Florian Bauer - Pinpointing sustainable growth and new revenue strategies

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64th World Newspaper Congress and 19th World Editors Forum

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Florian Bauer - Pinpointing sustainable growth and new revenue strategies

  1. 1. Pinpointing sustainable growth and new revenue strategiesFlorian BauerMember of the Board and FounderVocatus AGGermany
  2. 2. Pricing excellence in print & e-publishingHow to boost margins with professional pricing64th World Newspaper CongressKiev, Ukraine
  3. 3. Vocatus is the leading research and consulting company inpsychological pricing Our USP: We are experts in psychological pricing. We understand that consumers act in predictably irrational ways. And we know how to leverage this with smarter pricing strategies. Awardsfor our approach to pricing: 2005 German Market Research Award: Best Study 2006 ESOMAR nomination: Fernanda Monti Award 2007 ESOMAR nomination: Excellence Award 2008 Nomination for German Market Research Award: Best Study 2010 German Market Research Award: Best Study 2010 ESOMAR award: Best Methodological Paper (Congress) 2011 ESOMAR nomination: Excellence Award„ 2011 Nomination for German Market Research Award: Tool 2012 Nomination for German Market Research Award: Innovation 2012 ESOMAR nomination: Research Effectiveness Award3
  4. 4. We have successfully helped over 75 titles in differentcountries optimise their pricing strategy Experience: Vocatus has successfully optimised the prices of over 75 titles during the last eight years in three continents (Europe, Asia, Latin America) encompassing an array of different dimensions including copy/subscription, print/e-publishing and b2c/b2b markets ROI:The ROI for projects has been high – we have had payback periods of less than 1 day and ROIs of over 30,000%!4
  5. 5. Current (print) pricing practice is suboptimal Relevance of sales revenue Current pricing practice  Often based on experience, a gut feeling„ or rule of thumb: Sales revenue – “Weve always done it like this" In the past – "Not higher than our competitor(s)" Advertising – "Not higher than inflation" revenue – "Not too much, in case we lose circulation"  Little systematic/empirical investigation of room Today for manoeuvre in terms of pricing  Readers motivation, attitudes and price acceptance remain a mystery  Reaction is awaited with uncertainty and curiosity Tomorrow?  Vague exploitation of potential: knowledge of ideal price point is lacking, and money is wasted5
  6. 6. False assumptions about people‟s decision behavior areguiding gut-feeling pricing strategiesCase study – Newspapers (1/4)How publishers see readers: Price: readers know the price of their own newspaper as well as those of the competition (“we base pricing on what competitors are doing”); in their willingness to pay they are guided by value for money (= “pages”) Price increases: readers recall price increases. If prices are increased, this must therefore be duly justified Firstly, this must be justified by citing increased costs Secondly, the pill must be sugared via a noticeable increase in coverage Cancellation: readers are influenced by underlying economic circumstances. If they deteriorate, one should also spare them any price increases for one year – “they‟ll thank us by showing greater loyalty”.6
  7. 7. In reality, consumers think and act differently; having a preciseknowledge of this helps to avoid wrong decisionsCase study – Newspapers (2/4)Readers as they really are: Price: readers don‟t know the price of their own newspaper, let alone that of others. The decision in favour of a specific newspaper is rarely driven by price. Price increases: as a rule, they can recall neither the time nor the level of past price increases. In most cases justification will only lead to higher awareness. To skip the (yearly) price increase option is not a good idea. Cancellation: if there‟s one outstanding reason why people cancel, it‟s the lack of time to read the paper and the „pain‟ of throwing away a newspaper when it‟s hardly been read. This is because people tend to be guided by the „price-usage-ratio‟. Sugaring the pill of price increases via extended coverage only aggravates this problem.7
  8. 8. In order to deduce „true‟ price acceptance, a combined analysisof price interest, price knowledge and assessment is requiredCase study – Newspapers (3/4) 50% - critical price knowledge - critical sensitivity to price 0% 0% 2% 8% increases 40% - high price interest 1% 0.5% 1% 1.5% Cumulative share ofrespondents that + uncritical price 5% 1% 9% 1% knowledge would „certainly 30% cancel‟ their + uncritical sensitivity to New subscription at price increases price: this price + low price interest PSM predicts 20% Current a 1.5% loss Segment 1 subscription (weighted) Segment 2 price 10% Critical! 0% Subscription price Recommended price after price cut subscription price (+12%)8
