Price Slash and Growth

The following appeared in an announcement issued by the publisher of The Mercury, a weekly newspaper:

“Since a competing lower-priced newspaper, The Bugle, was started five years ago, The Mercury’s circulation has declined by 10,000 readers. The best way to get more people to read The Mercury is to reduce its price below that of The Bugle, at least until circulation increases to former levels. The increased circulation of The Mercury will attract more businesses to buy advertising space in the paper.”

Discuss how well reasoned . . . etc.

The writer reasons that lowering the price for the newspaper will help it to increase its falling circulation as in the last five years the newspaper has lost a bulk of readers to a lower-priced competitor. The writer is aware that lowering the price will lower direct sale revenues and justifies it by projecting more advertising revenue due to an increased circulation. I am cautiously optimistic about this reasoning.

I agree that lowering price will help Mercury compete with Bugle on the price front. I also agree that a newspaper can rely on its advertisement revenues and not on its sale revenue. This strategy has enabled many newspapers free distribution. eg. In London quite a few local newspapers (like City A.M., London Lite and Metro) are distributed free of cost. This enables them to capture a high readership and in turn attract a lot of local advertisement. This is generally enough to keep them profitable and growing. The same principle helps many newspapers to offer a discounted selling price and still be profitable.

However a price cut is not a silver bullet to increase readership overnight. Of every one "free" newspapers that succeed, there are other ten that fail. It may also be noted that premium newspaper brands sometimes do not lower their prices and still command high circulation due to quality of content, strong distribution channels and creative marketing. The newspaper needs to sit back and analyze what made it loose 10000 customers over 5 years. Was it simply availability of a lower-priced alternative or were there other reasons too? After a thorough analysis a comprehensive strategy can be put in place of which price cut can be a part. Without such a soul-searching exercise there are no guarantees how effective a price cut may be in the long run.

In the end it is good to be able to get a quick fix to a problem. However, as they say, there are no short cuts to a place worth going. If Mercury indeed aims increase its readership and grow consistently over time, it needs to do more than a simple price slash. Undoubtedly a price slash would help. Whether it will be able to do so at the scale envisioned by writer is, however, doubtful.