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The future of publishing - Price strategies for digital magazines
Price strategies for digital
magazines - an opportunity
to correct past mistakes
by Dr Florian Bauer
Smartphones, tablets, PCs and the like create myriad possibilities: never before have so many different
sales channels been made available to companies. Publishers too have very high hopes for these new technologies and are developing digital options, such as apps and PDFs, for their magazines. But how much
should such an e-publishing product cost? Are readers even prepared to pay for paperless editions? And
how should the pricing strategy evolve in order to achieve the desired future sales in this segment
Publishers see themselves as being in a similar
position to when online services were launched.
In comparison to print, some cost aspects, such
as actual printing and distribution expenses, do
not arise for digital content. Therefore, instead
of being guided by the price of print copies,
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»In reality, consumers rarely have access to
comprehensive market information and do
not base their decisions on a priceperformance analysis by comparing all
alternative products. «
The future of publishing - Price strategies for digital magazines
publishers have developed a new business model for online magazine portals. The offer of free
content should attract a large number of readers,
making it possible to generate ample advertising
income through a high click rate. Having made
their content available free of charge, publishers
must finance their activities via advertising income. Consequently, readers are no longer seen
as just customers, but also as products.
For this reason, a willingness to pay for
digital products was not encouraged and ultimately was permanently impaired. Why would
anyone pay for online content now when it has
previously been available free of charge? It is
important that the same mistake is avoided in
the introduction of new e-publishing products. A
willingness to pay must be fostered among readers, because only then will it be possible to exploit sales income and margins in the long term.
"Fostering a willingness to pay" might sound
strange, but publishers are now confronted with
precisely this task. The term "e-publishing products" comprises products that are completely
new to readers and therefore a pricing structure
of what consumers are prepared to pay is not yet
in place. It will take time to develop a willingness to pay in future customers- and it may
not develop at all if publishers do not at least try
to establish products as being of high value and
subject to charges. Publishers often seem to
overlook this formative aspect which is central
to the segment's future sales.
In order to achieve this, the right pricing
Pricing must be determined by
the decision-making process
of a real consumer
strategy is vital. In the past, publishers have assumed readers were guided by rational purchasing behaviour and, consequently, their actions
were led by the "homo oeconomicus" concept
which follows this logic. Added to this was a
degree of uncertainty from publishers, who
feared that they might burn their fingers if they
played a risky pricing game. As a result, prices
were generally established on the basis of the
competition or "gut instinct", using the homo
oeconomicus model. But in reality, consumers
rarely have access to comprehensive market
information and do not base their decisions on a
price-performance analysis by comparing all
alternative products. In the media segment in
particular, knowledge of prices is not very
prevalent. This is confirmed by the findings of
recent surveys conducted by the German market
research organisation Vocatus: around one in
three subscribers have no or little idea of what
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their magazine costs. This trend is even more
prominent in the e-publishing segment. Unimaginable from the homo oeconomicus point of
view, but in everyday life price is not the main
priority: instead habit, personal preference, content and sales channels are regarded as more
important. One aspect of virtual sales channels,
which presents a far greater hurdle than the actual price, is how difficult it is for customers to
pay. This function is often overlooked. Payment
options can be extremely complicated and far
removed from the processes with which customers are familiar in the offline world. Consequently, many more potential customers are
inhibited by the required "readjustments" than
by the ultimate price level. For e-publishing
products, it is necessary to offer added value in
comparison with free online editions. This is not
necessarily related to the content of articles, but
means that additional features are expected,
Generating added value
such as interactive or multimedia elements, easy
operation or selected regional information. A
clear distinction has to be made between free
internet content and e-publishing products in
order to make a price difference justifiable and
therefore establish customers' willingness to
pay. Starting with low prices for e-publishing
products is an inappropriate strategy from a
psychological perspective in two respects: first,
the high expectations of added value are
disappointed and second, the reference price,
which acts as a baseline for all future price
points, is set at too low a level.
