Newspapers - Yieldmix | Home Page · Web viewIt is printed in thirteen centres including the Main...

NewspapersRevenue Management Project

Submitted by

Nandakumar G 27028

Sangeetha K S 27044

Contents1 Objective........................................................................................................................................2

2 Overview of the company..............................................................................................................2

3 Innovative ad spaces......................................................................................................................2

4 Revenue model..............................................................................................................................4

4.1 Factors contributing to revenue..................................................................................................5

4.2 Revenue variables and capacity constraints................................................................................5

Products.........................................................................................................................................5

5 Forecasting....................................................................................................................................6

5.1 Need to forecast....................................................................................................................6

5.2 Factors affecting forecast.......................................................................................................6

5.3 Current forecasting................................................................................................................6

5.4 Proposed forecasting.............................................................................................................7

6 Pricing............................................................................................................................................7

6.1 Pricing Strategies...................................................................................................................7

6.2 Other pricing strategies.........................................................................................................8

6.3 Price revision methods and frequencies................................................................................8

6.4 Price elasticity........................................................................................................................8

7 Revenue class:...............................................................................................................................9

7.1 Defining revenue class...........................................................................................................9

7.2 Protections.............................................................................................................................9

7.3 Impact of EMSR optimization..............................................................................................10

8 Optimization................................................................................................................................11

8.1 Effectiveness of the revenue management process............................................................11

8.2 Overbooking........................................................................................................................12

8.3 Other Revenue Maximisation methods...............................................................................12

Consultative Sales Approach........................................................................................................12

Audience Focus............................................................................................................................12

Behavioural Targeting..................................................................................................................13

9 Appendix......................................................................................................................................14

9.1 Appendix 1...........................................................................................................................14

9.2 Appendix 2...........................................................................................................................14

Revenue Management Page 1

1 ObjectiveThe objective of this project is to study the revenue management practices in newspaper industry.

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, and the forecast of

demand

Pricing strategies

Ad Space assignment and inventory control.

2 Overview of the companyThe 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.

3 Innovative ad spacesIn 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

4 Revenue modelNewspapers 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,

Trichy Saradhas, 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

ProductsThe 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 page2. Semi solus – 2 ads in a single page3. 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

5 Forecasting

5.1 Need 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 “Akshaya Tritiya” period. Thus in this case the

newspaper has to concentrate on which advertiser to focus during particular time periods.

5.2 Factors 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.

5.3 Current 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.

5.4 Proposed 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.

6 Pricing

6.1 Pricing 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

“Akshaya Tritiya” 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.

6.2 Other 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 advertisements are 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.

6.3 Price 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.

6.4 Price 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.

7 Revenue class:

7.1 Defining 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 3270B 3114C 2966D 2825E 2690

7.2 Protections

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 Protectio

nAuthorized

Area

A 3270 937 120 949 4687B 3114 1406 269 1416 3738C 2966 1406 367 1398 2322D 2825 469 56 463 924E 2690 469 48 461 461


7.3 Impact 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:

6. While selling forecasted level of space7. While considering margin for error8. 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 3457066B 3114 1137 35,40,475 1675 5215813C 2966 1039 30,81,240 1773 5258082D 2825 413 11,65,530 525 1481874E 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.

8 Optimization

8.1 Effectiveness 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 300Advertising 500 525 475Total 800 825 775

Costs Wages 350 350 350Newsprint 300 300 300Other 100 100 100Total 750 750 750

Profit/loss Total Revenue 800 825 775Total costs 750 750 720Profit 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.

8.2 Overbooking

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.

8.3 Other 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 ApproachTraditionally, 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 campaign including a host of publishing elements to achieve

success for the advertiser. The first thing is to identify what customers need. This is very important.

After identifying what they need, it’s very easy to find some solutions for that. During these crisis

years, it’s not easy to demand budgets from the client. So you should come up with good ideas, you

should come up with convincing ideas, in order to demand budgets. That’s why we should focus

more on customers’ needs. That means we must create specific and special projects in order to get

revenues. We should come up with multimedia ideas in order to get better solutions.

Audience FocusIn addition to becoming more customer-focused toward advertisers, news media companies around

the world are also becoming more focused on their reader/viewer/user audiences on behalf of their

advertisers and their editorial departments. Hundreds of media companies are ramping up their

audience research in order to develop new products in print and digital, and also to offer their

advertisers more insight into their 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 that user 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.


9 Appendix

9.1 Appendix 1

9.2 Appendix 2

Advertisement Tariff of The Hindu (Metro Plus) Rates in sq. cms. with effect from May 2011

Edition Metro Plus (Weekdays) Metro Plus (Saturday)

Col B/W Col B/W Col

Chennai Retail * 1140 830131

0 945

Chennai National * 1600 1240

1725 1450

Coimbatore 230 200 230 200 Madurai 110 75 110 75 Trichy 90 75 90 75 Trichy City - - - - Puducherry 65 55 65 55 Cochin 130 110 130 110 Trivandrum 110 100 110 100 Hyderabad City 320 255 320 255

Hyderabad Edition - - - -

AP Split - - - - Vizag 145 130 145 130 Vijayawada ** 110 75 110 75 Bangalore 185 150 185 150 Mangalore 55 45 55 45 New Delhi 140 105 140 105 ** - For Metro Plus Vijayawada means Vijayawada City + Guntur


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