The Price is Right: Consumer Insight and Advertising Pricing in a Challenging Market

Publishing margins are under pressure. The current economic downturn is driving rapid and sizeable cuts in advertising budgets, and the structural change caused by the transition to digital continues to reduce print revenues. Simply promoting online platforms and cutting costs is not likely to be enough to bridge the growing profitability gap.

In this environment, publishers must think very carefully about one of the most direct levers on their bottom line: pricing. It is not always easy to articulate clear pricing strategies. Advertisers’ perceived value of print and online advertising inventory is often less than obvious – especially if they believe they are getting a good deal!

The link between consumer insight, advertising and pricing has always been important for publishers. Never more so than now as more data becomes available through surveys and online analysis, and more pressure is placed on pricing in the deepening recession. Developing a clear pricing strategy, and executing on price, can protect margins in the short-term and establish a foundation for future price rises that will ‘stick’. But it is far from easy to achieve.

Deriving Value from Consumer Insight

Media consumption has been changing for the past decade and more, but, as the Sun Online enjoys its highest usage and the Chicago Tribune files for bankruptcy, the rate of change – and the impact on publishers – has never been more apparent. It is, therefore, crucial to understand how print and online readers are changing and the variations across different demographics that are often assumed but seldom measured. Communicating such reach and response to advertisers reinforces the value of the advertising spot in print or online.

The daily readership of newspapers is 1.4 billion people globally, but in the UK, as in most Western countries, circulation declines have become depressingly common. A recent Deloitte survey found that UK consumers now spend just 2.4 hours per week reading printed newspapers, and 1.8 reading magazines. When compared with television viewing, at an average of 16.3 hours per week, browsing the internet (8.7 hours) and even reading books (4.2 hours) the challenge of selling print advertising at top dollar becomes very clear.

Moreover, it has long been clear that newspapers are heavily supported by older readers. We found that those aged 62-75 typically spend over four hours each week reading the newspaper, while those under 25 spend no more than 1.4 hours leafing through broadsheets and tabloids. Interestingly, this pattern is repeated, but much less pronounced, among magazine readers, where the older demographic spends almost two and a half hours with the medium, but teenagers spend less than half as much.

To add a little more doom and gloom, the proliferation of free content – both physical and online - is making it more difficult to create products for which readers will pay. The consumer is taking increasing control over content consumption, creating a shift from publisher controlled content "push down" to consumer controlled "pull down". However, this cloud has a silver lining. More engagement from readers, combined with more methods for measuring their engagement, is leading to a relationship with individual consumers, creating more immediate communications between content producer and reader, and allowing more targeted advertising – most notably, of late, in the form of behavioural targeting.

Advertisers themselves are, of course, under significant budgetary pressure at present. They are, and should be, scrutinising effectiveness more than ever, looking to invest more in media that are proven to work, and shying away from those that bring lower returns on their investment. Some advertisers are now spending less and demanding more – if not more impact, at least more measurement. Online statistics, while flawed in many ways, can deliver greater insight than has been available before, and print, by comparison, may suffer.

However, the print medium is fighting its corner. Examples, such as HP’s partnership with Publicis, include successfully placing mobile barcodes in select newspapers to provide consumer insight and information for targeted advertising. Such insight helps demonstrate advertising effectiveness and substantiates the value of the advertisement – an important input into testing whether the price is right.

Getting the price right

Understanding advertiser needs is the first step to capturing the full value of an offering relative to competitive alternatives. Armed with this knowledge, publishers need to articulate a clear pricing strategy, one which will:

* Be consistent with overall business objectives;
* Establish competitive differentiations in the market;
* Use consumer value as the primary driver of pricing decisions; and
* Link pricing strategy with product portfolio management.

The business strategy should drive the pricing strategy. Today in this challenging economic environment, it is important not to sacrifice yield to get volume. Intelligent packaging and awareness of the value of the online proposition is key to retaining yield. The pricing strategy should aim to maximise profitability across channels by providing a lower cost offering through the web, managing agency margins, and capturing a premium for specialist sales support.

A publisher also needs to consider the long-term vision for its print and online businesses. The pricing decisions made now will not only impact the bottom line today, but also influence the profitability of the future business. Some companies decrease print advertising prices in an effort to increase advertising volume, but end up increasing volume only slightly and decreasing print yield further. Other publishers maintain high online prices to prevent loss of print advertising revenue to the internet or offer very low online rates to establish internet presence. Artificially high online prices will only drive advertisers to switch to lower cost providers and undervalued online rates erode margins. Online prices that are too low in comparison to reach also impact the ability for yield to be optimised. In all these cases, price is not aligned to customer value.

The price should reflect the value of an audience to an advertiser. However, it is important to note that an advertiser’s perceived value of an offering is not necessarily the same as the value delivered. Although response tracking has come a long way, advertisers often have preconceptions about the value of print and online advertising products. By understanding audience characteristics and behaviour by segment or product, publishers can effectively educate advertisers on the spot or display products that will meet customer needs and offer pricing models (eg. fixed rate, cpm, cost per click, cost per action) that will generate the highest yield.

Translating price into optimum yield – effective price execution

Mastering the pricing discipline is even more important in an economic downturn. Companies tend to shy away from price increases or even reduce price in an effort to protect revenues. When businesses understand the value of their assets, they are able to successfully implement targeted price rises in line with the value delivered to customers.

The pricing strategy sets the structure for profitable growth or yield retention, but the real impact on the bottom line depends on a company’s ability to manage price execution. From experience working with our clients, price management benefits are estimated to be 200% to 350% ROI in the first 12 months and generate 2% to 5% margin increase. Effective price execution is driven by defined policies and processes that govern profitable decision making on an operational level. There are a number of things publishers can do to get the most value from their inventory and execute price effectively:

* Provide accurate and readily available customer information to the sales team to support informed pricing decisions;
* Develop pricing guidelines and processes to enable quick pricing decisions;
* Target the sales force on performance metrics that reward profitable sales; and
* Establish ownership of price performance management within the business.

In selling advertising, remember that a simple yet tailored offering is always better. While bundled product offerings and complex rate cards can reduce price transparency in the market, they can also lead to unprofitable pricing decisions if the sales force does not have the right information available. Analysis of transaction-level margin performance reveals the best customers from a profit perspective are not always the highest revenue customers. Improved visibility on the value of the customer and their sales history enables the sales and account reps to make profitable decisions at the time of negotiation. Understanding which customers are most profitable and why, also helps the sales team focus on growing these accounts and improving the less profitable accounts by reducing cost to serve or raising prices.

With the right data to hand, one action will have the single largest impact to the bottom line: targeting the sales team on yield. Sales behaviour is driven by remuneration, and introducing print and online yield targets raises awareness of profitability and motivates the sales team to close profitable deals. Many organisations also establish a pricing manager or pricing team to manage price performance. Responsibilities of the pricing function include establishing and enforcing pricing policies, aligning print and digital pricing strategies, tracking price performance, and leading pricing improvement initiatives. Our clients have found these actions create a more pricing-centric organisation and help management improve profits, even in a recession.

Conclusion

At a time when cost cutting is a key focus for publishers, we should consider very closely the margin benefits that can be derived through improved pricing. Tightening the pricing policy and the discount protocol in ad sales is crucial to retaining yields. Finding effective print and online packages for advertising can also generate value. And let’s not forget the importance of communicating the perceived value and effectiveness of your media to advertisers – it’s more important now than ever. Give your ad sales teams the tools they need to be effective, including the knowledge about your readers and the effectiveness of your ads. Are your prices right?