Sunday, November 17, 2013
The chart below demonstrates the approach for developing a successful marketing strategy. The graphic suggests that a vision and mission should drive the price, place product and promotion marketing components and that once these 4 Ps are identified a strategy can be developed.
It is interesting to ask which of the 4 P’s is most important. To determine value of each of the four Ps requires a vision and mission statement that clearly defines the nature of a business, the market segment to be served and an idea of what success looks like.
For my classes at the University of Houston’s Bauer College of Business I have used the example of an individual with a pressure washer and limited funds wishing to enter into the maintenance business and grow to be a major player in home and commercial maintenance.
This individual might create a vision statement that as follows: 1) To make available quality exterior maintenance service to home and business clients throughout the state of Texas, and 2) Create value and make a difference.
The mission statement might be as follows: 1) Using internal cash flows to develop an organization that provides exceptional quality service at reasonable rates, 2) Create a network of technology and industrial partners to provide innovative and effective solutions for exterior building maintenance, 3) Develop an organization that is highly effective, lean and fast moving and 4) Maximize financial returns.
This vision and mission statement would help determine how the components of marketing would fit together to develop a marketing strategy. Since we know that it is to be a self-financed operation and that the only service now available is pressure washing, identifying the market that can be served now is important. The potential customers are those that need pressure washing but can’t afford or don’t want the services of well-established exterior maintenance companies.
After some consideration a strategy statement might be developed. In this case the marketing strategy statement might be: To market convenient, low price pressure washing service to individual home and small business owners while adding services and markets as cash flow allows.
Here the Ps requiring attention will be promotion to efficiently let potential customers know of the service available. The place P will also be important in that the service should be offered only in areas that can be served with existing personnel and equipment.
It is with the vision and mission driven strategy that the Planning, Organizing, Directing and Controlling components of management can be employed. At this point strategy directs the development of the tactics that are in alignment with the vision and mission.
Planning would start with available resources and describe the process to grow from a single pressure washer driven organization to a statewide organization providing services to a large base of customers. The plan would describe the growth rate based on reasonable customer base growth and new services to be offered. The planning would consider the type of work force to deliver the service (brokered, through other providers, independent contractors, employees and so on).
The plan would describe the internal cash flows and the amount of cash to be used to maintain and grow the business. It would also describe approaches to increase cash flows, incur debt or invite equity partners into the business.
The plan would also describe the whether the types of equipment needed, when it would be needed and if it should be leased or purchased. Finally, the planning process would indentify the methods by which the company would be managed from sales approaches to accounting procedures from quality control to credit management and job logistics.
After the plan is developed and compared with the vision, mission and strategy the business can set the organizational structure, understand how to direct activities and create reports that allow management to gauge how closely actual results measure against planned goals.
This is a simple example but shows the importance of understanding what an organization wishes to do (vision/mission and strategy) before developing tactics.
I recently visited with a young entrepreneur who had a small business that was seasonal. This entrepreneur also had a pretty clear idea of what he would like his business to grow to over time.
Faced with the need to fill in the off-season business cycles he thought he would provide other types of seasonal businesses. While it was a reasonable approach the seasonal business would not move his company toward the ultimate goal he had set for the business. I advised that using an approach of filling available work time with work that didn’t support the long-term goals of the business could change the focus and perhaps prevent the attainment of the long-term goal.
Young entrepreneurs aren’t the only people facing this dilemma. Seasoned CEOs find themselves faced with challenges and responding to market changes and competitors in ways that are not in keeping with the organizations mission and vision. These CEOs are usually driven by short-term profit requirements and analyst’s expectations.
It can be difficult to always go back to check to see if the latest tactics being implemented to address a business challenge support the firm’s mission and vision. It is more difficult to require that mid-level managers spread across many operating units only implement tactical solutions that are in keeping with the firm’s overall mission and vision driven strategy.
However, by not insuring implemented tactics are in alignment with a mission and vision driven strategy is the surest way for an organization to find itself in an unintended business, producing value for unintended markets. This can spell financial ruin in the worst case and in the best of cases it will require a change in the mission and vision statement and direction of the business.
Wednesday, November 6, 2013
I have been involved in developing marketing strategies that required the developing a competitive advantage in markets filled with strong competitors. I have consistently found that developing solid information on the market and the competitors was critical in building a foundation for the strategy.
Gathering information on the market and the competition is readily available if you know where to look. Information on the market is available through census data, industry data and consumer research. Most of this is readily available on the Internet.
