Advertising Pricing: Roundtable 2014 Wayne Parrish

Advertising Pricing…

a better way

Wayne Parrish, COO

August 21, 2014

Background

Postmedia is comprised of 10 titles, including leading broadsheet titles in five of the

top six Canadian markets

Experienced steady revenue growth through 2008, declines analogous to U.S.

market from 2008 through 2011, more precipitous than U.S. 2011 through 2014

Major cost reduction transformation programs began in 2010, at accelerated rate

2012-2015

Key element shift to functional structure in 2013, collaborative environment

The real challenge: How to add value on the revenue side?

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So What Started This Process?

As a pilot we assessed

Calgary Herald’s pricing

discipline, sales

organization, processes &

procedures to identify

opportunities to improve

performance – revenue.

FTI recommended various

solutions which include:

– Organizational

recommendations

– Workflow

optimization

– Web-based pricing

tool,

– Revised

compensation plan.

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y = -0.521ln(x) + 8.115R² = 0.143

0

2

4

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0 100 200 300 400 500 600 700

Rate

Per

Lin

eag

Lineage Thousands

Lineage vs Rate

Declining Market Share and Rate | Inconsistent

Pricing vs. Annual Spend

Retail Channel Org No

Longer Working

Food

Entertainment

Travel

Energy

Government

Finance

Education

Administrative Assistant

Executive Assistant

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2

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5

6

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Calgary Account Executives

Tiered Comp Plan

Not Fully Effective

Today Let’s Talk About Pricing

…pilot of a broader Sales Effectiveness Engagement

The objective was to analyze Calgary Herald’s sales organization, processes &

procedures and pricing to identify opportunities to improve performance – revenue.

One of the key recommendations was to abandon traditional and ineffective rate cards

and to develop a pricing tool with FTI Consulting.

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Declining Market Share and Rate

We Found Randomness in Pricing

…first we looked at all local retail together

The rate card has become irrelevant – we actually were raising it while yield was

falling

The R2 value indicated that there was 14% correlation between annual lineage by

a customer and the rate they paid.

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y = -0.52ln(x) + 8.1062R² = 0.1432

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

0 100 200 300 400 500 600 700

Rate

per Lin

age

Annual Linage per Customer

Linage vs. Rate

Rate Log. (Rate)

Yield Varied Significantly vs. Annual Volume

The Correlation Must be Better by Category

…well not really

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Automobile Entertainment

Finance Food & Drug

So We Agreed with the Recommendation

…discard rate cards and use a pricing curve

FTI developed a “Log Curve” model that incorporates a specific company’s historical

relationship between customer budget spend and effective line rate.

The logarithm regression model – best fit pricing - was used to determine pricing by

category based on the advertiser’s commitment to us.

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y = -0.667ln(x) + 9.8013R² = 0.9948

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$0 $100 $200 $300 $400 $500 $600

ELR

Annual Customer Spend ($000s)

Revenue vs. Expected RateProposed Log Curve

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$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$0 $50 $100 $150 $200 $250

ELR

Annual Customer Spend ($000's)

Employment Revenue vs. ELR

Current 2:1 Log Curve Adj.

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$0 $100 $200 $300 $400 $500

ELR


Automotive Revenue vs. ELR


Our Pricing Curve vs. Historic Yield

…for advertisers above the curve, you leave them there

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$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$0 $50 $100 $150 $200 $250 $300

ELR


Retail Revenue vs. ELR


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

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$9.00

$0 $50 $100 $150 $200 $250 $300 $350

ELR


Real Estate Revenue vs. ELR


The Revenue Leakage Below the Curve is 18% - 35%

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

0 200 400 600 800 1000 1200

Rate

Per

Lin

eage

Annual Revenue Per Customer Thousands

Current Rate Card vs. Pricing Model

FTI Mon-Wed Thur Fri Sat

So How Far Off Was the Rate Card

…compare to be fit market pricing

The best-fit rate curve that was developed while identifying millions in added revenue

is compared to our rate card

Not only was the rate card far from what the market would pay, it did not reward

commitment from our advertisers

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The Rate Card Was Ineffective

What The Pricing Tool Enables

Begins with Yield Analysis of All Accounts

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Key Attributes of the Pricing Tool

Replace static rate cards with a dynamic web-

based rate card that prices along the median

product yield adjusted by advertiser volume

for each unique market.

Incorporate audience data for each product so

the tool displays audience reach and profile

for each product with campaign CPM and

eCPM calculated.

The tool calculates continued lower rates as

the advertiser commits to higher spend

moving from a transactional dominated sales

process to longer, higher spend commitments.

It can take a sales rep hours to prepare multi-

product quotes with audience detail; with the

pricing tool it only takes minutes to prepare.

Improve

Yield

Sell

Audience

Advertiser

Commit-

ment

Improve

Sales Rep

Proposal

Process

Steps in FTI Using Pricing Tool

Confidential & Proprietary Tool

Step 1: Enter the total

budget the client expects to

spend and the percentages

to be allocated to each

product.

Step 2: For the Print (ROP)

Pricing Tool, choose the

category of the client.

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Step 3: Choose the position surcharge based on the

criteria and enter the number of modules the client wishes

to purchase for Monday – Wednesday and Thursday-

Saturday.

Step 4: For Digital

Pricing, enter the

number of impressions

the client proposes for

each respective

section/channel.

Step 5: For Mobile

Pricing, enter the

number of impressions

the client proposes for

each respective

section/channel.

Step 6: For Insert

Pricing, choose

the surcharge

based on the

criteria and enter

the number of

pieces the client

proposes.

Campaign

Model

What are the preliminary results…

Implementation this Spring

In Montreal for example, 9 out of 12 Account Reps have an increase in yield -

AVG yield increase of these 9 Account Reps is 9%

How are the Accounts Reps using – our annual contract renewal period is

coming up so we did not have the pricing tool for last year’s planning

For existing clients - using the tool to compare the rate by category and

then they may not use for every order once they set rates – will adjust as

we roll-out to use for all sales

Most beneficial for new business - used to determine where pricing should

be for both outside and inside sales and have been very effective

Seeing pick-up from dormant accounts – check why they were dormant and

found rates were actually too high – now pricing at the curve and going out

with “here is what I can do for you now” and gaining business

If advertiser rates are above the curve we have retained them at those

rates

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Additional Comments…

What Reps are now doing differently

First of all, the Reps like the pricing tool - it provides clarity and a guideline with

which to base rates

Now more conversations on working on increasing rates than before – the

change in commission plan has helped too

Always had volume based contracts – more “commitment” conversations are

occurring - needs more focus – working best for inside sales

We are using the pricing tool as we plan contracts that are upcoming next

month

We’re also getting a good ‘bang for the buck’ out of the increased visibility and

incentive this initiative has brought us

We need to use the audience information more – a few discussions now -

reach is generally better than advertisers understand and we just need more

training

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Thank you

Wayne Parrish / COO

[email protected] | 416.386.2810

Ken Harding / FTI – our partner

[email protected] | 303.689.8875

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Advertising Pricing: Roundtable 2014 Wayne Parrish

Marketing

Transcript of Advertising Pricing: Roundtable 2014 Wayne Parrish