Study from Marketing Professor Offers Ailing Newspaper Industry Solution to Increase Profits
June 16, 2016
The ailing newspaper industry could increase gross profits by as much as 17 percent by adopting a subscription formula developed in a study from the School’s Department of Marketing. The model determines the best combination of print, online and mobile news distribution, as well as the best subscription pricing, to optimize profits for newspapers. Forthcoming in the Journal of Marketing, the study offers the first model of its kind that can monetize the different formats of news delivery, offering a sustainable subscription solution for an industry with revenues in steady decline over the past decade.
By collecting and studying reader-preference data from newspaper readers, advertiser transactions and marketing investments of a major west coast daily newspaper, the researchers built a math model that derives optimum subscription bundles that can help newspapers target their audiences with plans that can maximize both subscription and advertising profits.
“Over the past decade, the distribution of content by media companies has greatly transformed due to changing consumer preferences, leaving advertisers in need of new ways to get in front of news consumers and newspapers suffering from declining ad dollars,” said Vamsi Kanuri, assistant professor of marketing at the School, who conducted the study along with researchers from the University of Missouri. “This model provides a well-designed, sustainable solution for news companies and advertisers in great need of multi-platform subscriptions plans. If applied, it could have a sizable impact in the industry.”
The researchers gathered preference data for subscription bundles from more than 1,000 readers of a daily newspaper with three main revenue streams: print subscriptions, print advertising, and digital advertising. The readers were screened based on their frequency of news consumption through the newspaper’s media formats (print and online) and smartphone and tablet device ownership. The data was used to measure the demands of reader segments and advertisers corresponding to alternative subscription bundles. These demands, along with estimates from a dynamic marketing-mix response model calibrated using nine years of archival data, were then put into a math model, specifically a mixed-integer nonlinear optimization program, that simultaneously derived the optimum number, composition, and prices of subscription bundles that could be offered to each target audience.
To view the full study, visit: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2711283.