Gathering data on the competition is also readily available. Some of the information can be taken from financial reports if the competitor is a publicly traded company. These reports usually give key statistics, profiles of key managers and basic financial data.
Information on competitors can also be gathered from customers, vendors and public records. Developing financial profiles of a competitors business can also provide valuable information.
This information can point to some strengths and weaknesses of the competitors, opportunities and threats in the market place, in the environment and customer profiles.
Below are a couple of examples that underscore how specific information can help in developing a competitive advantage.
The Houston Post
In late 1994 newspapers were confronted with rapidly rising newsprint costs. I was the Financial Director at the Houston Chronicle at the time. We decided that although we had good relationships with suppliers and strong contracts through our parent company, Hearst, it would be important to project future newsprint rate increases and develop advertising and circulation rate increase programs. As a result, the Chronicle announced that it would have three 8% rate increases: one in September 1994, one in January 1995 and one in June 1995.
We were concerned about our major competitor, the Houston Post. They, of course could, decide not to increase their ad or circulation rates and gain market share.
I had been tracking the ad linage each day for the Houston Post by purchasing their newspaper and measuring the ads. I estimated their ad rates based on what we learned from customers that bought ads from the Post. Making assumptions based on circulation and the size of their organization I was able to have a pretty good idea of the Post’s revenues, expenses and contribution margin. My projections showed that the Post had a small contribution margin and my guess was that they too would increase ad rates for two reasons. First they would increase ad rates to accommodate the rise in newsprint costs and second they would increase ad rates because local advertisers wanted two major newspapers competing against each other to hold ad rates down.
One of the interesting things I learned while doing the research was that the Post did not have long -term newsprint agreements with the manufacturers and was buying newsprint on the spot commodities market. This meant their newsprint costs would be much more volatile than ours. This made it even more likely that they would increase their ad rates in concert with our announced rate increases.
Unbelievably, the Post announced that they would not increase ad rates and the Chronicle reports of rising newsprint costs were inaccurate. As soon as this announcement was made, I went to the Chronicle’s President, Gene McDavid, and said that I couldn’t see the Post making it for another 6 months using that strategy. Clearly newsprint rates were going up and if the Post were able to gain more advertising by not raising rates they would require more newsprint at volatile spot market rates.
Interestingly, in April 1995, the Chronicle bought the assets of the Post and Houston became a one major newspaper town.
Creating a pricing strategy for advertising and circulation during this time was dependent upon gathering quality information on the market and the competition. The sources of information had to be reliable. Newsprint rate increase information came form the vendors selling newsprint with which the Chronicle had outstanding relationships. Information on the competition came from tracking the competitor as well as newsprint salespeople who let the Chronicle know about the buying habits of the competition.
While the Chronicle did not anticipate the move made by the Post on advertising rates, the approach used by the Chronicle set a strategy that would be successful regardless of the actions of the competition.
In late 1995 the Houston Chronicle embarked on a strategy to recapture advertising revenue lost to direct mail, specifically revenue lost to “marriage mail”.
Marriage mail is a program that allows several advertisers to put their circulars in a mail package and share the postage expense. This provides a cost savings to the advertiser. ADVO became a leader in providing this type of advertising package nationwide. During the 1980s many retailers moved their circular advertising out of newspapers and into ADVO’s marriage mail program.
Houston newspapers lost virtually all of the grocery advertising to ADVO in the mid 1980s. Prior to ADVO grocery advertising had been a key advertising revenue source for the Houston Chronicle.
I led the effort to create a product to compete with the ADVO program. It seemed that the Chronicle would be able to combine mail delivery (for non-newspaper subscribers) with newspaper delivery (for newspaper subscribers) and provide an advertising product similar to ADVO’s product that would be less expensive since circulars could be added to newspapers without increasing the delivery costs.
In the information gathering process we discovered that ADVO earned low postal rates by providing saturation coverage (covering 100% of the households). ADVO also saved costs by eliminating the mail labels on each package (each package had the same contents and went to every house thereby eliminating the need for a label and making delivery very easy for the post office).
We knew that by combining newspaper delivery with mail delivery, we would need to provide each mailed package with a label since no area would be comprised of mail only or newspaper only delivery. We also knew that to get the lowest postal rates we would have to put our mail packages in postal carrier walk sequence to make the delivery for the addressed package as easy as the ADVO package,
Developing a newspaper and labeled mail delivery product for the Chronicle advertisers resulted in a program that could provide customized delivery for advertiser. That is, since we knew the addresses of subscribers and mail delivered nonsubscribers, we could have different circulars in each package. For advertisers this meant that they could have different advertising circulars for different neighborhoods or subdivisions or specific addresses. This was a feature that could not be offered by ADVO with the undifferentiated, unlabeled marriage mail packages.
