Dear Mr. Turner,
As requested this email will analyse and evaluate the argument put
forward by the editor of “The Mercury”. The editor’s argument in essence
represents a strategy that he wants the newspaper to adopt of reducing
its price to below that of a competing lower priced newspaper, “The
Bugle”.
The reasoning behind the argument being that the arrival of “The Bugle”
five years ago has caused the readership of the Mercury to decrease by
10,000 readers. Therefore, taking the reactive measure of reducing the
price of “The Mercury” to below that of “The Bugle” will result in
circulation increasing by these 10,000 readers switching back to “The
Mercury”.
What is also implied in the editor’s argument is that there will initially be
a temporary reduction in revenues as the price of the paper is reduced.
However advertising revenues will also start to increase as circulation
figures start to increase thereby compensating for this temporary decline
in revenues. Therefore, superficially the editor’s argument appears to be
logical, well-grounded and thought through.
However, a detailed analysis and evaluation reveals that the editor’s
argument is flawed and nonsensical as it is based upon a number of
questionable assumptions, circular logic and circumstantial evidence.
Therefore, there is no guaranty or even a degree of certainty that his
proposed strategy will succeed.
The first/foundation assumption made by the editor is that all 10,000
readers that have stopped buying The Mercury are now buying The
Bugle. This may not be true. For instance, these readers have switched
over to another medium such as the internet to receive their daily news.
In this case, reducing the price of the newspaper is not likely to increase
the Mercury’s circulation figures.
The second assumption made is that these 10,000 readers have
switched over to The Bugle only because it is cheaper. This again may
not be true. These readers may have switched over because of a variety
of other reasons i.e. The Bugle offers better quality and/or greater
quantity or it is better distributed.
The third main assumption that the editor is making is that it is
economically feasible for The Mercury to reduce its price. In addition, a
price reduction may result in a deterioration of the quality of the
newspaper which may lead to a loss of even more readers.
The editor also believes that regaining the 10,000 readers will lead to an
increase in advertising revenue. Again this is not a certainty as it is not
known what the demographics/common characteristics of this group are
apart from the fact that they are very price sensitive (if all of the editor’s
assumptions are correct).
In regards to the circular logic, the editor’s strategy calls for The Mercury
to again raise its price once the newspaper has regained the “lost”
10,000 readers. However, this would then (based on the editor’s own
assumptions) result in the 10,000 once again changing over to The
Bugle. Also the fact that The Bugle in response could reduce its price
further has not been taken into account.
In addition, the argument is further weakened by the fact that the only
evidence it offers as support is circumstantial in nature i.e. the loss of
10,000 readers coinciding with the arrival of The Bugle. What is needed
is evidence that demonstrates that the 10,000 readers have changed to
The Bugle and have done so solely because of the price differential and
that they represent a demographic advertisers want. Types of evidence
needed include:
a) circulation figures for both newspapers for 5 years
b) a comparison and contrast of both newspapers
c) market surveys on what readers want from a newspaper
Therefore, it is highly recommended that the editor’s strategy is not
implemented or at least until much more research has been carried out.