  9. 9. „True‟ price acceptance can be found and leveraged to realisesignificant additional margin potentialsCase study – Newspapers (4/4) Vocatus client since 2006: 32% price increase in 3 years; circulation index: 98 Main competitor: Subscription 14% price increase; price circulation index: 95 Became a Vocatus client end of 2008 2006 2009 Year9
  10. 10. Even though our individual price optimisation projects havevaried greatly, there are a number of fundamental insightsFundamental insights: Print Soundly based pricing research is indispensable because using rule of thumb to decide upon price increases is doomed to failure – the respective starting points are too different. The outcome is not always a higher increase than clients had hoped for. The value of a given project occasionally consists in preventing an excessive price increase or changing the frequency of price increases Payback of research investment is between 1 day and a few weeks ROI between 600 and 30,000% p.a.10
  11. 11. If one relies on gut feeling, one sometimes aims too high in-stead of too low - with negative consequences in the long runCase study: price increases based on gut feeling 120 Price increase Subscription Withdrawal of 110 Year 3 to 4: + 6.2% price price increase Subscription 100 Index: price circulation 90 and price (at Year 1) 80 Subscribed 70 Loss in terms of circulation Subscribed subscribed circulation But fresh loss in circulation 60 Year 3 to 4: -24% terms of circulation Year 1 Year 2 Year 3 Year 4 Year 511
  12. 12. Even though our individual price optimisation projects havevaried greatly, there are a number of fundamental insightsFundamental insights: Print Soundly based pricing research is indispensable because using rule of thumb to decide upon price increases is doomed to failure – the respective starting points are too different. The outcome is not always a higher increase than clients had hoped for. The value of a given project occasionally consists in preventing an excessive price increase or changing the frequency of price increases Payback of research investment is between 1 day and a few weeks ROI between 600 and 30,000% p.a. Publishing companies play a much more active role than they suspect when it comes to determining price sensitivity: unnecessary price wars vs. deliberate development of relative price acceptance12
  13. 13. Publishers often see their role as having to react to priceacceptance: in reality, they can crucially influence itCase study: „Cause and effect Berlinexample: publishing companies in Berlin placed prices and bonuses/gifts at the forefront of aggressive price communication From the perspective of pricing psychology, the consequences are: – Theres roughly a threefold increase in terms of price knowledge – Price interest is much higher – Price sensitivity is much more pronounced Theconsequences in terms of customer retention: The majority of new subscribers are looking for bonuses/ gifts of some sort – They commit themselves for shorter periods – It costs more to acquire them Theconsequence in terms of perceived value: The newspaper forfeits its subjective value over the longer term13
  14. 14. Even though our individual price optimisation projects havevaried greatly, there are a number of fundamental insightsFundamental insights: Print Soundly based pricing research is indispensable because using rule of thumb to decide upon price increases is doomed to failure – the respective starting points are too different. The outcome is not always a higher increase than clients had hoped for. The value of a given project occasionally consists in preventing an excessive price increase or changing the frequency of price increases Payback of research investment is between 1 day and a few weeks ROI between 600 and 30,000% p.a. Publishing companies play a much more active role than they suspect when it comes to determining price sensitivity: unnecessary price wars vs. deliberate development of relative price acceptance The basis of any optimal pricing strategy is always a soundly based understanding of the role of price within the decision and usage processes14
  15. 15. An improved awareness of the decision process makes manytraditional sales & marketing strategies look ridiculous…Case study: B2C titles Immediately available when it 76% 16% 8% appearsConvenience Dont have to go to the kiosk 73% 17% 10% Advantage that you read every Many subscribers think 12% 55% 33% a issue discount isnt 0 necessary, and they dont calculate it either Saving compared to single copy 11% 29% 60%Discount purchase 3%18% 79% Bonuses Attractiveness of bonus Advertising with attractive Is crucial bonuses always reminds Also matters existing subscribers that it Doesnt matter pays to be disloyal15