Over the course of a year or so following the development of the newspaper and labeled mail program the Chronicle won back all of the grocery advertisers and has held that advertising category to this day.
The success of this program resulted from gathering information on the competitor’s product and developing a complete understanding of the sales and production process. This information led to the development of program for the Houston Chronicle that grew to be one of its key revenue sources.
I now teach marketing strategy courses to undergraduate and MBA students at the University of Houston Bauer College of Business. These classes are divided into teams and work with real clients to develop specific marketing strategies during the semester. The first half of the semester is devoted to gathering information on the market, the competition, the company and the environment. With this information and specific objectives set by the client company, students spend the second half of the semester developing marketing strategies.
In every case students are told to look for that one piece of information that can contribute to developing a marketing strategy that can have a significant positive impact on the client companies.
In the example of the Houston Post it was the financial tracking and the knowledge of the newspaper-purchasing program that led to the Chronicle’s successful strategy.
For the ADVO example it was the knowledge of the packaging and delivery process that allowed the development of a strategy to which ADVO could not respond.
Over the years I have been involved in many strategic marketing efforts and every successful project can be traced to developing solid information on the customers, the market and the competition.
Tuesday, October 8, 2013
Set an Objective
The marketing effort begins with an objective. This objective can be to create a new business to serve a specific market, launch a new product for an existing business, develop a new market with existing products and so on.
After establishing the objective it is important to take a hard look at the business you are in or are hoping to start. This exercise will help to better understand your current position in the industry and possible avenues for growth. For example, if owning a cup cake specialty shop, you should determine if you are in the cup cake business, confectionary business, restaurant business, or bakery business and so on. The choice will affect the strategy that might be employed to achieve the objective.
Identify a Customer Base
Also considering the business, it is important to identify the potential customer base (key customers) you will be serving and your business capabilities. For example if you are entering an established market but have limited resources you may be forced to serve the least profitable customer. In other words, the market leaders will have developed products and services that serve the most profitable customers and your limited resources will put you at a disadvantage when competing for those customers.
This exercise may also uncover other customer segments that may offer opportunities but may not represent the key customer category. If you , for example, served the least profitable customer you might also find some of the industry’s more profitable customers might have a reason to choose your product or service.
Going after the least profitable customers may be an advantage since the market leaders are not likely to focus on customers that would require resources to be taken from efforts to serve their more profitable clients. This approach would make you a disruptor and you product a disruptive innovation since you would be starting with the least profitable customer and work to create ways to “move up the customer chain” in this market.
On the other hand if you have a new idea or innovation and want to compete for the very profitable customers then you must consider ways of protecting your market position. Since this innovation can likely be duplicated in some fashion by the competition it will be important to choose a marketing strategy that makes duplication by competitors more difficult. If this innovation or approach allows the best customers in the market to be served better then your introduction would be considered a sustaining innovation.
Set a Strategy
Strategy is WHAT you will do as a business.
As an example, if you had some basic equipment and could perform basic pressure washing of concrete, your customers would likely be individuals that could not afford or perhaps didn’t need the range of services offered by the more established pressure washing services. A careful look at the type of business, the customer segment and the resources might be helpful in developing a marketing strategy. In this case the strategic statement might be: “To enter the maintenance service business by providing basic pressure washing services to homeowners with a plan to expand service offerings to homeowners and businesses in Texas”.
In this case you are a potential market disruptor (trying to make a profit serving the least profitable customer) that will be part of the maintenance service industry and will start with a pressure washing service.
Understand that being a disruptor is not defined by the amount of resources or how long the entrant has been in business. A disruptor is defined by the position of the customer on the profit scale in the market that is being entered.
Develop the Tactics
Tactics are HOW you will successfully execute the strategy.
Tactics will require attention to the Price, Place, Product and Promotion components of marketing and the Planning, Organizing, Directing and Controlling principles of management. Additionally the tactics will have to consider how the marketing components and management principles fit with the Workforce, Financial requirements/capabilities, Capital equipment needs and Operational procedures.
The more the marketing, management and operational plans are in concert, the better the chances of achieving the strategic goal. This set of exercises is critical in the sense that they are focused on creating the most efficient, objective driven organization possible.
