Pricing & Sales Practices

In order for newspapers to ensure that they can forge long-term, sustainable success, they must make five fundamental changes in how they go to market:

  1. Change the culture, which is key to successful change.
  2. Switch to simpler, systematic pricing and sales practices.
  3. Convert to compact format.
  4. Rethink the publishing cycle.
  5. Harness the power of technology – in print, digital and mobile platforms.

In our previous blog, we focused on changing the culture. Now, let’s visit how one can leverage Pricing & Sales Practices for long-term sustainable success.

For more than a century, newspapers were the dominant advertising (and information) medium and were able to influence the advertising buying process and basically set the sales agenda. That influence started disappearing about five to 10 years ago.

Since then newspapers have been forced into a strange relationship where almost all rates are negotiated or set by the advertisers – “take it or leave it.” It almost appears that there are as many rate plans as there are advertisers.

In order to produce revenue, even at a greatly diminished pace, newspapers started accepting almost all propositions from advertisers and their agencies, assuming that if the resulting revenue covered the variable costs of paper and ink, the bottom line would be protected.

Newspaper sales activities now resemble what takes place in Turkish rug bazaars – haggling, price concessions and discounts – all justified based on marginal costs. This “marginal cost” thinking is what Christensen believes is holding back newspapers’ ability to fix the core business.

Lately, numerous newspaper executives, notably Kirk Davis, COO of GateHouse Media, have urged the industry to regain control of pricing and to reinstate integrity, discipline and a simpler, systematic approach to advertising sales. Current practices cannot sustain newspapers in the future, because operating margins are shrinking even faster than revenues are falling.

Many newspapers are finding success with simpler pricing practices built on modular ad units; standardized sales approaches; innovative frequency packages, and smarter ways to buy and sell.

Look to our next blog for Format Conversion.

5 Go-to-Market Strategies

Newspaper ad revenues have declined for more than 25 consecutive quarters and are half of what they were in 2005. At the same time, newspapers’ digital market share has evaporated in the face of new and aggressive competition.

Numerous analysts believe that the crisis newspapers face is a revenue problem, not a cost problem. Yet the industry appears to be resolutely fixated on reducing costs, even if it means sacrificing revenue needed to fund a digital future.

Newspaper comic strip icon Pogo said it best: “We have seen the enemy, and it is us!” Newspapers are having great difficulty moving smartly into the digital age, sitting symbolically on horse-drawn carts piled high with legacy baggage, mixed with assorted new technology.

The industry is trapped in a downward vortex because publishers are holding tight to traditional practices that are no longer appropriate. Newspapers, which rely on advertising sales for about 70% of their revenues, are still selling advertising like it’s the 1990s. They continue to embrace the publishing and sales practices they relied on when they had few competitors and could set the advertising agenda in their markets. Fortunately there is still time to make the core business healthier.

The future for newspapers will become brighter when they move to solve their revenue problems by adopting new and better ways to package, price and sell advertising, while giving their customers what they want. Clayton Christensen (the Harvard Business School professor who is known for his theory of disruptive innovation) repeats two of his key ideas in the Fall 2012 Nieman Reports:

Focus on the jobs that your customers are hiring you to do; and create a separate business focused on taking advantage of the disruption – and give it permission to outcompete and outperform its parent.

In order for newspapers to ensure that they can forge long-term, sustainable success, they must make five fundamental changes in how they go to market:

  1. Change the culture, which is key to successful change.
  2. Switch to simpler, systematic pricing and sales practices.
  3. Convert to compact format.
  4. Rethink the publishing cycle.
  5. Harness the power of technology – in print, digital and mobile platforms.

Let’s take them one at a time.

Changing the Culture

Most companies and industries wait too long to recognize problems and even longer to act. And much of the resulting action is often inadequate or misdirected. Newspapers are the venerable incumbents on a new playing field, facing a multiplicity of competitors who are playing by new and different rules.

Chasing each innovation, while aggressively stripping costs and resources out of the core business, is a recipe for trouble. Customers do not want to pay more for less, especially when there are plenty of alternatives.

There’s an old adage, “the future isn’t what it used to be,” which certainly applies to newspapers these days. To revitalize their business model, publishers must change their focus from that of lowering operating costs (internally focused) to reducing the price that customers (readers and advertisers) pay, while delivering improved results or a better user experience (customer focused).

When needs are emerging, customers look for performance. When needs are mature, customers look for lower costs. Investing in improved cost-effectiveness for mature needs can provide exceptional returns. The challenge for newspapers is to operate the core business more cost effectively, while providing customers (advertisers and readers), with better or improved products and service at realistic costs.

Newspapers appear to have one side of the equation right. They are aggressively reducing certain costs. The challenge will be to deliver better products and/or more results at lower prices. That’s what competitors are now offering.

Unless newspapers alter their internal operating culture to one focusing on their customers, the results will not be what publishers expect. The current model of charging customers more while delivering less (in print and digital) is the root cause of newspapers’ revenue and sustainability problems. Here’s how to make the core business healthier.

Look to our next blog for Pricing and Sales Practices.