Naturally a product's overall appeal plays a
major role in attracting new readers. However,
the initial enthusiasm and curiosity of users will
decline in the long term, so other tools must be
found to establish loyalty. In this respect, the
print segment is to some extent protected by the
habitual behaviour of consumers; after years of
subscribing to a specific magazine, the reader
will find difficulty in giving it up. This form of
long-term loyalty has not yet had a chance to
develop in e-publishing. Consequently, in order
to ensure that readers continue to use an epublishing product, the first step must be to
establish new and positive user experiences to
avoid their enthusiasm dwindling. In time,
routine reading habits will develop and users'
willingness to pay will also grow. Publishers
must promote the development of users' reading
habits through these positive experiences. The
work does not end once the application has been
downloaded.
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The future of publishing - Price strategies for digital magazines
Quality elevates price
will suggest a higher quality product. For
example, insurance and business magazines that
are offered for a pittance fail to win the trust of
readers.
Willingness to pay depends not only on the
product, but also on the purchasing circumstances. At present, consumers are prepared to
pay for apps, but this does not extend to the
same content on the magazine's website. This
indicates that it is essential to protect the circumstances in which willingness to pay exists.
Fostering a strong connection between the
internet and apps will only highlight the
arbitrary nature of online pricing, and, ultimately, the willingness to pay for apps and the like
will drop to the same level as that of the
internet.
We are treading new ground with epublishing - and this involves both publishers
and users. The latter do not yet have a feeling
Willingness to pay must
develop
for the worth of a magazine application and,
therefore, products cannot be categorised into
"too expensive" and "price I am prepared to
pay". For publishers, this represents a major
opportunity because it enables the mistakes
made with free internet publications to be
rectified and influences readers' willingness to
buy from the outset. Ideally, the introductory
prices of e-publishing products should be set at
a relatively high level, which will convey their
value and establish a certain willingness to pay
from the start. Over time, this should grow and
not be diminished with cheap offers or regular
sales promotions. Even if the price for the app
has clearly been set too high and consequently
does not generate the desired download rate, this
can ultimately be remedied with a downward
correction. However, if the initial price is set
low, it is more difficult to increase it at a later
date and there is a significant risk of losing
readership in the process. Furthermore, premium
subscriptions, which are common in the print
segment, are not a suitable strategy for building
up high regard for new e-publishing products.
This is because while they might only have
minimal negative consequences in the offline
segment, they could ruin the basis of future
income in the e-publishing sector.
E-publishing must develop a valid and appropriate pricing strategy to ensure that it does
not repeat the mistake of internet publishing by
making content available free of charge. First
Conclusion
and foremost, it must abandon the vision of the
"rational consumer", because in the actual
decision-making process, the best priceperformance ratio is not the key element: many
more factors also play a role, including content,
handling and previous personal experience with
a particular magazine.
Above all, it is important that manufacturers
believe in their own e-publishing products. If
the quality is there, the price can reflect the
value of the products on offer. Reference prices
do not yet exist in this "new world" and
publishers, therefore, have a unique opportunity
to shape customers' willingness to pay and
overcome the rigid rules of print media.
Appropriate pricing strategies not only make it
possible to produce valuable margins, but also
enable publishers to establish a third pillar of
income alongside print and advertising sales:
e-publishing.
Dr Florian Bauer
is a member of the Management
Board, of the market research and
consulting organisation Vocatus AG
and has been carrying out extensive
research into decisionmaking anomalies and price psychology effects for
more than 20 years. Before founding
Vocatus with two colleagues in 1999,
he was a corporate consultant at Booz
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Allen & Hamilton. Dr Bauer has
provided consultancy services to more
than 50 newspapers and magazines
and is a lecturer at various universities.
In addition, he is Chairman of the
Advisory Council of the Federal Association of German Market and Social
Researchers (Berufsverbandes Deutscher Markt- und Sozialforscher,
BVM e. V.).