Considering the pressure washing service the tactics might involve the following:
1) PRODUCT – power washing home decks, driveways and sidewalks expanding to gutter cleaning, window cleaning and pool service then moving into commercial maintenance (This approach provides the ability to grow horizontally and vertically – (gateway capacity).
2) PRICING – Start with simple low level pricing moving to a bundling approach as more services are added.
3) PLACE – begin in an area easily served by limited manpower and resources with a plan to expand to adjacent areas so supply chain and resources are not strained.
4) PROMOTION – limit promotion to grow business within the ability to serve the demand. Begin with very targeted, low cost promotion and expand as territory is increased.
5) WORKFORCE – contract labor that can be quickly assigned to complete jobs. As the business grows evaluate the need for permanent employees with specialized expertise.
6) FINANCIAL REQUIREMENTS – small amount of start up cash, initial payment from customers should be enough to cover the cost of completing the job. Consider half payment at sale and half at completion. Put aside 20% of each job for investment into company growth and new equipment. Assume 10% of each job will be used for repair and maintenance.
7) OPERATIONAL PROCEDURES – utilize contract labor at negotiated and contracted rates that allow easy determination and maintenance of profit margins. Require bonding of contractors to provide assurance the job will be completed and allow some level of comfort to the customer when requiring half of the job cost be paid in advance.
8) CAPITAL EQUIPMENT – basic, rugged pressure washing equipment. Expand the inventory of equipment as business increases.
This is a simple example but illustrates that there is a sequence that should be followed for the best results. If you start with tactical measures or with a strategy that hasn’t identified the industry or customer base a great deal of time will be spent course correcting to develop a successful model.
Every time you reevaluate and change direction requires internal changes that can be costly in that each of the tactical categories listed above will likely be impacted.
This process works for established businesses, new businesses and businesses that have had a significant change in their industry.
Tuesday, September 24, 2013
An MBA student asked me not long ago, if I knew of companies that developed or updated strategies on a regular basis. He went on to say that he was in charge of providing IT support for his organization and when asking for the strategic direction of the company he was told “to increase profit by X% in the next operating period.”
This was clearly not a strategy but an operational goal. Operational goals are almost always addressed with tactical solutions.
The longer an organization has been in existence, the less likely a regular strategic planning process will exist. Leadership will recognize changes in the environment, new financial goals, changes in operation procedures, new challenges and competition. Almost always tactical plans are developed to address the market changes and financial goals.
Tactical plans will include pricing structure changes, development of new products, new human resource programs and new operational procedures. These plans can be very intricate and very sophisticated. For example to increase revenues an organization might deploy a dynamic pricing program that provides different pricing for different consumers based on the perceived value to the customer at a specific time. This is a very sophisticated pricing program but doesn’t qualify as a strategy. In fact the tactic might be at odds with the intended strategy.
For example, if a company had a goal to market a product that would develop a deep loyalty with customers that was based on image, branding and the ongoing relationship with its consumers, a dynamic pricing program might be viewed as opportunistic by some consumers and actually work against the overall strategy.
A good example of this is when Doug Ivester, former CEO of Coca Cola, mentioned that Coke might consider using vending machines that would charge a higher price as weather temperatures increased.
This move would not be in keeping with the mission:
1) To refresh the world,
2) To inspire moments of optimism and happiness and
3) To create value and make a difference.
While this pricing move wasn’t deployed, the fact that Ivester mentioned the possibility showed he was more of a tactical thinker rather than strategic. Here, Ivester forgot the importance of Coke to the consumers and resulted in a huge negative reaction by the media and the market even though the program was never implemented.
Coca Cola had another instance where tactics and strategy were confused. With the introduction of the New Coke, Coca Cola forgot the history and the relationship with the market. By eliminating the original coke flavor and introducing the New Coke, executives did not consider the value of the long-term relationship of customers with the original Coke flavor.
The vision, outlined above, should be the most important consideration in strategy development. Tactical considerations should then follow.
The overriding consideration overlooked in both of these actions by Coca Cola was the relationship of the market with the brand that had been a part of the lives of individuals during the good and bad times of the twentieth century.
Interestingly, both of these tactical moves might have been successfully implemented if tactical solutions had been designed to fit well with the overall strategy. For example, if vending machines had been deployed to give discounts when temperatures fluctuated, the company could have maximized margins and still provided the consumers with a positive view of the company. With the introduction of the New Coke, keeping the original flavor would have provided a means of satisfying the psychological mystique associated with the founding brand while allowing consumers to try the new flavor.
