1. Mather Economics LLC May 2014 Circulation Pricing Strategies
Achieving ROI…
Mather Economics LLC
May 2014

2. Agenda Mather Economics - Firm Overview Market Based Pricing Overview
Newspaper Case Study
Bundling Strategy
Customer Lifetime Value
Copyright 2014 Mather Economics LLC. All rights reserved.

3. Mather Economics – Firm Overview
Founded In 2002 to bring leading practices in applied microeconomics to subscription businesses
Extensive experience in price optimization for subscription services
Pricing strategy & analytics: Market based pricing process
Customer profitability & customer lifetime value (CLV)
Over $4 Billion in subscription revenue under management
Data on nearly 30 million subscribers received weekly
Additional suite of economic services
Predictive modeling & forecasting
Econometrics: digital and print advertising
Market analysis
Digital analysis: meter optimization, paywall strategies, web advertising yield
Marketing effectiveness
30 Employees and 10 academic affiliates

4. Mather Economics – Media Experience
Locations of Mather Clients in North America
Mather Economics has advised over 400 publishers in North America, including 36 of the top 50 and the largest media holding companies at the corporate level.
Locations of Mather Global Clients
Includes partners in: Toronto, Ottawa, Montreal, Vancouver, Halifax, Calgary, Edmonton, Windsor, Sydney, Melbourne, Auckland, Helsinki and Tampere, Finland.

5. Mather Economics – Media Experience (current and former)
Publishing Holding Companies
Advance (8)
Belo (3)
BH Media (30)
Cox (4 papers)
Gannett (80)
GateHouse (18)
Journal Register (16)
Knight Ridder (5)
Landmark (4)
90 Magazine titles on retainer or in active trial
Lee Enterprises (30)
McClatchy (30)
Media News Group (25)
Morris Communications (12)
Post Media (10)
Sun Media (30)
Scripps (13)
Swift (9)
Tribune (6)
Individual Publishers
Akron Beacon Journal
Columbus Dispatch
Houston Chronicle
Little Rock Democrat Gazette
Chicago Sun-Times
New York Daily News
Minneapolis Star Tribune
New York Times
Orange County Register
San Diego Union Tribune
St Petersburg Times
Toronto Star
Wall Street Journal
Many others….

6. Who We Do Business With…
Newspaper Publishers
Leading Fast Food Chain
Global Competitive Energy
International Hotel Company
Instant Lottery Game Manufacturer
Electric Utility & Power Coop
Cell Phone Service Provider
Internet-based OTC Commodity Exchange
Food Ingredients Digital Exchange
Cable Television Companies
Temporary Staffing Agency
Large Hospital
Telecommunications Company
Multinational Financial Services Firm
Satellite Broadcasting Company
Magazine Publishers

7. Market Based Pricing Overview

8. Subscription Yield Management – The Comprehensive Approach
Managing subscription revenue requires an integrated process for Acquisition, Renewal, Upgrade/Bundle, and Revenue Forecasting & Budgeting
Customer Lifetime Value (CLV)
Targeted
Acquisition
Market Based Pricing (Targeted Renewal)
Upgrades and Bundling
Revenue Forecasting & Budgeting

9. Market Based Pricing – Goal & Approaches
Set markup over cost applied equally to all units
Cost-Plus Pricing
Match competitors’ prices
Competition Pricing
Focus on what customer indicate they are willing to pay
Customer-Driven Pricing
Focus on the value that customers place on the product (which can change over time)
Market-Based Pricing
Charging too high price for a less-than-premium product causes high price-related churn
Charging too low price for a premium product “leaves money on the table” and causes customers to discount the value they receive
Copyright 2013 Mather Economics LLC. All rights reserved.

10. Market Based Pricing – Overview
Market based pricing manages profitability on a subscriber level
Matches pricing to customer’s individual value of service
Calculates operating margins for each account using revenue, direct and operating costs, and capital investments
Each subscriber’s price is analyzed at key points in their lifecycle
Utilizes company’s ability to have 1-to-1 account management
Customer’s value of service changes over time
Many factors build our pricing model – customized by client engagement
Weekly and monthly reports compare actual revenue and cash flows to predictions for test and control groups
Market based pricing has been implemented at over 400 newspapers
Size varies from 5,000 To 1 million home delivery accounts
Copyright 2013 Mather Economics LLC. All rights reserved.