  16. 16. Even though our individual price optimisation projects havevaried greatly, there are a number of fundamental insightsFundamental insights: Print Soundly based pricing research is indispensable because using rule of thumb to decide upon price increases is doomed to failure – the respective starting points are too different. The outcome is not always a higher increase than clients had hoped for. The value of a given project occasionally consists in preventing an excessive price increase or changing the frequency of price increases Payback of research investment is between 1 day and a few weeks ROI between 600 and 30,000% p.a. Publishing companies play a much more active role than they suspect when it comes to determining price sensitivity: unnecessary price wars vs. deliberate development of relative price acceptance The basis of any optimal pricing strategy is always a soundly based understanding of the role of price within the decision and usage processes The core asset of media is habit – this has existed in print for a long time and helps prevent the negative side-effects of classical marketing approaches16
  17. 17. What is true for print pricing is also true for e-publishing –but with different implicationsFundamental insights: e-publishing Soundly based pricing research is indispensable, since price increases that rely on rules of thumb simply wont work  e.g.: Customers think in terms of benefits, not production costs17
  18. 18. What is true for print pricing is also true for e-publishing –but with different implicationsFundamental insights: e-publishing Soundly based pricing research is indispensable, since price increases that rely on rules of thumb simply wont work  e.g.: Customers think in terms of benefits, not production costs Publishers play a much more active role than they suspect when it comes to engendering price sensitivity – it‟s in your control  e.g.: Price acceptance doesnt exist for innovative products it has to be developed18
  19. 19. Price acceptance differs in accordance with how usersmentally position the appPrice acceptance and mental positioning Mental positioning of apps Resultant price acceptance Expensive curve Extended Cheap curve print edition 26%Dont know % respondents 31% 50% higher price acceptance, depending on positioning! Alternative online edition Anchor price Anchor price prices 43% (online) (print) 19
  20. 20. What is true for print pricing is also true for e-publishing –but with different implicationsFundamental insights: e-publishing Soundly based pricing research is indispensable, since price increases that rely on rules of thumb simply wont work  e.g.: Customers think in terms of benefits, not production costs Publishers play a much more active role than they suspect when it comes to engendering price sensitivity – it‟s in your control  e.g.: Price acceptance doesnt exist for innovative products it has to be developed The basis of any optimal pricing strategy is always a sound understanding of the role price plays within the decision and usage processes  e.g.: Price acceptance depends on the context and the choice architecture20
  21. 21. Price acceptance also depends on the context and packaging– rules of thumb are no help herePrice acceptance and context Context and habit, not just Packaging, and channel not just content21
  22. 22. What is true for print pricing is also true for e-publishing –but with different implicationsFundamental insights: e-publishing Soundly based pricing research is indispensable, since price increases that rely on rules of thumb simply wont work  e.g.: Customers think in terms of benefits, not production costs Publishers play a much more active role than they suspect when it comes to engendering price sensitivity – it‟s in your control  e.g.: Price acceptance doesnt exist for innovative products it has to be developed The basis of any optimal pricing strategy is always a sound understanding of the role price plays within the decision and usage processes  e.g.: Price acceptance depends on the context and the choice architecture The core asset of media is habit – while it exists in print, it first has to be developed in e-publishing  e.g.: Habit evolution with respect to product and payment is the key success factor22
  23. 23. Successful e-publishing products are interwoven‟ into existinghabits so that the latter can gradually be expandedHabit and its implications  The strategic function of the product has to be clarified (attract new, retain old, prevent cancellation)  The „usefulness‟ of e-publishing products must first of all Product be more clearly differentiated and more explicitly communicated  Product must be developed out of a detailed Habit understanding of the actual product benefits: its easier to learn new habits if old ones can be transferred (usage habits, PDF as killer app)  The most important challenge is only confronted after the download  Too much development aid guided by the traditional focus on „reach”, ie, low price strategies or end device subsidies, can destroy future potential  Internally learnt success criteria (reach) can latently impede the consistent implementation of these insights23
  24. 24. Forget about „circulation and reach only‟ – this focus destroyssales and ad profits before they are even generated Reader No valuation Publisher Reach “Marketing” No sales turnover No usage pressure Habits Reduced ad revenues Performance based pricing metrics
