Newspapers
Revenue Management Project


Contents

1Objective

2Overview of the company

3Innovative ad spaces

4Revenue model

4.1 Factors contributing to revenue

4.2 Revenue variables and capacity constraints

Products

5Forecasting

5.1Need to forecast

5.2Factors affecting forecast

5.3Current forecasting

5.4Proposed forecasting

6Pricing

6.1Pricing Strategies

6.2Other pricing strategies

6.3Price revision methods and frequencies

6.4Price elasticity

7Revenue class:

7.1Defining revenue class

7.2Protections

7.3Impact of EMSR optimization

8Optimization

8.1Effectiveness of the revenue management process

8.2Overbooking

8.3Other Revenue Maximisation methods

Consultative Sales Approach

Audience Focus

Behavioural Targeting

9Appendix

9.1Appendix 1

9.2Appendix 2

1Objective

The objective of this project is to study the revenue management practices in newspaperindustry. The space in a newspaper is a perishable commodity which has to be sold before dusk everyday or else the opportunity to earn revenue from it is lost. Hence we need to identify a method by which we optimize revenues generated from selling space in a newspaper.

For this we need to study

  • Characteristics of the demand, the strategies for managing the demand, andthe forecast of demand
  • Pricing strategies
  • Ad Space assignment and inventory control.

2Overview of the company

The newspaper chosen for this study is “The Hindu”.

The Hindu, started in 1878 as a weekly, became a daily in 1889 and from then on has been steadily growing to the circulation of 14,66,304 copies (Audit Bureau of Circulations: July-December 2009) and a readership of about 4.06 million.

The Hindu's independent editorial stand and its reliable and balanced presentation of the news have over the years, won for it the serious attention and regard of the people who matter in India and abroad.

The Hindu uses modern facilities for news gathering, page composition and printing. It is printed in thirteen centres including the Main Edition at Chennai (Madras) where the Corporate Office is based. The printing centres at Coimbatore, Bangalore, Hyderabad, Madurai, New Delhi, Vizag, Thiruvanathapuram, Kochi, Vijayawada, Mangalore, Tiruchirapalli and Kolkata are connected with high speed data lines for news transmission across the country.

3Innovative ad spaces

In order to generate more spaces for advertisements, newspapers add supplementary editions. The Hindu is the only newspaper which brings out supplements and features on all days of the week.

On Mondays

  • Metro Plus
  • Business Review
  • Education Plus

On Tuesdays

  • Metro Plus
  • Young World
  • Book Review

On Wednesdays

  • Metro Plus
  • Job Opportunities

On Thursdays

  • Metro Plus
  • Nxg
  • Science, Engineering, Technology & Agriculture

On Fridays

  • Friday Features
  • Cinema Plus

On Saturdays

  • Metro Plus Weekend
  • Property Plus

On Sundays

  • Weekly Magazine
  • Downtown
  • Retail Plus
  • Classifieds
  • Open Page
  • Literary Review , every first Sunday

4Revenue model

Newspapers have a dual revenue business model, i.e revenues are generated through

  1. Circulation
  2. Selling advertisement space

“Circulation is vanity. Advertising is sanity”

This is because circulation drives turnover, while advertisement drives profits:

–Circulation makes a contribution to the business of 50%.

–Advertising makes a contribution to the business of 85%

–Circulation drives advertising off-take

To attract customers and retain them over the long run a newspaper has to provide quality news which the public want – and they have to give it each and every day of the week.

The revenue objective of the company is to obtain maximum incremental revenue for the company by making full utilization of the inventory available to the customer without compromising customer satisfaction.

The supply chain in any newspaper can be depicted as shown below:

4.1 Factors contributing to revenue

The Price of newspapers(Circulation Price) varies based on
1. Weekday/Weekend
2. Festivals (New Year, Diwali, Tamil New Year, Pongal, etc)
3. Events (world cup, budget, election)
4. Type of Readers (Student hostels, Companies, Airlines, Hotels, etc)
The Advertisement Rates varies based on
1. Customer type: Individuals(classifieds, Matrimony, properties), Business houses(TATA, Reliance, TrichySaradhas, Chennai Silks, etc)
2. Size of purchase: Size of the Advt., Bold/Typeface/Tick Mark/Border
3. Region: Regional/State/National
4. Season: Weekday/Weekend, Festivals, events, IPO's, etc.
5. Amount of discount: Repeat Ads(Only for B2B)

4.2 Revenue variables and capacity constraints

The revenue variables in the case of newspapers are:

  1. Number of copies sold
  2. Amount of advertising space sold

However both these variables are constrained by various factors.