11. Targeted Pricing Overview – Traditional Increases Disproportionately Affect New Customers

12. Sample Customer – Segmentation and Pricing Grid
Simplified example of price discrimination (Note: tenure, preprint revenue, direct costs, EZpay, service, term effects not included)
9/20/2018 Copyright 2009 Mather Economics LLC All rights reserved

13. Sample Customer – Segmentation and Pricing Grid
Simplified example of price discrimination (Note: tenure, preprint revenue, direct costs, EZpay, service, term effects not included)
9/20/2018 Copyright 2009 Mather Economics LLC All rights reserved

14. Three Year Case Study

15. Market Based Pricing Case Study…
Estimated
Demand
Curve
Major West Coast Newspaper
Project began in December 2010
$4.26 per week average price
$1.6 million in weekly revenues
Breakeven
Copyright 2014 Mather Economics LLC. All rights reserved.

16. Market Based Pricing Case Study (con’t)
$4.70 per week average price
$1.73 million in weekly revenues
Copyright 2014 Mather Economics LLC. All rights reserved.

17. Market Based Pricing Case Study (con’t)
$5.20 per week average price
$1.73 million in weekly revenues
Copyright 2014 Mather Economics LLC. All rights reserved.

18. Market Based Pricing Case Study (con’t)
$5.97 per week average price
$1.86 million in weekly revenues
Copyright 2014 Mather Economics LLC. All rights reserved.

19. Case Summary – Capturing Consumer Surplus or Charging For The Value of Your Products
Copyright 2013 Mather Economics LLC. All rights reserved.

20. Bundling Strategy & Analysis
Copyright 2013 Mather Economics LLC. All rights reserved.

21. Specialization Determined By The Extent of The Market
The market for printed products with local and national news lends itself to a bundled content strategy
The market for content delivered digitally is vast; specialization will be much greater than printed market; Unbundling may be Necessary or Optimal
Implications for digital transformation: extend brand into specialized content categories to attract audiences; advertise against those audiences
Develop products & bundles targeted at customer segments
Low-entry price point
Premium access to all content at high price
Digital-focused bundle with limited print
Print-focused bundle with limited digital
Loyalty groups – differentiate products that are close substitutes
Copyright 2013 Mather Economics LLC. All rights reserved.

22. What Do Paying Subscribers Read on the Website?
Subscribers primarily read Local News, Sports, Editorial and Politics
Non-subscribers read Entertainment, Travel, Technology/Business
Copyright 2013 Mather Economics LLC. All rights reserved.

23. Print Product Demand Suggests Opportunity for Premium Package; Could be $75,000 per Week…
SEGMENT
7 DAY
3 DAY
SUNDAY

24. Digital Product Demand – Similar Product Differentiation Opportunity
Price
ALL
ACCESS
TABLET
BROWSER
SMART
PHONE
Quantity

25. Digital Audience Segmentation – Highly Engaged Readers Often Focus on One or Two Topics
Categories of Digital Site Traffic Users Page Views
Engaged Fans 3% 40%
Regulars 8% 19%
Occasional 17% 10%
Fly-by 72% 15%
Scrapers* % 16%
Fans often are only fans of one or two sections
51% one section
14% two sections
5% three sections
2% four + sections
28% site-wide
* Page views from these bots can bias metrics such as conversion rates and effective Cost Per Thousand (CPMs)
Figures cited by Scout Analytics; consistent with Mather Economics findings from site traffic data
Copyright 2013 Mather Economics LLC. All rights reserved.

26. Develop Digital Products To Compete with Specialists – Unbundling and Repurposing Existing Content or Obtain New Content
Steps to developing and launching new products
Identify the audiences:
Business
Entertainment
Politics
Restaurant
Real Estate
Estimate demand for Specialized products
Digital consumption behavior
Print pricing history
Test promotions
Acquire these customers
On-site marketing messages & promotion offers
Social media
Registration
Retargeting using digital marketing tools
Advertise against these audiences
Copyright 2013 Mather Economics LLC. All rights reserved.

27. Bundling Dashboard – Product & Pricing Parameters
9/20/2018

28. Bundling Results – Predicted Adoption and Revenue from Bundles
Copyright 2013 Mather Economics LLC. All rights reserved.

29. Sample Revenue Projection from Bundle Conversion of Existing Customers (Print to Print + Digital)
Copyright 2013 Mather Economics LLC. All rights reserved.

30. Digital Content Pricing and Bundling – Recommendations
Digital content pricing strategy needs to reflect digital advertising revenue & inventory at risk
Digital pricing and packaging need to be integrated with print products; develop bundles focused on customer segments
Consider low-cost introductory offers, such as $0.99 for 4 weeks
Create incentives for subscribers to select bundles that yield incremental print subscriptions from digital customers
Test everything: Meters, Pricing, Messaging
9/20/2018 Copyright 2009 Mather Economics LLC. All rights reserved.

