from these customers over time, which makes the “free” premium product a profitable endeavour.
Notification of the premium days at the point of acquisition solves many of the customer service issues. Having clear expiration dates also avoids many of the customer pain points. For our current customers, Mather Economics can help devise a plan for reducing the revenue from premium days in a manner that reduces the risk of volume or revenue losses.
It may not be necessary to move entirely away from premium days. How you execute the strategy is important to keeping strong customer relationships. As everyone likes to say, the devil is in the details.
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