  1. The number of copies for circulation has to be forecasted on the previous day and printed. A newspaper cannot print extra copies after seeing excess demand. Also the price per copy cannot be increased beyond a particular level due to the stiff competition, which is already pricing at discounted rates
  2. The advertising to news ratio in The Hindu is typically 40:60; also the number of pages in any day’s newspaper is restricted to 16 – 20 pages. This means that a newspaper cannot generate excess revenue by increasing the number of pages

Products

The ad space in The Hindu is divided into different parts based on the number of eyeballs expected, format, colour etc. Some of the types of ads which are available are:

  1. Solus – Single ad in a given page
  2. Semi solus – 2 ads in a single page
  3. Jacket – The cover page would completely be taken up by an advertiser
  4. Silent ads – a small ad which appears just above the list of supplements in the front page. These ads are typically booked for months together.
  5. Skybus - This is the strip of ad which comes, right below the newspaper name on the front page

5Forecasting

5.1Need to forecast

Newspapers need to forecast the number of copies expected to be sold in order to print for everyday circulation. This would mostly depend on the quality of news to be printed, i.e. the circulation number would be different on the budget day, election results, natural calamities, etc. For this The Hindu typically projects the demand depending on past circulation for similar events.

The other level of forecast necessary for a newspaper is the extent to which they could sell the space available in everyday’s newspaper for advertisements. This would depend on the expected number of eyeball views an advertiser expects for a given ad on a particular day. For eg. Jewellery showrooms might be interested in advertising during “AkshayaTritiya” period. Thus in this case the newspaper has to concentrate on which advertiser to focus during particular time periods.

5.2Factors affecting forecast

Current Events

The price for the ad space in a newspaper has to be fixed based on the value it generates for the customer. The value would depend on the number of copies circulated on any given day which is decided by the news printed in it, and this news depends on the current events which cannot be predicted by a newspaper. So the newspaper could potentially lose on any additional revenue it could have generated due to increased circulation.

Competitor sales strategies

The circulation for a newspaper on a given day can be affected if a competitor runs a promotion which attracts the readers to other newspapers. This would directly affect the sales and cannot be easily predicted ahead.

5.3Current forecasting

Newspapers use extrapolation to project circulation numbers. The circulation number for newspaper is currently projected based on the historical data and the current factors prevailing.

For advertisement space no forecasts are being done. The ad agencies can book advertisements even till the last day. Ad space is filled based on the demand as and when bookings are made. The sales personnel are advised to sell the space at competitive rates. Also it is found that though there is demand for the front page space even on last 2 days it is typically sold out much before. Thus in this case the newspaper loses out on a opportunity to earn incremental revenue.

5.4Proposed forecasting

In the moving average forecast we estimate the single parameter of the model at time T as average of the last m observations, where m is the moving average interval.

Since the model assumes a constant underlying mean, the forecast for any number of periods in the future is the same as the estimate of the parameter:

In practice the moving average will provide a good estimate of the mean of the time series if the mean is constant or slowly changing. In the case of a constant mean, the largest value of m will give the best estimates of the underlying mean. A longer observation period will average out the effects of variability.

6Pricing

6.1Pricing Strategies

Basically for any product or service, the pricing can be done in three ways

  1. Cost based pricing
  2. Value based pricing
  3. Competitor based pricing

Cost based pricing: In this strategy the overall cost of running the newspaper is taken into consideration and the cost is spread across the total advertisement space. But this strategy is not very efficient and cannot be used to maximise revenues when the opportunity is available.

Competitor based pricing: This is a bad strategy for The Hindu, as we being the leaders in our segment cannot follow our competitor’s models. Also, this strategy has the potential to trigger price war among the players in our industry.

