Pricing strategies

Philip Preston, marketing director of Archant Norfolk, has done extensive research into cover pricing. Here he summarises his findings whilst focusing on his flagship title – the Eastern Daily Press.

By Philip Preston

In general, over the past seven years all Archant Norfolk titles have increased cover prices in real terms. The Eastern Daily Press (EDP) in particular has followed an aggressive policy of product improvement and premium pricing during a time when some national newspapers, notably the Times, have reduced prices. Our last wave of cover price increases introduced during 2003 contributed significantly to the company's improvement in bottom-line profitability.

Since 1996 the EDP has seen many cover price changes, including the introduction of differential pricing. Originally Saturday carried a 5p premium over the other days of the week, but in 1999 three price points were introduced: 40p Monday to Wednesday, 45p Thursday and Friday and 50p Saturday. In February 2003 early week prices were brought into line with Thursday and Friday (during the week all issues are now priced at 45p) and in July 2003 Saturday was increased by 5p to 55p. The retail trade welcomed a return to a two tier pricing structure. Overall the percentage increase in cover price for the EDP since 1996 is 21.5% for Monday to Friday (or 3% per year) and for Saturday 48.5% (or 7% per year). Over this time period the EDP circulation has outperformed the majority of regional morning titles.

EDP and the nationals

Successive consumer research projects support the premise that the EDP occupies a different market segment to the national dailies and rarely competes directly. However, the pricing strategies of national newspapers may have an impact on the EDP in three areas:

1. Where consumers have a propensity to buy both a national and local paper a price rise by the national title may, ironically, create a "moment of truth" for the EDP. Which one would have to go if household budgets are tight, the national or the local?
2. A price reduction by a national title, either long-term or a short-term tactical promotion, does not lead to any significant switching from one title to another. Instead consumers will tend to buy that title more frequently or expand the range of titles they purchase. This could be deemed to be an opportunity for the EDP.
3. The combination of cover price, trade terms and volume of copy sales will have a direct impact on the level of support the retail trade will give to any particular title or publisher. The EDP has a premium cover price, competitive trade terms and high sales volume so competes well for shelf space with the nationals.

The quality broadsheets are significantly more expensive than the EDP whilst the EDP is more expensive than the mid-market titles and the red tops.

Price sensitivity

In the early 90s the Newspaper Society commissioned the Henley Centre to create an econometric model to identify the key factors impacting on the sales of regional daily newspapers. The Henley Centre discovered that there were relatively few. For morning newspapers the factors were: increased affluence (positive effect), cover price (negative), recession (negative) and social factors – such as lifestyle (negative). For evening newspapers the factors were: increased affluence (positive), cover price (negative), recession (negative), social factors – such as lifestyle (negative) and competition by free newspapers (negative).

For both sectors the biggest impact was felt from pricing and social factors. The Henley Centre went on to examine what successful newspapers had done to buck the general downward trend. Again the results were predictable but nonetheless illuminating. Successful newspapers typically had:

* Long-term investment – such as access to full colour, high-tech printing facilities, technology to editionise extensively and flexibility on deadlines, low staff turnover and stable editorial/managerial structure, long-term perspective and an open mind.
* Value for money – higher story count, colour, high minimum pagination, high number of supplements, extensive editionising, good physical quality.
* Editorial – as above plus extra pagination, focus on life-style issues, general disinclination to include long, in-depth articles, supportive of local communities but not aggressively campaigning.

The influence of advertising and promotions were less obvious but these are all activities that regional newspapers typically find hard to measure, so the jury remained out.

The UEA Study – short-run model

In 1999 Archant commissioned the University of East Anglia (UEA) to undertake a project to build an econometric model specifically for its four daily titles. A wide range of data was fed into the model but again only a few factors were found to have a statistically significant short-term impact. They were cover price, content, weather, football results, lateness and purchaser’s previous buying behaviour.

All four titles were found to be relatively price inelastic – in other words the loss of revenue due to lost sale from a price increase is less then the overall gain in revenue.