Remembering to put strategy before tactics requires discipline to periodically review the company’s mission statement and overall strategy and to make certain tactical moves are in alignment with the firm’s strategy.
To insure that this process is employed an organization should consider requiring a strategic plan review annually and make sure that overall strategies recognize potential paradigm shifts and still are in alignment with the vision of the organization. Once the strategy is approved then all tactical decisions should be in alignment with the strategy.
It should be noted that there can be sub strategies that also must be in agreement with the overall vision and strategy. Tactical decisions must then be in alignment with the sub strategies. A retailer, for example, may have an overall strategy to maximize market share and profitability. Strategies for price, distribution, product and promotion can then be developed. For price the retailer might choose Every Day Low Pricing, for product the retailer might choose to mix national and private label products and so on for promotion and distribution sub strategies.
Tactics for pricing would include pricing mix for national and private label brands that would maximize sales and procurement (payments made by national brands for shelf space and promotional support) revenues. Clearly it would be important to insure that while tactics to improve the two categories of revenue the retailer did not endanger the EDLP or market position strategies.
When determining if a new program fits well with the overall strategy of the company, ask the following questions
- 1. Profitability/market acceptability - will the product generate a profit and a market?
- 2. Accreditation requirements – Does the product meet industry and legal standards?
- 3. Length of project – Can the product be introduced in an acceptable time frame?
- 4. Accommodate systems – Does the new product make use of current systems or will new ones need to be developed?
- 5. Fit Image – Does the product fit the image the firm wishes to project?
- 6. Resources – is the new product resource and capital intensive?
- 7. Gateway capacity – Does this product lead to the possibility of new products or businesses being developed?
- 8. Negative Gateway capacity – Does this product have the potential of damaging other aspects of the operation?
- 9. Customer acceptance – will the customer accept this product over others offered in the market?
If any of theses questions can’t be answered favorably further investigation into new programs should be considered.
Tuesday, September 10, 2013
I teach both undergraduates and MBA students at the University of Houston. Both groups have been assigned a Harvard Business case studying the Paywall at the New York Times. This is an interesting case and shows the challenges faced by newspapers that are trying to survive in a digital media world.
Interestingly, the case focuses on the rate charged for the print form of the newspaper vs. the digital edition. The digital edition is less expensive and the print plus the digital edition is less than the print only newspaper.
The case also focuses on the penetrability of the Paywall. Some social networking sites have access to NYT content free.
Finally, the case looks at the challenges to transition from print to digital and perhaps most importantly the value created by the newspaper.
As I have watched newspapers address these challenges, it seems that almost universally there has been little attention paid to the value created by newspapers and newspaper journalism.
There is no question that the newspaper creates value for readers and that value is translated into value for advertisers. Arriving at the precise value of newspapers or newspaper journalism requires a fundamental understanding of the segments of the market that are served.
For each segment, the newspaper organization is “hired” to perform certain functions. For example, some newspaper readers want a credible news source that provides in-depth coverage. Others look for a comfortable source of all types of information to be enjoyed early in the morning with coffee or in the evening to “wind down”.
A more extensive list of jobs a news organization is “hired” for includes:
1. Immediate updates of certain news events,
2. To provide information on developing stories and informed commentaries,
3. To provide investigative and “Fourth Estate” reporting,
4. To provide information on entertainment,
5. To provide information and cost comparisons for family budgeting,
6. To provide a sense of being knowledgeable of current events,
7. To provide a way of understanding how society is changing,
8. To provide entertainment,
9. To act as a learning tool,
10. To act as a repository for important, accurate information.
11. To provide advertisers with a reliable way to deliver sales messages to their consumers.
If news organizations are required to do these things, why are they having such a difficult time putting together a strategy that assimilates print and digital capabilities in a cohesive manner that can be marketed effectively?
From where I sit it appears that there is no overarching strategy that addresses the jobs that newspapers are “hired” to do. Rather, the approach has been reactionary to competition and splintered with respect to addressing challenges. In other words the strategy has been a series of actions taken to address various symptoms of a paradigm shift that has a digital format.
Most of the reaction has been to address revenue shortfalls. Newspapers created responses for Internet programs that attacked the classified and retail advertising categories. They then responded to the significant falls in circulation. Newspapers now have a plethora of tactical answers for the various digital programs that impact their businesses but they don’t typically have an overarching strategy.