  25. 25. Case study: “next issue”Commercial app for more than 30 e-papers of US-titlesnext issue Target: E-paper flat-rate for tablet computers At the moment the offer comprises 32 titles of US publishers, e.g. Time, Vanity Fair, Elle, Glamour etc. Single titles may be read as e-papers, handling is mostly standardised Depending on the number and type of titles included, cost amounts to $ 9,99 or $ 14,99 At the moment the app is available for Android based devices only, an iPad version is announced
  26. 26. Case study: A typical attempt to increase circulation and reach- with a low chance to induce a stable willingness to paynext issue - conclusion To offer an app with numerous titles for free or with a flat-rate is an act of desperation in order to merely increase reach From our point of view a flat-rate constitutes an irreversible price-strategic surrender leaving no room for strategic price management (upselling, bundling, etc.) The offer neglects a fundamental insight of pricing psychology: People hate to pay for something that they do not use, even if this is logically not the case Based on this offer, the reader probably will not recognize and appreciate a single title„s value: Quantity is used to outweigh missing understanding of individual preferences and willingness to pay The offer neglects and tries to bypass the core challenge: „to develop habits‟. Readers do not know such a model from the offline world and hence it is rather a hurdle than an accelerator, for persistent and valued usage Hence, it may well be doubted whether sustainable usage and habits will ever evolve
  27. 27. The process of purchase and payment has to be understood asa critical factor of successHabit and its implications  Payment habits, contexts and ergonomics are often more crucial than actual costs: Product sometimes its not all about money, but about how easy you make it for users to spend their money  Adaptation is also a prerequisite when it Habit comes to purchase habits: the further removed the e-publishing purchase process is from the classic offline one, the more psychological barriers Payment there are to purchase  Basic service standards are often not satisfied in e-publishing: the depth and clarity of price and transaction information in the online world, in no way matches what we are used to in the offline world27
  28. 28. What is true for print pricing is also true for e-publishing –but with different implicationsFundamental insights: e-publishing Soundly based pricing research is indispensable, since price increases that rely on rules of thumb simply wont work  e.g.: Customers think in terms of benefits, not production costs Publishers play a much more active role than they suspect when it comes to engendering price sensitivity – it‟s in your control  e.g.: Price acceptance doesnt exist for innovative products it has to be developed The basis of any optimal pricing strategy is always a sound understan- ding of the role price plays within the decision and usage processes  e.g.: Price acceptance depends on the context and the choice architecture The core asset of media is habit – while it exists in print, it first has to be developed in e-publishing  e.g.: Habit evolution with respect to product and payment is the key success factor A pricing strategy never merely consists of the given price level, but always of „price communication‟ and „pricing structure‟ too This is a new challenge for publishers, but one which also offers new opportunities28
  29. 29. Portfolio thinking produces new strategic dimensions which canbe used for pricing if one understands the pricing psychologyCase study: media Choice (%)  Economist e-paper subscription $ 59,- 16% Av. revenue:  Economist print subscription $ 125,- 0% ca. $ 114,-  Economist e-paper & print subscr. $ 125,- 84% You might think that an option that nobody buys is dispensable, but...  Economist e-paper subscription $ 59,- 68% Av. revenue:  Economist print subscription $ 125,-  Economist e-paper & print subscr. $ 125,- 32% ca. $ 80,-
  30. 30. Great challenges provide even greater opportunities!Three Take-aways for Print Pricing:1. As long as print pricing is based on gut feeling, a lot of margin is left on the table. We always and regularly have to „test the waters‟ to optimise pricing2. Price sensitivity is not something stable – publishers have to challenge and develop it – think of price sensitivity as being a muscle: If you don„t train and challenge it, it won„t get stronger!3. And remember: The unexploited potential of today can never be recovered , it is lost foreverThree Take-aways for e-publishing:1. e-publishing is not about content it„s about developing a new habit – in every respect: Price, Payment & Product2. e-publishing has to be developed outside-in – publishing houses must learn to listen; maybe for the first time ever!3. Publishing houses need to start thinking in portfolios instead of silos. They have to differentiate, explain and manage product and price portfolios to leverage the opportunities of bundling and upselling effectively
  31. 31. Thank you for your kind attention!Dr. Florian BauerVocatus AGOppelner Str. 5D-82194 Groebenzell / MunichTel: +49 8142 5069 - 235Mobile: +49 175 2263 - 235Email: florian.bauer@vocatus.de

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