Strategic pricing mattlindsay

Mather Economics LLC

43 Woodstock Street

Historic Roswell District

Roswell, GA 30075

770-993-4111 voice

www.mathereconomics.com

Executive Roundtable

Strategic Pricing and Customer Analytics Overview

2011

Contents

• Strategic Pricing Overview

• Renewal Pricing

• Acquisition Pricing

• Upgrade/Up-sell Analysis

• Advertising Pricing

• Online Content Pricing

• Future Business Model

9/1/2011 Copyright 2009 Mather Economics LLC. All rights reserved.

2

Strategic Pricing Overview


3

Customer Analytics – The Progression


4

Acquisition

Pricing &

Targeted

Marketing

Analytics

Targeted

Renewal

Pricing &

Retention

Analytics

Upgrade and

Bundling

Up-Sell

Customer

Analytics

Customer Lifecycle

Cu

sto

mer

Valu

e

Customer Analytics – The Progression


5

Acquisition

Pricing &

Targeted

Marketing

Analytics

Targeted

Renewal

Pricing &

Retention

Analytics

Upgrade and

Bundling

Up-Sell

Customer

Analytics

• New target

identification

• Acquisition offer

development &

testing

• Starts, Revenue,

and Retention

reporting

• Weekly targeted

renewal

increases by

account

• Test and control

experiments

• Weekly reporting

and revenue

forecasting

• Targeted

upgrade account

lists

• Retention,

Revenue, and

Units reporting

• Lifetime Value

analysis

Renewal Pricing Optimization


6


7 Market Based Pricing Analysis – Retention Curves

0.0

00

.25

0.5

00

.75

1.0

0

0 100 200 300 400analysis time

high low

mid

Retention by income level for all publications

high

mid

low


8 Pricing Analysis – Econometric model

Subscriber reactions to price increases is predicted using a statistical model of retention based on past behavior

Sample rete ntion curves for DS subs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

t50

100 150 200 250 300 350 400 450 500 550 600 650

700

days

rete

nti

on

ra

te

A

B

C

A to B = normal loss B to C = incremental loss A to C = total loss

These curves represent predicted retention under different renewal discounts for the first two years

