Excerpts from an article by Frederic Filloux on Monday Note
By applying their technology to the publishers’ antiquated subscription systems, the two Internet giants could help create a sustainable news ecosystem.
When you go online to book a plane ticket from San Francisco to New York, your search will typically turn up about 1.2 million flight combinations, each with a different price. Considering that 30,000 flights crisscross the United States every day, that means airlines offer a few hundred million different rates for the roughly one million passengers in the air at a given moment. Once you’re on board, though, the service you receive is basically identical to what the passenger sitting next to you gets. Your seatmate in row 34 might have paid 20 percent more (or less), but you’ll never know (unless you ask her). Why? Well, she might have bought her ticket at a different time than you did, purchased it from a different website, or requested greater flexibility.
That’s the power of dynamic pricing. E-commerce has allowed this practice to spread far and wide, to many sectors that never used it before the Internet.
The news sector has been almost untouched by this revolution. By and large, publishers have never bothered to do what airlines and other sectors have long been doing: adjusting their pricing dynamically based on what the market is willing to pay.
To be fair, the business structure of publishing, whether for advertising or subscriptions, is not well suited to sophisticated revenue management techniques. In the old days, between the physical newspaper product, which had only a few dozen ad positions per edition, and an approximate distribution map, the industry had no incentive to make the move. TV was faster to embrace dynamic pricing for ad sales, in part because it had hundreds of slots available over a 24-hour period and could command a much higher price per unit. It’s true that Netflix or Amazon Prime, have settled on a flat rate. But they’re still dynamic: Their price is fixed, but they offer a different product for each customer.
When publishing moved online, dynamic pricing emerged — in the form of auctions for ads. Newspaper and magazine publishers, however, lost out. They handed auction management to the emerging ad tech sector, which now captures a sizable chunk of the value chain. And they never considered how to price subscriptions dynamically and in real time.
It seems there is room for improvement in the publishing world. The news industry used to pat itself on the back, saying its business couldn’t be compared to any other. That is less and less true. Like other products, news now fiercely competes for three precious commodities: attention, time and discretionary income.
Digital publishing, especially mobile and social consumption of information, has been the great equalizer in news consumption.On a smartphone home screen, news competes with social networks, games and service-oriented apps for tasks like transportation and shopping. And when it comes to the propensity to pay for a news product, customers will spread their discretionary income between cell phone plans, TV, streaming services (Netflix, Amazon Prime) and a myriad of online services.
The shifts that rocked the news industry should have been sufficient to get publishers to adopt an airline-like strategy. Carriers know they have to adjust the price structure if they want to avoid empty seats. Publishers have an even bigger incentive: serving an additional digital subscriber has a marginal cost of next to zero.
Read the full article on Monday Note
And check out Zuora’s e-book – Top 4 Imperatives for D2C Subscription Businesses to learn more about dynamic pricing strategies.