Value based pricing:We propose to use this strategy for pricing the advertisement rates. In this strategy we identify the value the advertiser gains by advertising in our newspaper. This value depends on a whole gamut of parameters which varies for each case. For example, the value gained by a jeweller, whose customers are middle and upper middle-class families, advertising during “AkshayaTritiya” can be rated as 5 in a 1-5 point scale as his customer base matches exactly with our readership base. Also, this rating can be used to even select advertisers during high demand periods to maximise revenue.

We would follow pagination of ads and suggest the customer to advertise in the appropriate pages so that maximum eyeballs are generated for the ads.

6.2Other pricing strategies

Our newspaper also allows advertisements in the form of classifieds. These advertisements are sought from individuals and small companies. The rates for these advertisementsare constant so as to enable individuals in all income groups to advertise in our newspaper. However the current practice of charging different rates for different headings will be continued. This provides an opportunity to charge a premium for a corporate firm which wants to give ads for recruitment. Whereas in the case of individuals who are advertising for matrimonial or rental ads we would be charging lesser by considering the buying power of these individuals.

6.3Price revision methods and frequencies

Price revision can be done according to the demand forecasts with the objective achieving maximum revenue every day. The frequency of price revision should be dynamic and should be associated with the changes in the demand forecast. When a sudden event triggers a shift in the demand the advertisement pricing for that edition should be revised accordingly.

6.4Price elasticity

Price elasticity, or change in demand in response to change in price, is a measure of how sensitive demand is to price. The demand will be more when the events are in favour of the advertisers and demand is less when there is less incentive for advertisers to advertise. During festivals, current events and other factors which contribute to revenue are triggered the demand will be more and the rates can be increased. The elasticity is maintained so that the maximum revenue is derived out of the edition.

7Revenue class:

7.1Defining revenue class

The revenue classes can be made using the “importance scale” where the advertisement factor is measured in a scale of 1 to 5. We propose to use 5 revenue classes for the newspaper advertisements. The prices for the base class E is taken as the existing rate per square centimetre. We have assumed premium rates for the subsequent classes. The customers would be ready to pay these premium rates depending on the importance of placing the advertisement in the newspapers. The Hindu would have to employ its sales force in order to identify this aspect about the customer. Only then would it be possible to generate a customized package for each customer and earn incremental revenue.

The revenue classes and the price which would be charged for each class are:

Class / Rate/sq cm
A / 3270
B / 3114
C / 2966
D / 2825
E / 2690

7.2Protections

We can calculate the space to be protected for each revenue class be calculating the expected marginal revenue for the space which we are going to sell. The detailed calculation and assumptions is available in Appendix 1 of this project. The net protections and authorized units for each of these classes is:

Class / Rate/sq cm / Forecast Area / Error / Protection / Authorized Area
A / 3270 / 937 / 120 / 949 / 4687
B / 3114 / 1406 / 269 / 1416 / 3738
C / 2966 / 1406 / 367 / 1398 / 2322
D / 2825 / 469 / 56 / 463 / 924
E / 2690 / 469 / 48 / 461 / 461

7.3Impact of EMSR optimization

When The Hindu sells the ad space in Metro Plus supplementary edition at the same rate for all the customers the revenue generated per edition is as follows:

Revenue = Ad space * Price per sq. Cm

= 4687 * 2690 = Rs. 1,26,08,030/-

When the same ad space is sold using different classes we can see the impact on revenue for three cases:

  1. While selling forecasted level of space
  2. While considering margin for error
  3. While selling upto level of protection in each class

Revenue on selling forecasted space
Class / Rate/sq cm / Forecast Area / Revenue
A / 3270 / 937 / 30,64,701
B / 3114 / 1406 / 43,78,144
C / 2966 / 1406 / 41,69,661
D / 2825 / 469 / 13,23,702
E / 2690 / 469 / 12,60,669
1,41,96,877
Revenue on assuming safety margin of 1
Class / Rate/sq cm / Forecast Area - ERROR / Revenue / Forecast + Error / Revenue
A / 3270 / 817 / 26,72,335 / 1057 / 3457066
B / 3114 / 1137 / 35,40,475 / 1675 / 5215813
C / 2966 / 1039 / 30,81,240 / 1773 / 5258082
D / 2825 / 413 / 11,65,530 / 525 / 1481874
E / 2690 / 421 / 11,31,549 / 517 / 1389789
1,15,91,129 / 1,68,02,624
Revenue on selling upto protection levels in each class
Class / Rate/sq cm / Forecast Area / Revenue
A / 3270 / 949 / 31,02,957
B / 3114 / 1416 / 44,09,440
C / 2966 / 1398 / 41,46,084
D / 2825 / 463 / 13,07,744
E / 2690 / 461 / 12,40,090
1,42,06,315

We can clearly see the chance of generating incremental revenues in this case.