cluster applied to nearby residences; age demographic added

Start price -0.11 0.07 -1.65 0.10 -0.24 0.02

Price increase -1.03 0.07 -15.77 0.00 -1.15 -0.90

Start length 0.05 0.00 41.48 0.00 0.05 0.05

AOZ -0.01 0.09 -0.10 0.92 -0.18 0.17

RTZ -0.01 0.06 -0.17 0.87 -0.13 0.11

Price Inc for AOZ 0.09 0.11 0.83 0.41 -0.12 0.30

Price Inc for RTZ 0.24 0.10 2.50 0.01 0.05 0.43

Income level A -0.24 0.05 -5.31 0.00 -0.33 -0.15

Income level B -0.62 0.07 -9.09 0.00 -0.76 -0.49

Income level C -0.95 0.07 -13.64 0.00 -1.08 -0.81

Price Inc for IncA 0.31 0.08 4.02 0.00 0.16 0.46

Price Inc for IncB 0.72 0.08 9.56 0.00 0.57 0.86

Price Inc for IncC 0.91 0.07 12.95 0.00 0.78 1.05

Age group A 0.14 0.06 2.12 0.03 0.01 0.26

Age group B -0.02 0.06 -0.37 0.71 -0.13 0.09

Age group C -0.06 0.07 -0.96 0.34 -0.20 0.07

Price Inc for AgeA -0.12 0.07 -1.60 0.11 -0.27 0.03

Price Inc for AgeB -0.07 0.06 -1.05 0.30 -0.19 0.06

Price Inc for AgeC 0.03 0.08 0.42 0.67 -0.12 0.18

Voluntary 2.52 0.06 43.90 0.00 2.41 2.64

Sat Sun Service -0.81 0.07 -12.44 0.00 -0.94 -0.68

Fri to Sun Service -0.44 0.08 -5.30 0.00 -0.61 -0.28

_cons 5.18 0.15 33.94 0.00 4.88 5.48

ln_gam

Sat Sun Service -0.09 0.01 -7.85 0.00 -0.11 -0.06

Fri to Sun Service -0.01 0.02 -0.59 0.56 -0.05 0.03

_cons -0.10 0.02 -5.36 0.00 -0.13 -0.06

gamma lambda

Seven Day Service 0.91 Seven Day Service 0.0016

Sat. & Sun. Service 0.83 Sat Sun Service 0.0026

Fri. to Sun. Service 0.90 Fri to Sun Service 0.0024

These parameters estimate a

subscriber’s response to a price increase

Sample Customer Segmentation and Pricing Grid


9

Circulation percentages

Young Mid-Age Mature Older Sum

Poor 1% 2% 2% 1% 6%

Downscale 2% 3% 3% 2% 10%

Lower-mid 4% 6% 7% 4% 21%

Midscale 4% 8% 9% 5% 26%

Upper-mid 2% 6% 7% 4% 19%

Upscale 1% 3% 4% 2% 10%

Wealthy 1% 2% 3% 2% 8%

Sum 15% 30% 35% 20%

Price elastcity index

Young Mid-Age Mature Older Average

Poor 3.0 2.6 2.4 2.6 2.6

Downscale 2.5 2.2 1.5 2.0 2.0

Lower-mid 2.0 1.8 1.2 1.5 1.6

Midscale 1.5 1.0 1.0 1.0 1.1

Upper-mid 1.0 0.8 0.8 1.0 0.9

Upscale 0.8 0.6 0.6 0.8 0.7

Wealthy 0.6 0.5 0.5 0.6 0.5

Average 1.7 1.3 1.0 1.2 1.2

Average increase per week

Young Mid-Age Mature Older Average

Poor $0.10 $0.12 $0.13 $0.12 $0.12

Downscale $0.12 $0.14 $0.20 $0.15 $0.15

Lower-mid $0.15 $0.17 $0.25 $0.20 $0.20

Midscale $0.20 $0.30 $0.30 $0.30 $0.28

Upper-mid $0.30 $0.38 $0.38 $0.30 $0.35

Upscale $0.38 $0.50 $0.50 $0.38 $0.46

Wealthy $0.50 $0.60 $0.60 $0.50 $0.56

Average $0.21 $0.30 $0.34 $0.28 $0.30

Stops

Young Mid-Age Mature Older Sum

Poor 40 80 80 40 240

Downscale 80 120 120 80 400

Lower-mid 160 240 280 160 840

Midscale 160 320 360 200 1,040

Upper-mid 80 240 280 160 760

Upscale 40 120 160 80 400

Wealthy 40 80 120 80 320

Sum 600 1,200 1,400 800 4,000

Simplified Example of Price Discrimination (Note: Tenure, Preprint revenue, Direct costs, EZpay, Service, Term

effects not included)

Demographic Groups – Reporting Price Effect with Target and Control Groups by Segment


