Managing Price
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Case Study: Subscriptions

Newspaper was thinking of a $0.40 per week increase in pricing since they had not had a 7 day increase in 4 years. K Group recommended a smaller increase that produced $1.4 million in incremental revenue and no loss in circulation. If the client had increased prices $0.40 per week as planned, they would have lost 29,000 in circulation and lost $2.5 million in revenue. The net gain to the client was $3.9 million ($1.4 mm gain versus a $2.5 mm loss)
The return: 48x investment

Situation: Newspaper was converting to office pay and was concerned about losing circulation. The GM believed that the market would sustain a rate increase, but shared the concern of the circulation department regarding the 30,000 remaining carrier collect subscribers. A new subscription term was added which was more appealing to carrier collect households and the rate was lowered for two of the original four subscription lengths. Circulation grew by 5000 copies (2%) in the face of a rate increase while circulation revenue grew by 7%.
The return: 27x investment

Situation: Newspaper had 7-day and Sunday-Only subscriptions. The publisher was opposed to any type of weekender product for fear of 7-day cannibalization. The Circulation Director had been unsuccessful over his 4 year tenure in convincing his boss to adopt a weekender product.

We found that the publisher was correct in his fear of the weekender subscription. Based on current 7-day and Sunday-Only subscription rates, the range of acceptable prices for a 3-day introduction was very narrow:
1.) Weekly rate at which Ex-7-day Subscribers would prefer a 3-day: $2.35/wk or less
2.) Weekly rate at which Current 7-day subs would switch to 3-day: $2.75/wk or less
3.) Weekly rate at which current Sunday-Only would switch to 3-day: $3.00/wk or less

K Group recommended that the 3-day rate had to fall between $3.00 and $2.75/wk, otherwise cannibalization of current 7-day subscribers would offset the gains of a new 3-day subscription type.

This strategy predicted an increase of 15,000 weekenders with less than 2,000 7-day subscriptions cannibalized. To date the paper has achieved a 12,000 increase in 3-day subscriptions with losses of about 1,200 7-day subscribers. The net increase in Sunday circulation (over 10,000) resulted in a $500,000 pre-print revenue increase and a 3-day circulation revenue increase of $1.6 million.
The return: 42x investment

Situation: The newspaper had taken rate increases in 4 of the past 5 years. After completing a pricing model K Group determined that even a small increase ($0.05 per week) would cause major erosion in the base circulation. A full analysis of the entire market showed that the introductory price in half of the market was too low. Increasing the introductory pricing had only a negligible impact on take-rate and produced $900,000 in incremental revenue.
The return: 12x investment

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