8Optimization

8.1Effectiveness of the revenue management process

The effectiveness of revenue management process can be measured by comparing the new profits generated with the target which was to be compared

Target / Ad-Yield + 5% / Ad-Yield -5%
Revenues
Circulation / 300 / 300 / 300
Advertising / 500 / 525 / 475
Total / 800 / 825 / 775
Costs
Wages / 350 / 350 / 350
Newsprint / 300 / 300 / 300
Other / 100 / 100 / 100
Total / 750 / 750 / 750
Profit/loss
Total Revenue / 800 / 825 / 775
Total costs / 750 / 750 / 720
Profit target / 50 / 75 / 25
% To target / 100% / 150% / 100%

Another measure of effectiveness is to check the amount of space which is being filled up for ads in every day’s newspaper.

Also the effectiveness of pagination for the advertiser should be measured by gathering data from the advertisers. This could be generated by comparing the difference in sales after coming out with advertisements in a particular space. Care should be taken to consider other extraneous factors which could have impacted sales before considering this method.

8.2Overbooking

Overbooking is not done in our Newspaper and we also insist on the same being carried over in our model. Since Newspaper advertisements are mostly planned ones cancellation requests are not entertained. And, also from statistics not many requests come for cancellations and they are all negligible. So, overbooking as such is not done in any cases.

8.3Other Revenue Maximisation methods

We propose to use other methods to maximise revenue by using discounts and bulk bookings over a period of time. This scheme can be given to big corporates who would always like to advertise and by this we can enter into a strategic agreement wherein both the corporate as well as we will be benefitted. The schemes must be decided on a case to case basis.

Consultative Sales Approach

Traditionally, newspapers have sold advertisements based on the products they have to offer – in other words, an internally focused sales process. The consultative salesapproach focuses on the client, the advertiser, and his or her business needs. If the client wants to introduce a new product, highlight a grand opening, improve brand recognition, or reach a certain demographic, then newspaper sales people can construct a campaignincluding a host of publishing elements toachieve success for the advertiser.The first thing is to identify what customersneed. This is very important. After identifyingwhat they need, it’s very easy to find somesolutions for that. During these crisis years, it’snot easy to demand budgets from the client. Soyou should come up with good ideas, youshould come up with convincing ideas, inorder to demand budgets. That’s why weshould focus more on customers’ needs. Thatmeans we must create specific andspecial projects in order to get revenues.We should come up with multimedia ideas in order to get better solutions.

Audience Focus

In addition to becoming more customer-focusedtoward advertisers, news media companiesaround the world are also becoming morefocused on their reader/viewer/user audienceson behalf of their advertisers and their editorialdepartments. Hundreds of media companies areramping up their audience research in order todevelop new products in print and digital, and also to offer their advertisers more insight intotheir own customers.

This has led to proven results as in the case of Sacramento Bee in California which offers an added value to advertisers a detailed profile of their customers’ demographics and geographic locations, which assists them in creating more successful advertising campaigns that target the right people, on the right channel, at the right time, in the right geography. But before adopting this, detailed database about readers of the newspaper should be collected.

Also The Hindu is already present online form; now focus should also be on develop mobile applications for newspaper. We have to combine offline, online and mobile in our advertising strategy to improve effectiveness and revenue.

Behavioural Targeting

While going online a key digital advertising strategy is behavioural targeting, similar to the one being used by Yahoo BT. In this case the technology engine enables the delivery of behaviourally targeted advertisements. If a user is identified for searching for a certain brand of automobile across a series of Web sites in partnership with the consortium, for example, the technology will deliver advertising to thatuser that may inform him or her about an offer applicable to the search.The algorithm can create behavioural segments, such as auto buyer, furniture shopper, vacation researcher, etc.

9Appendix

9.1Appendix 1