Simon-Kucher & Partners, strategy and marketing consultants, discuss The Guardian's price increase and what it meant for the newspaper's circulation.
The Guardian newspaper’s 20 pence cover price increase in September 2011 saw volume drop by 4.4 percent, yet circulation revenue remained buoyant - up by 20 percent for the month. It appears that the price increase was not as damaging as first assumed as customers continue to be less sensitive to price increases than anticipated.
Cover price increase is potentially a smart strategy for broadsheet newspapers (distinct from tabloids) to improve circulation revenue. Using National Readership Survey circulation data, analysis by Simon-Kucher & Partners - global consulting firm specialising in smart profit growth strategies – shows that from 2007-2010, overall price increases resulted in circulation revenue improvement for broadsheets:
• The Times - price increase £0.65 to £1.00 = Circulation revenue +16.7
• The Guardian – price increase £0.70 to £1.00 = Circulation revenue +15.8%
• The Independent – price increase £0.70 to £1.00 = circulation revenue +13%
• The Daily Telegraph – price increase £0.70 to £1.00 = circulation revenue +7%
Intelligent price strategies – essential to improve circulation revenue
Historically, the broadsheets have followed each other very closely in terms of price setting, with the papers increasing cover prices from £0.80 to £1.00 over two years. Jonathan Baillie, director with Simon-Kucher commented, “In our experience, broadsheets avoid slashing prices to ‘replace’ circulation losses. This is very sensible, especially in rapidly declining markets, as it would inevitably result in a price war that ruins margins, profits and lead to losses. The only winner is the customer, and often even this is short lived as businesses need profits to innovate and continue to improve their value proposition.”
Additional revenue enhancements resulting from a cover price increase includes an unchanged weekly subscription fee which encourages customers to subscribe, thus ‘locking in’ revenue and improves cash flow.
Mark Billige, managing partner added, “Based on the classic price elasticity calculations, broadsheet newspapers appear to be relatively inelastic in demand; essentially, an upward price shift does not necessarily have significant impact on demand. The Guardian’s, price elasticity is only -0.2; anything between -1 and 0 can be interpreted as inelastic or relatively inelastic.” Mr Billige continued, “We conducted a survey recently which revealed that only 15 percent of 498 respondents considered The Guardian newspaper as ‘poor’ or ‘very poor’ value for money at a price of £1.00.”
Circulation versus advertising revenue
A fall in circulation will impact advertising revenue, which is based on the all-important readership figures. It remains to be seen whether The Guardian’s cover price increase will more than offset potential loss in advertising revenue. Baillie stated, “Advertising and new media revenue accounts for approximately 53 percent of Guardian Media Group’s revenue. The net impact of the price increase is difficult to quantify due to the lack of publically available information. However, this is the third year of double digit price increases so one would assume this strategy is working, for now”.