Serial Bus

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That’s like getting 11 issues FREE!

with 2 comments

Today, for the umpteenth time, I received another irresistible subscription offer. If I renew my NatGeo Traveler now, I will pay $24.95 although the cover price is $79.84, which represents a savings of $54.89. The ‘Subscription Savings Voucher’ makes the decision very easy for me – it analyses its own offer penetratingly, it says, “That’s like getting 11 issues FREE! Plus, get 2 FREE GIFTS.

About an year back, shortly after moving to the US, I remember walking into Hudson News at Grand Central. I was delighted to see so many excellent publications; I had known Time, NatGeo and Newsweek but I saw some great covers I had not known before e.g. Traveler, Adventure, Budget Travel. Then, I got carried away and committed a blunder – I bought a copy of each one of them. They were priced in the region of $4.95-$5.99. Once I brought them home, a couple of postcard sized flyers fell out of each one of them. They were all subscription offers, each promising to sell me the same magazine at a discount of 60%-80%, only if I became a subscriber. The longer the subscription, the higher the discount.

A 20% discount is immediately understandable but a 70% did not make any obvious sense. How is it commercially viable to offer such a throw-away price? I and my colleague Fadl came up with the following possible reasons:

1. Cover price is already inflated

Unit cost of producing a magazine is very little, given economies of scale. Higher the circulation, lower the unit cost. By building in a high margin, cover price highly distorts the assumed cost of a magazine therefore, the actual discount being offered may be much lower than 70%.

2. Bulk advance payment is better than serial payments

CFO of every company knows that a buck today is more valuable than a buck tomorrow, because money is not free. There is a daily interest cost to every buck you borrow and a daily interest income to every buck you have extra. So, the discount on the subscription is possible as companies can afford to pass on some of the benefit they receive through advance payment in bulk.

3. Better readership data can help editorial staff plan the content and market the magazine

The editor knows how to tweak their message for the actual buyers and the marketing department knows which events to sponsor and who to sign up for the brand campaign.

4. Subscription data can be used for cross-sell and can be sold to third-party advertisers

The moment you sign up for a subscription, you start getting all sorts of envelopes in mail that are flattering at first and then, plain annoying. Many take the bait.

5. Magazine sales is a small fraction of total revenue

No periodical publishing business can ever survive on the nickels that readers throw at’em; they are after the big bucks that media buyers provide. But without readership, there is no advertising. Since most readers prefer lower prices, there is an inverse relationship between price of a mag and ad dollars. Question is, why do not they distribute it free of cost? Why don’t all the mags cited above are available free of cost like some daily newspapers (Metro, AM) that get handed out gratis outside NYC subways? There are some theories but I am yet to be convinced by one.

6. Subscriptions help match supply to demand and reduce inventory cost

Subscriptions help correctly forecast the number of copies that need to be printed each week/month. If the Economist relied only on sales through Hudson News, there would either be huge stacks of unsold mags sitting at the distributor’s or the opposite.

7. Collection costs of subscription are lower than those of retail channel

Someone buying a paper from a stand would pay in cash or card. Both these payment modes are expensive for the seller; cash is difficult to dispose and cards have interchange. On the top, you have the commission of the distributor/retail chain. When you subscribe, you cut out the intermediary and the publishers love that.

8. Subscription data helps create stronger segmentation data for signing up advertisers

This is the single biggest reason for why readers get away with deep discounts. I think mags are targeted on the basis of socio-economic classes of people. A magazine dedicated to an upper class (e.g. lifestyle magazines, niche mags on whiskey, cigar, racing) will prefer one subscriber from, let’s say Malibu CA over ten from Astoria NY. They can go to a premium spirits company like Pernod Ricard and claim that 90% of their 1m readership has annual incomes in excess of $50m. That is a whole lot stronger than claiming that 90% of 100m readers earn more than $50k, plus it gets you a good chunk of Pernod’s ad budget. Therefore, I am sure mags buy demographic data from consultants and research companies and then, target certain profiles on the basis of employment, income, locality etc. It is sensible to offer higher discounts to profiles you prefer.

 

Are their any other reasons I might have missed? Please add to the list.

In the meantime, I will wait for a better subscription offer from Traveler. They can’t afford to lose me, can they? After all, I work for a bank (not an investment bank) and I live in Forest Hills NY (where Spiderman lives too!).

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Written by serialbus

September 17, 2008 at 9:36 pm

Posted in Business

Tagged with , ,

2 Responses

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  1. Bhao,Tumne india’s piggy-bank reforms babet 8 Reason indicate kiye,Very nice.I want to add one thing more that “customer care &well behabear “from bank too.

    bhuwan

    October 14, 2008 at 2:24 am

  2. After reading this, I think you’d probably be interested in the latest statistics about the quarterly magazine from my engineering organization: they have a paid subscription base of about 100,000 and the printing cost per issue is a little over $1. Not sure about their advertising revenue (per subscriber?), but I could probably find out.

    Andi

    November 6, 2008 at 12:04 am


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