I believe that there is still time to develop a strategy for newspaper organizations. The first step is to develop a more complete list of jobs a newspaper organization is “hired” to do. This list should come from the readers and advertisers NOT newspaper employees. The questions asked of the readers and advertisers should focus on jobs they need done rather than jobs that newspapers perform.
This list should then be prioritized with the items appearing in most of the customer segments being given the highest priority.
Next this list should be categorized by the method (digital or analog) that can perform the job with the greatest efficacy.
A business plan can then be constructed that allows a newspaper organization to create value for their collective audiences. This business plan can be the basis for creating a marketing strategy that is based on synergistic products that create value.
This line of value creating products will help define distribution, pricing and promotion strategies.
This approach will also help newspaper organizations understand what services need to be transitioned to a digital mode and how that transition can be accomplished.
Wednesday, August 21, 2013
Here are some more thoughts on why newspapers may still be a wise investment and how they may find ways to develop a stable of print and digital products that complement each other.
Virtually all newspapers have websites that look good and have great functionality. So why aren't they all producing acceptable amounts of profit? The question probably should be asked differently, "What do consumers and advertisers expect from newspapers?" Then ask, "What do they expect from the Internet?" The answers are different but there is overlap. The area of overlap is the area of opportunity for creating a business that is needed by consumers and advertisers and capable of creating value that translates into profits.
To determine the real value of the website it is useful to measure the total advertiser dollars spent on a website only ad buy versus those being bundled with a newspaper or distribution ad buy. These stand-alone purchases might give some insight into the job that advertisers are looking for newspaper websites to perform. The amount of money being spent by advertisers on pure website advertising versus the amount of resources being devoted by newspapers to the website might also be useful information.
Newspaper website ventures ought to be competing for Internet dollars, not newspaper dollars. With the amount of resources and talent being put into media web operations, it seems the media should have invented Craig's List, Facebook, LinkedIn or some of the other sites that generate huge amounts of traffic. So, another question, "Are newspapers trying to convert their current business platform to an Internet model?" If so then, "What parts of the model are being considered worthy of conversion?" What parts of the media value created by a local or regional newspaper can be converted to the Internet model and retain real value? If viewers have access to all Internet sites why will they come to a newspaper website?
The Newspaper Business Model Versus The Internet
The key to a newspaper's financial success has been its ability to deliver an audience of dedicated readers (subscribers) to advertisers. This is best when readers are paid subscribers because it is easier to sell an advertiser on the "wantedness" of the product since people are willing to pay for the publication.
It should be noted though that there are niche publications that can command strong advertising commitments without paid subscribers. These publications still have a quantifiable audience that can be delivered to advertisers.
Printed publications have another feature that is attractive, a fixed position in the product. The advertiser's ad is on the same page in all copies of the publication that is delivered to readers.
An additional feature is the serendipity of reading the printed publication. This increases the probability that unintended articles and ads will be read. Unintended readership is valuable to advertisers because it builds awareness that can be capitalized upon when a consumer becomes an active buyer.
Finally, the printed product is delivered periodically to the same household. Thus, advertising in the publication multiple times in different editions increases the probability the ad will be seen through multiple exposures. This ad frequency helps move consumers through the five steps of decision-making (unawareness, awareness, comprehension, conviction and action). 1
So, in summary, print publications are delivered to a definable audience, the ad is certain to reach all readers, the ad is in the same spot in all copies of the product and the publication is delivered to the same group of readers multiple times.
This differs from the current Internet delivery of the news. First, the audience is comprised of individuals that find a site compelling enough to visit. The publisher can't say that a certain number of individuals will receive the news delivered by the Internet. The publisher can only talk about the unique visits to the site and the number of clicks on a story after the fact. That is, it is not delivered by the publisher but is sought by the reader.
Second, a lack of a definable audience requires the publisher's Internet site to compete with all other Internet sites. To drive readers to a particular site is difficult when there are as many as 150,000,000 sites available to anyone with access to the Internet. Identifying an audience for an advertiser becomes problematic. The number of Internet sites will continue to grow and these sites will find innovative ways to attract audiences. This will continue to fragment the market and make creating specific audiences more difficult.
Third, Internet advertising usually does not have a fixed position for advertisers. Usually the ads rotate. This further amplifies the difficulty to deliver a definable audience to an advertiser. In other words, it is difficult to say that a viewer will see the advertiser's ad because the viewer may not be on line when the ad is rotated into position.