31. Customer Lifetime Value (CLV)

32. Customer Lifetime Value (CLV) – Introduction
The power of CLV (the present value of a customer’s total contribution to cash flow) is that it clarifies key strategic considerations, such as:
What is the likelihood a specific customer will leave?
How is a customer’s value affected by attributes or targeted incentives? What will happen to my bottom line if those attributes change by 10%?
What customers should we acquire? What incentives should we use?
What specific conditions optimize profitability for a given level of risk?
How do we operationalize CLV to impact retention and drive increased customer satisfaction through targeted customer experiences?
CLV allows you to conduct certain Marketing analyses with increased rigor and develop a scoring system to drive optimal action based on individual customer value
Copyright 2014 Mather Economics LLC. All rights reserved.

33. Customer Lifetime Value (CLV) – Definition
CLV is the risk-adjusted operating margin for an individual customer within 24 months of acquisition
CLV = [(Revenues – Variable Costs)*(Expected Lifetime)] PV – Acquisition Cost
Expected Lifetime
(Area Under Curve)
Likelihood of Survival:
New Customer
CLV metric allows you to allocate acquisition and retention resources to their most profitable use through fact-based analysis
Copyright 2014 Mather Economics LLC. All rights reserved.

34. Customer Lifetime Value (CLV) – Building Model
Once the source data is identified and available in a central location, the CLV model can be implemented in a scientific way
Construct a customer service history
Start and end date
Usage statistics (e.g., prices, products…etc)
Product/price/discount changes
Attach indicators to the service history
Region
Industry metrics (e.g., benchmarks, competition, growth trend)
Organization-specific metrics (e.g., size, advertising spend, segment)
Develop a retention (survival) model
Calculate “best fit” (regression) model correlating customer variables to retention
Calculate the CLV using the retention rates, revenue and cost metrics
How the model is built – and implemented – is crucial to making CLV scores actionable and statistically significant
Copyright 2014 Mather Economics LLC. All rights reserved.

35. Customer Lifetime Value (CLV) – Analysis
Our market based pricing analysis and actions provide many of the components of CLV:
Retention has been modeled using survival analysis
A/B testing has validated price elasticity for customer segments
Quantified variances in price elasticity by income, age, service
Direct costs and revenues by customer are integrated with retention analysis
Targeted upselling are utilizing analytics to increase circulation and revenue by account, which will improve CLV for those customers
CLV can be developed using consistent data and metrics employed in Market Based Pricing
Copyright 2014 Mather Economics LLC. All rights reserved.

36. Customer Lifetime Value (CLV) – Acquisition
Zip code Group

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

38. Customer Lifetime Value (CLV) – Sample Overview

39. Customer Lifetime Value (CLV) – Acquisition
CLV scoring and household rankings allow for targeted acquisition list development
Relevant entry price points by household CLV group
Improved profit from acquisition campaigns
Expense optimization for acquisition spend
Bundled pricing offers for print and digital
Better targeting of Advertiser’s best customers
CLV will reflect the cost-per-order and offers to be employed
Dashboard reporting of results and strategic insight

40. Customer Lifetime Value (CLV) – Retention
CLV scoring and household rankings allow for targeted list generation for retention campaigns
Proactive strategies
Expense optimization
Bundled pricing offers for print and digital
Metrics available to CSRs that will guide them in assigning stop-save offers, credits, and premiums
Proactive and reactive
Improve subscriber relationship
CLV will reflect the cost savings, retention, and offers to be employed
Dashboard reporting of results and strategic insight

41. Circulation Pricing Strategies – Achieving ROI Conclusions…
Circulation revenue a growing part of the media business model
Strategic pricing and yield management is a key component of maximizing operating margins much like other industries
Customer characteristics that can be used to segment the market and target prices include:
Product
Platform access
Demographics
Account history
Cost to serve
Advertising value
High-priced customers should receive higher-value services. Continuing to raise prices for the same product will become less effective over time
Copyright 2013 Mather Economics LLC. All rights reserved.

42. Mather - Contact Information
Matt Lindsay, Ph.D.
(404)
Chris Christian
(816)
Mather Economics LLC
1215 Hightower Trail
Suite 100, Building A
Atlanta, GA  30350
(770)
Copyright 2014 Mather Economics LLC. All rights reserved.