There is a very strong correlation between the insertion of supplements and sections and increased sales. This is consistent with the Henley Centre findings. The other factors having an impact are less under our control.

Not apparent from the econometric model, because its occurrence is too infrequent, is the impact a major national or regional story can have on sales. September 11th, the Holly and Jessica murders, the Queen Mother's death and, last but not least, Norwich City winning Division 1 in 2004 are prime examples of this.

Significant for their absence are a number of factors that were fed into the model but were found to be too inconsequential to report. National newspaper sales had very little impact. It is known that sales promotions have a short-term effect on sales only. Sales return to pre-promotion levels once the promotion is over. By capturing data from the responders to a range of promotions we have confirmed that well over 90% of entrants will already buy their paper six-days a week. As for advertising – experience suggests that there is some uplift when the EDP advertises on Anglia TV but generally there was little evidence of radio advertising impacting on sales.

Softer issues

Some of the softer issues which have a significant impact on sales, but which cannot be quantified and fed into an econometric model, have already been identified by the Henley Centre. Our own experience suggests major product innovations, for instance new supplements or sections, have the biggest positive impact. Tinkering around with the design and masthead, however, is a waste of time unless this is part of a major repositioning strategy.

Elements of price

The cover price we charge consumers for our titles is only one element of price that we can attempt to influence. From a consumer perspective the total cost of their newspaper may include: home delivery charges, price incentives, both on home delivery and casual sales and subscription discounts. In addition, the trade will have a vested interest in both trade discounts and carriage charges.

Home delivery charges

This is a contentious issue. Publishers want delivery charges to be set at the lowest possible level to retain and acquire more home delivered customers. However, from the retailers’ point of view delivery is an expensive service to provide and delivery charges must at least cover direct costs. Some retailers, particularly the multiples, even see delivery charges as a profit stream. The consumer is happy to pay a delivery charge provided the service is comparable to the price they pay – both in terms of product quality and delivery service.

Price incentives (incl. vouchers)

These only have a tactical role to play, either as an incentive for someone to sample the paper or trial home delivery. Both types of incentive are treated as a promotional cost. There is no financial benefit from reducing prices in the long term. The EDP is price inelastic which means that although some uplift in sales could be expected this would not offset the loss of revenue.

Subscription discounts

Most publications offer pay-in-advance subscription discounts, including the quality national broadsheets. We have recently introduced subscriptions into our "canvassing" campaign, but we are treading very carefully. We are only offering a limited subscription saving to existing purchasers who buy their newspaper four days a week or less. The major "cost" of the offer is a one-off gift. The danger with subscriptions is that existing six-day purchasers are the most likely to want to move to a pay-in-advance deal. This would reduce revenues without adding anything to sales. Unless we could generate incremental revenue from the subscriber database this would be commercial suicide.

Company objectives

Cover price strategy can't be created in isolation from the overall objectives of the company. If an objective is to maximize profits in the short-term then a guaranteed way to generate profit growth is to "milk" the current product portfolio by accelerating cover price increases over the next three years. This though would have a detrimental effect on sales and ad sale revenues. Do we want profit now or profit later? The answer is both; we just need to strike the right balance.

Product life cycles

The newspaper market is mature in more ways than one and generally most newspapers are in the latter stage of their life cycle. However, although in the latter stages of "life" they can provide a steady profit stream for many years. In the longer-term, a more measured approach to cover prices is more likely to deliver the desired circulation and advertising revenue growth.

The cover price has no relevance in isolation. It is only one of the two key elements of value – the other is actual or perceived quality. The EDP in particular is an excellent example of a product that delivers high quality relative to the competition - consequently we have been able to introduce a premium pricing strategy successfully. All our paid-for titles are leaders in their respective markets and have little direct competition apart from each other. However, competition for the personal time that newspapers occupy is hotting up, particularly for the younger non-newspaper reading population. Any review of pricing strategy has to be done in the context of prices in general, and in particular regional and national newspapers. The best opportunities for increasing cover prices without sparking a sales decline is by adding value.