10

POOR INCOME GRP

Total Targets 6,091

Total Controls 120

Average Increase $0.13

Average Rate $2.94

Avg Target Stops 19.0%

Avg Control Stops 15.8%

Price Elasticity -0.72

WEALTHY INCOME GRP

Total Targets 5,896

Total Controls 147

Average Increase $1.30

Average Rate $3.45

Avg Target Stops 12.6%



Case Study 1 – 125,000 HD Newspaper


11


Wealthy

Total Targets 2,151

Total Controls 7,960

Average Increase $0.49 13.63%

Average Rate $3.59

Avg Target Stops 4.32% 0.42%




12

client



13

Poor

Total Targets 253

Total Controls 1,120

Average Increase $0.33 9.49%

Average Rate $3.51

Avg Target Stops 7.51% 2.42%



client



14

Mather Targets BAU Targets No Increase

Targets 7,004 5,698 27,351

Paid 90.21% 63.53% 86.73%

Stops 8.25% 21.59% 6.92%

Stops but paid at least once 1.73% 2.90% 1.72%

Stops never paid 6.52% 18.69% 5.20%

On Mather rate & Paid 86.45% 0.00% 0.00%

On Mather rate & haven't Paid 1.84% 0.00% 0.00%

Upgrades 0.13% 0.91% 0.50%

Downgrades 0.21% 1.09% 0.99%

Decrease in rate 1.06% 1.68% 2.31%

Reverts 1.71% 12.62% 80.75%

Increase in rate 1.10% 62.11% 8.53%

Avg. Gross Increase $0.34 $0.45 $0.00

Avg. Net Increase $0.29 $0.27 $0.02

Ratio of Gross to Net 87.41% 60.37% NA

Incremental Revenue To Date $26,632.71 $18,586.29 $1,445.79

Incremental Revenue per target $3.80 $3.26 $0.05

Targets that have gone through expire & grace

Target files: 5/31 - 7/19

Acquisition Pricing


15

Targeted Acquisition – CLV Definition

The CLV metric allows you to allocate acquisition and retention resources to

their most profitable use through rigorous fact-based analysis

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 60 120

180

240

300

360

420

480

540

600

660

720

Expected Lifetime

(Area Under Curve)

Likelihood of Survival:

New Customer

CLV is the retention-adjusted operating margin for an individual customer within 24 months of acquisition

CLV = [(Circ Rev + PP rev – Del Cost – Prod Cost)*(Expected Lifetime)] PV – Acquisition Cost

16


17

91902

91910

91911

91913

91914

91915

91932

91941

91942

91945

91950

91977 91978

92007

92008

92009

92014

92019 92020

92021

92024

92025

92026

92027

92029

92037

92040

92056

92064

92065

92067

92069

92071

92075

92078

92083

92084

92091

92101 92102

92103 92104 92105

92106

92107

92108

92109

92110

92111

92113 92114

92115 92116

92117

92118

92119 92120

92121

92122

92123

92124

92126

92127

92128

92129 92130

92131

92139

92154

92173

(3,4] (2,3] (1,2] [0,1]

a=1 b=2 c=3 d=4

Zipcode Group

Acquisition Report – Weekly YOY Comparison


18

Date

Cohort

Base Date

Cohort

Wk of

Retention Starts

Base

Starts

Avg. Start

Rate

Base Avg.

Start Rate

Avg.

Retention

Base Avg.

Retention

1/10/2011 1/11/2010 9 462 527 $1.73 $2.05 84.3% 88.3%

1/17/2011 1/18/2010 8 399 427 $1.96 $1.89 82.8% 86.2%

1/24/2011 1/25/2010 7 454 434 $1.81 $1.97 85.3% 90.1%

1/31/2011 2/1/2010 6 422 462 $2.13 $2.07 90.9% 91.0%

2/7/2011 2/8/2010 5 454 412 $1.89 $2.07 82.0% 96.6%

2/14/2011 2/15/2010 4 333 466 $1.74 $1.89 89.4% 98.0%

2/21/2011 2/22/2010 3 404 584 $1.45 $1.94 92.1% 94.8%

2/28/2011 3/1/2010 2 389 429 $1.73 $2.15 94.3% 98.3%

3/7/2011 3/8/2010 1 368 476 $1.32 $2.32 2.5% 23.6%

Total 457 456 $2.12 $2.04 65.9% 70.4%

Mar - Aug 436 437 $2.19 $2.09 55.7% 59.3%

Sep - Mar 481 474 $2.06 $1.65 74.8% 66.0%

A profit group

These are the results of a six-month acquisition test – higher prices/maintain starts/better retention. Weekly reports update performance metrics

Targeted Upgrades & Bundling


19

Targeted Upgrade and Up-sell Existing Customers


20

Customer Timeline

Customer acquired as Sunday-Only for $1.00 per week

Targeted for paid-upgrade to 3-day service at $1.75 per week

Targeted for paid upgrade to 7-day service at $2.50 per week

Targeted Renewal increase at 6 months tenure to $1.50

Targeted Renewal increase after 6 months to $2.25 per week



Targeted Upgrade Analysis: Prediction vs. Actual Comparison

• Success is defined as a restart not cancelling for one year

• Used 70% of restart data to predict the remaining 30%

• Measured success rate of predictions for the 10% most and least likely to be a success