Fourth, the search mentality of the Internet reduces the serendipity of the reading experience and reduces the probability that unintended articles and ads will be read.
Finally, the lack of an identifiable audience that receives delivery from the publisher makes it more difficult to build advertising frequency, which is valuable to advertisers.
It seems then, the print publication has significant advantages over the Internet for the advertiser even with smaller audiences. The question becomes: How do you compare the cost of advertising between the two mediums? Is the "cost per thousand" is still a good selling metric?
The cost of reaching a print customer should be equal to or less than delivering an Internet reader. The cost of reaching an Internet reader will be much higher when the fragmentation of the audience is coupled with the rotation of the ads. The real metric should be the probability of consistently reaching a reader, which is likely to be more expensive for an Internet reader than a print reader.
Most publications these days have digital editions. The digital newspaper edition is simply the print edition delivered by the Internet. The pages are in the same order and appear exactly like the print product. The product is delivered to subscribers by email. It differs in appearance and functionality from the newspaper web site, which offers rotating ads and delivers news in a different format.
What is surprising is that the digital editions are not robustly marketed. Newspaper marketing seems focused on the print product (decreasingly) and the newspaper’s web site (increasingly).
It seems there are a whole lot of opportunities being missed. Digital editions offer the ability to have in digital form a product that has a definable audience, has ads in a fixed position, allows the serendipity of exposure to unintended ads and articles and can effectively build ad frequency.
The digital edition also offers advantages over the print edition in that subscribers can be offered various sections of the newspaper for different rates. Delivery can be made wherever an email can be received at any time of the day.
Additionally, the digital edition allows counting of emails that are opened which could be a powerful ad sales tool.
Finally, the digital edition allows the ability to launch new sections to digital readers to test the market before investing in or in lieu of the cost of print.
It is up to newspapers to recognize the value of the digital edition and develop a strategy to promote the print + digital product as something different from a newspaper’s website. It is then possible to create new revenue streams and improve the overall profitability of the newspaper organization.
So how do you convert the print model to the Internet? Consider Richard J.V. Johnson's decision to make the Houston Chronicle a morning publication. He started by converting from an afternoon to an all-day newspaper and gradually eliminating the afternoon edition through attrition (this process took twenty years). I think the same approach might be considered for converting a print newspaper to a digital product. The process should be methodical and would take years to accomplish. The bigger question is how to preserve the definable audience that can be delivered to advertisers in the same way the print product does.
Symbiosis of Print/Digital and the Website
With the explosion of information options and formats presented by digital products there is the improved capability to address more of the information needs of readers. These information needs are the jobs that the media is being hired or asked to do.
There are several approaches to meeting the increasing need for information. One approach says that each type of information need represents a different business opportunity and an individual revenue stream. This argument would suggest that a newspaper have a different business model for the print, digital and website products. This approach is likely to minimize the ability to broadly address the information needs of the audience and the advertising needs of the sponsors.
Consider the model that has a symbiotic relationship between the website and the print/digital editions. The website would be relegated to doing what it does best – provide immediate access to events unfolding in the present and access of immense amounts of data to answer specific questions. The print/digital editions would do what they do best – in-depth news coverage, editing and packaging of news and features and a static product for a specific period of time (an edition stays in the same form for about twenty four hours).
The symbiotic relationship allows the creation of a seamless business model that can employ the revenue building strengths of each product. As news happens it could appear on the website and then be moved to the print/digital edition when it is published. When news is published in the print/digital edition it could be removed from the website. Both the website and the digital edition could have links to archives.
The symbiotic relationship allows the creation and magnification of revenue streams. For web users wanting information that has shifted to the print/digital edition there are subscriber opportunities (web users might be provided free access for a period of time then be asked to subscribe). The website would be a source of building the subscriber base for the print/digital edition. For print/digital users the website provides current news and answers to specific questions on a broad array of topics.
The website provides the option to sell rotating banners or even static banners for specific time slots. The print/digital edition offers the ability to provide an ad to an audience of subscribers in a static product. The digital edition allows better delivery options than does the print and the print product still has the portability and dedicated audience advantages.
Creating a symbiotic relationship will require all products to fall under one marketing strategy. Getting the currently competing entities to fall under one strategy may be the most difficult hurdle for the newspaper. It may be difficult for each to recognize they play a smaller role in a larger overall strategy.
