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The Times of London lowered its newsstand price by a third, from 45 pence to 30 pence. This led to a surge in circulation, rising 46% in the 9 months following the price cut. While the price reduction cost the paper's owner tens of millions, analysts believed higher circulation could eventually offset the lost revenue. The move appeared to take some readers from The Daily Telegraph and contributed to a decline at The Independent. It challenged the industry's assumption that readers are relatively insensitive to price changes for broadsheet papers.
The Times of London lowered its newsstand price by a third, from 45 pence to 30 pence. This led to a surge in circulation, rising 46% in the 9 months following the price cut. While the price reduction cost the paper's owner tens of millions, analysts believed higher circulation could eventually offset the lost revenue. The move appeared to take some readers from The Daily Telegraph and contributed to a decline at The Independent. It challenged the industry's assumption that readers are relatively insensitive to price changes for broadsheet papers.
The Times of London lowered its newsstand price by a third, from 45 pence to 30 pence. This led to a surge in circulation, rising 46% in the 9 months following the price cut. While the price reduction cost the paper's owner tens of millions, analysts believed higher circulation could eventually offset the lost revenue. The move appeared to take some readers from The Daily Telegraph and contributed to a decline at The Independent. It challenged the industry's assumption that readers are relatively insensitive to price changes for broadsheet papers.
Readers By RICHARD W. STEVENSON Published: June 13, 1994 In the rough and tumble of the British newspaper business, the decision by The Times of London last September to lower its newsstand price by a third, to the equivalent of 45 cents, was greeted with jeers from competitors who predicted the move would win over few new readers and decimate the paper's profits. Nine months later, the jeering has stopped, and newspaper publishers and analysts in Britain and around the world are wondering whether The Times is on to something. The Times's circulation, which had been declining steadily for years, has surged beyond even the wildest dreams of its owner, Rupert Murdoch, and its other executives. According to figures released on Friday by the Audit Bureau of Circulations, the paper's circulation in May was 517,575, a record high, and 46 percent higher than in August, just before the price cut. Part of the increase may be attributable to other factors, including a general resurgence in the economy and a television advertising campaign by the paper last month. But analysts and even competitors said the price cut, from 45 pence to 30 pence, was the primary reason for the surge in sales. 'Public Relations Triumph'
So far, the strategy has cost Mr. Murdoch and his News Corporation tens of millions of dollars. Analysts, however, said the paper might be approaching the point where the higher circulation and a resulting increase in advertising would offset the lost revenue from the price reduction. "It hasn't been a financial disaster and it's certainly been a public relations triumph," Mark Bielby, an analyst at S. G. Warburg & Company in London, said. The move seems to have taken some readers from the largest of Britain's three other general-interest broadsheet papers, The Daily Telegraph, which has since August seen circulation fall 3 percent, to 993,395 in May. It also appears to have contributed to a continuing decline at The Independent, the youngest and smallest of the broadsheet papers. Its circulation in May was 276,660, down 15 percent since August. The fourth broadsheet, The Guardian, has seen circulation increase 2.6 percent since August, to 401,831.
A New Look at Pricing But the major impact may have been on the industry's assumptions about prices. British publishers have long assumed that readers, being creatures of habit, are relatively insensitive to price, at least when it comes to broadsheet papers aiming at relatively affluent readers. As a result, most papers have gradually raised prices in recent years -- Mr. Murdoch bumped the price of The Times from 30 pence to 45 pence between 1990 and 1993 -- and have only rarely dropped prices, believing that a few pennies of savings would not be enough to lure new readers. On newsstands, The Times now costs at least one-third less than its main competitors. The Independent costs 50 pence; The Telegraph, 48 pence, and The Guardian, 45 pence. "If you look back at what people said when we began this experiment, almost everyone said it wouldn't work," Peter Stothard, the editor of The Times, said. "The truth of the matter is -- and we've been cautious about making too much of it until now -- that it has worked." Mr. Stothard said it had become clear that price increases during Britain's deep recession gave some middle-class readers second thoughts about buying a daily newspaper. Many of those readers, he said, started buying The Times only a few times a week instead of every day. The Times cut its price after watching the experience of another Murdoch-owned paper here, The Sun, one of London's anything-goes, mass-market tabloids. Tabloid papers generally have less affluent readerships than broadsheet papers and are thus more sensitive to price changes. In July, The Sun began offering a temporary promotional price of 20 pence, or about 30 cents, down from the normal price of 25 pence. Circulation surged, and the promotional price has been extended indefinitely. The Sun's circulation has jumped nearly 21 percent since July, to 4.18 million. Tabloids like The Sun derive about 75 percent of their revenues from circulation, with the remainder from advertising, analysts said. Among the broadsheets, the division is about 50-50, they said. In the case of The Times, Mr. Stothard said, the increase in circulation has made the paper a more attractive vehicle for advertisers. He declined to provide details. "The advertising rates are firming very satisfactorily and the volumes are also rising sharply," he said. But there is no question that The Times and its parent company, News International, a subsidiary of the News Corporation, paid a price for the strategy. Largely because of the price cuts at the newspapers, the News Corporation's operating income in Britain fell 30 percent, to $218 million (Australian), or about $160 million, in the nine months that ended March 31, compared with the corresponding period a year earlier. "This company looks at this as an investment, just as it would look at an investment in plant or machinery," Mr. Stothard said. "It makes the paper more powerful and successful."
QUESTIONS 1. What was the price elasticity of demand for The Times? (-1.393) 2. Did the price reduction increase or decrease The Times total revenue from newspaper sales? (Increased) 3. Was this price reduction profitable for The Times? (No) 4. If not, why did it reduce its price? Under what situation, could this price reduction be profitable? (To increase the market share and for new customer acquisition. 5. How did this decision (price reduction) affect the sales of its competitors (Use cross price elasticity)? .09, .078, .45