• Predicted a success rate of 27.37% for overall, actual success rate was 28.25%

– Accurate for top and bottom deciles as well

Count Percent Count Percent Count Percent

Fail 184 90.64 Fail 121 59.31 Fail 1,463 71.75

Success 19 9.36 Succes 83 40.69 Succes 576 28.25

Count Mean Count Mean Count Mean

Predictor 203 9.77% Predictor 204 47.51% Predictor 2,039 27.37%

Actuals

Bottom 10 Top 10 Overall

Predicted

21

An Upgrade Report Follows the Performance of Upgraded HD Accounts – Enables Better Targeting of Upgrade Offers


22

Status as of 8/19/2011 of upgrades over the last 52 weeks

Total Upgrades 32,499

Remain Active 27,830 85.63%

Stops 4,669 14.37%

Remain Upgraded 25,357 78.02%

Remain Upgraded (Same Rate) 19,061 58.65%

Remain Upgraded (Lower Rate) 2,835 8.72%

Remain Upgraded (Higher Rate) 3,461 10.65%

Reverted to Original Rate Code 1,110 3.42%

Change Service Again 1,363 4.19%

COS- Downgrades 839 2.58%

COS- Upgrades 237 0.73%

COS- Same Days 287 0.88%

Avg. Net Increase $0.01

Current Revenue $3,136,013

Revenue at upgade $3,089,310

Revenue prior to Upgrade $3,079,597

Advertising Pricing – R & D


23

Advertising Pricing – Optimization Approach


24

Historical Booking Path for One Airline Route*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Days Prior to Departure

% o

f S

eats

Sold


• A pricing matrix of target Cost-Per-Thousand (CPM)

• Can be updated weekly to reflect sell-through rates for categories and segments at time intervals in advance of publication


25

Digital Advertising Pricing Matrix: CPM

Auto Retail Restaurants

Targeted Guaranteed 50 40 30

Targeted 40 30 20

Guaranteed 20 10 10

Base 5 5 5


• Print Advertising demand affects product design

• Advertisers overwhelmingly want to be in ―A‖ section

• Lack of ads in other sections reduce page count for content readers want

– Local/Metro

– Business

– Sports

• Pricing can be used to drive demand for ad space in other sections

• Tracking sell-through can improve product design & reader satisfaction


26

Digital Content Pricing


27

Digital Content – Test All Aspects of the Digital Program Using Multivariate Testing Program

• Meter levels for web site

• Price points – Stand alone products and bundles

• Annual vs. Monthly price ratio

• Warning message presentation for metered web site

• Acquisition messaging for bundles

• Track: Page Views, Unique Visitors, Conversion Rate, Machine ID, Mac ID, IP address (ABC advantages for having machine ID/mac ID)


28

Meter Optimization – Percent of Visitors That Reach Meter Level (Free Articles Per Month)


29

0%

20%

40%

60%

80%

100%

120%

1 100 meter

Percent of subscribers reaching the meter limit

The Percent of Visitors Reaching the Meter That Accept The Digital Subscription Offer


30

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

1 meter 100

Percent of subscribers that accept the offer

The Number of Expected Digital Subscribers


31

0%

2%

4%

6%

8%

10%

12%

14%

1 100 target meter meter

Expected number of subscribers


32

0%

20%

40%

60%

80%

100%

120%

1 100

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1 100

0%

2%

4%

6%

8%

10%

12%

14%

1 100

As meter is increased, fewer visitors will reach the limit of free articles per month

As the meter is increased (to an extent), a greater percentage of subscribers will accept the offer

We can experiment with the meter level to maximize the number of digital subscribers

Percent of subscribers hitting meter

Percent of subscribers that accept offer

Expected number of digital subscribers

target meter

Digital Content – Meter Benchmarks

• Average meter level across all affiliate publications is 13.75 articles per month

• Meter level settings range from 7-25 articles per month, depending on the publisher

• Most newspapers set their meter level between 10 and 15 articles per month.