In summary, the printed newspaper has advantages for readers and advertisers that are different from an Internet website and the digital newspaper edition has delivery options that are different and superior to the print product.
By developing a symbiotic relationship between the print and digital editions and the website, newspapers have the ability to create audiences that can be delivered to advertisers. These audiences can become loyal consumers of newspaper products.
Answering the questions and taking the steps above start down the road of converting to a digital business. It will be some time before electronic displaces print. But if that is to take place shouldn't it be newspapers that drive the transformation?
1 Roger Wimmer, The Five Stages of Communication/Persuasion.
Wednesday, August 7, 2013
Interesting news that the Boston Globe sold for $70 million and the Washington Post sold for $250 million. These newspapers would have commanded at least 5 times that selling price a decade ago.
This is further evidence that print media is in trouble. The question is if the trouble is truly from the presence of digital products or from management’s inability to change the business model of newspapers.
By selling to owners in other fields of business, perhaps newspapers will find a way to succeed. Selling the Washington Post to the founder of Amazon.com, Jeff Bezos may provide some new innovative solutions. Selling the Chicago Tribune to a private investment firm did not provide a favorable outcome.
I would say that the Amazon.com approach to building customer relationships has a better chance of success than most. I would also say that the owner of the Boston Red Sox, John Henry, has a better idea of how to engage an audience than most.
I have spent a lot of time studying the affect of the digital age on the newspaper business. The digital age offers a lot of advantages with respect to the immediacy of news and the facilitation of the marketplace. There isn’t a news happening on the planet that isn’t available to the general public on an almost immediate basis. Amazon.com is probably the best example of the impact of the digital age on retailing.
Still, the printed newspaper has a following. The Wall Street Journal recently listed the top 10 newspapers by circulation:
1. The Wall Street Journal — 2,378,827 (includes 898,102 digital editions)
2. The New York Times — 1,865,318 (includes 1,133,923 digital editions)
3. USA Today — 1,674,306 (includes 249,900 digital editions)
4. Los Angeles Times — 653,868 (includes 177,720 digital editions and 43,275 branded editions)
5. Daily News of New York — 516,165 (includes 155,706 digital editions)
6. New York Post — 500,521 (includes 200,571 digital editions)
7. The Washington Post — 474,767 (includes 42,313 digital editions and 1,305 branded editions)
8. Chicago Sun-Times — 470,548 (includes 77,660 digital editions and 208,087 branded editions)
9. The Denver Post — 416,676 (includes 192,805 digital editions and 10,041 branded editions)
10. Chicago Tribune — 414,930 (includes 46,785 digital editions
These statistics show that there is still demand for a printed newspaper product and a growing demand for digital newspapers. Part of this demand is based on the “comfortableness” factor of an audience that likes the regularity, familiarity and credibility of newspaper reporting.
An area to really study is the growth of digital newspaper products. These products are usually a digital copy of the printed product. They carry all of the printed product’s attributes to a purely digital format. This is different from the newspaper’s website which will not have the “feel” or look of the newspaper.
I have written in the past about the advantages of advertising frequency and constant reach of an identifiable audience that are lost when the focus is on a web site as opposed to the printed or digital newspaper. While these are real losses they will probably not be the critical factors in saving newspapers.
The critical factors will be in understanding the audience and building a bonding relationship with that audience. Here, Jeff Bezos and John Henry excel.
If you have ever done business on Amazon.com, you immediately realize what a friendly experience is provided. My wife recently tried to buy a water filter for our refrigerator from the manufacturer. She spent about 30 minutes on line and was completely frustrated. She then thought she would give Amazon.com a try and about three minutes later she had ordered and paid for the filter. There are a lot of commerce websites but Amazon.com stands at the head of the class for creating an experience that invites customers to return.
While in a different business, John Henry has consistently had one of the highest attendance records in major league baseball. I was visiting with a friend who managed the business side of the San Francisco Giants who said that it was important to understand baseball is competing with all forms of entertainment. The critical factor was making certain that the crowd enjoyed the total experience. This is a lesson that is not lost on John Henry.
News will continue to be important and building a consistent audience will be critical to creating an advertising base to make a newspaper a profitable enterprise. Taking elements of the old model and melding them with elements of the new, while creating a bonding relationship with the audience will be critical. I think these two entrepreneurs have the ability to apply insights from their past successes to their purchases of newspaper organizations.
I also wouldn’t discount Warren Buffet’s ability to apply his notions of how to create successful, lasting business enterprises to the newspaper organizations he is purchasing.