– 68.5% of publications fall into this category

– 19% of publications have meter thresholds higher than 15

– 12.5% of publications use meter settings lower than 10


33

Digital Content – Why to Charge Print Subscribers for Digital Access

• Free online access for print subscribers dramatically reduces sales of online-only subscriptions…and leaves money on the table from print subscribers.

• Case Study: Two similar markets in the same state launched similar metered models. One offered print subscribers free web access; the other offered a steep discount for print subscribers, but not free access.


34

Market A:

• Free for print subscribers

• Daily Print Circulation: ~55,000

• Meter limit: 10

• Online-only price: $5.00

• Print subscriber price: Free

Market B:

• Discount for print subscribers

• Daily Print Circulation:~50,000

• Meter limit: 10

• Online-only price: $6.95

• Print subscriber price: $2.95

Digital Content – Why to Charge Print Subscribers for Digital Access

• Result: Online-only sales in Market A, where print subscribers got online access for free, were much lower than online-only sales in Market B, where print subscribers were charged $2.95 per month (vs. $6.95 for online-only).

– Online-only subscriptions sold: 74% lower in Market A than in Market B

– Revenue generated: 80% lower in Market A than in Market B

• Reason: Consumers do not see value in online-only when they see access is being given away for free the way it always has been (to print subscribers).

• Conclusion: Besides leaving money on the table from current print subscribers, not charging these print subscribers something—even at a deep discount compared to online-only—lowers sales from non-print subscribers.


35

Digital Content – Effective Bundling can Yield Incremental Print from Digital-First Customers

• Multiple Newspapers found subscribers acquired through the digital product chose print and digital bundles when offered a choice

• Testing bundles with relative price differences will find optimal price points

• Bundling example:

– Offer A: Print only $100/year (Sunday Only)

– Offer B: Digital only $50/year

– Offer C: Both Digital and Print $100/year


36

Digital Bundle Price Test – Incremental Print from Digital-First Subscribers


37

Digital Content – Pricing Benchmarks

• Publishers have experimented with a range of prices, from $4.95-$9.75/month for digital-only subscribers, and from $0-$2.95/month for print subscribers.

• For digital-only:

– 33% of publishers charge less than $6.95/month for digital access

– 40% of publishers charge exactly $6.95/month or $6.99/month for digital access

– 27% of publishers charge more than $6.99/month for digital access

– Publishers typically offer an annual option at 10X the price of the monthly option

• For print subscribers:

– Key: 80% of publishers charge print subscribers something for digital access, while just 20% offer free digital access to print subscribers

– The average discount across affiliates who charge print subscribers for digital access is 71.5%, with more than half of those publishers offering discounts of between 70% and 80% to print subscribers


38

Digital Content – Pricing Recommendations

• Offer a ―Complete Digital Access‖ plan that includes Apps, Digital Replica, and the Web Site

• Charge Print subscribers a discounted rate for digital content

• Offer an annual subscription around 10x the monthly price

• Set meter level around 10 free articles per month

• Create bundles that yield incremental print subscriptions from digital customers

• Test everything


39

Newspaper Business Model of the Future

• Bundles of digital and print products –

– Focused on profitable subscriber relationships

• 50/50 Subscriber revenue vs. Advertising revenue split

– Japan newspapers 70/30 today

• “Freemium” model for digital – 10% of visitors to the web sites will be paying customers.

– This figure is consistent with existing newspaper sites and other ―freemium‖ models such as Pandora

• Two Year Adoption – data suggest it takes about two years to reach saturation of “freemium” model of 10%

• Multiple Products & Revenue Streams

– Understand consumption of content and use to focus new products and advertising

9/1/2011

40


41 Contact Information

Matt Lindsay, Ph.D.

Mather Economics LLC

43 Woodstock Street

Roswell Historic District

Roswell, Georgia 30075

[email protected]

www.mathereconomics.com

(404) 395-4937 direct

(770) 993-4111 main

(770) 993-4977 facsimile

mailto:[email protected]

http://www.mathereconomics.com/

Technology

Strategic pricing mattlindsay