Nandakumar G 27028
Sangeetha K S 27044

1 Objective ......................................................................................................................................... 2
2 Overview of the company ............................................................................................................... 2
3 Innovative ad spaces ....................................................................................................................... 2
4 Revenue model ............................................................................................................................... 4
4.1 Factors contributing to revenue ................................................................................................... 5
4.2 Revenue variables and capacity constraints ................................................................................. 5
Products .......................................................................................................................................... 5
5 Forecasting ...................................................................................................................................... 6
5.1 Need to forecast ..................................................................................................................... 6
5.2 Factors affecting forecast ....................................................................................................... 6
5.3 Current forecasting ................................................................................................................. 6
5.4 Proposed forecasting .............................................................................................................. 7
6 Pricing .............................................................................................................................................. 7
6.1 Pricing Strategies..................................................................................................................... 7
6.2 Other pricing strategies .......................................................................................................... 8
6.3 Price revision methods and frequencies ................................................................................. 8
6.4 Price elasticity ......................................................................................................................... 8
7 Revenue class: ................................................................................................................................. 9
7.1 Defining revenue class ............................................................................................................ 9
7.2 Protections .............................................................................................................................. 9
7.3 Impact of EMSR optimization ............................................................................................... 10
8 Optimization ................................................................................................................................. 11
8.1 Effectiveness of the revenue management process ............................................................. 11
8.2 Overbooking .......................................................................................................................... 12
8.3 Other Revenue Maximisation methods ................................................................................ 12
Consultative Sales Approach ......................................................................................................... 12
Audience Focus ............................................................................................................................. 12
Behavioural Targeting ................................................................................................................... 13
9 Appendix ....................................................................................................................................... 14
9.1 Appendix 1 ............................................................................................................................ 14
9.2 Appendix 2 ............................................................................................................................ 14
Revenue Management Page 1

The objective of this project is to study the revenue management practices in newspaper industry.
The space in a newspaper is a perishable commodity which has to be sold before dusk everyday or else the opportunity to earn revenue from it is lost. Hence we need to identify a method by which we optimize revenues generated from selling space in a newspaper.
For this we need to study

Characteristics of the demand, the strategies for managing the demand, and the forecast of demand

Pricing strategies

Ad Space assignment and inventory control.
The newspaper chosen for this study is “The Hindu”.
The Hindu, started in 1878 as a weekly, became a daily in 1889 and from then on has been steadily growing to the circulation of 14,66,304 copies (Audit Bureau of Circulations: July-December 2009) and a readership of about 4.06 million.
The Hindu's independent editorial stand and its reliable and balanced presentation of the news have over the years, won for it the serious attention and regard of the people who matter in India and abroad.
The Hindu uses modern facilities for news gathering, page composition and printing. It is printed in thirteen centres including the Main Edition at Chennai (Madras) where the Corporate Office is based. The printing centres at Coimbatore, Bangalore, Hyderabad, Madurai, New Delhi, Vizag,
Thiruvanathapuram, Kochi, Vijayawada, Mangalore, Tiruchirapalli and Kolkata are connected with high speed data lines for news transmission across the country.
In order to generate more spaces for advertisements, newspapers add supplementary editions. The
Hindu is the only newspaper which brings out supplements and features on all days of the week.

Revenue Management Page 2




















Revenue Management Page 3


Newspapers have a dual revenue business model, i.e revenues are generated through
1.
Circulation
2.
Selling advertisement space
“Circulation is vanity. Advertising is sanity”
This is because circulation drives turnover, while advertisement drives profits:
– Circulation makes a contribution to the business of 50%.
– Advertising makes a contribution to the business of 85%
– Circulation drives advertising off-take
To attract customers and retain them over the long run a newspaper has to provide quality news which the public want – and they have to give it each and every day of the week.
The revenue objective of the company is to obtain maximum incremental revenue for the company by making full utilization of the inventory available to the customer without compromising customer satisfaction.
The supply chain in any newspaper can be depicted as shown below:
Revenue Management Page 4

The Price of newspapers (Circulation Price) varies based on
1. Weekday / Weekend
2. Festivals (New Year, Diwali, Tamil New Year, Pongal, etc)
3. Events (world cup, budget, election)
4. Type of Readers (Student hostels, Companies, Airlines, Hotels, etc)
The Advertisement Rates varies based on
1. Customer type: Individuals (classifieds, Matrimony, properties), Business houses(TATA, Reliance,
Trichy Saradhas, Chennai Silks, etc)
2. Size of purchase: Size of the Advt., Bold/Typeface/Tick Mark/Border
3. Region: Regional/State/National
4. Season: Weekday/Weekend, Festivals, events, IPO's, etc.
5. Amount of discount: Repeat Ads (Only for B2B)
The revenue variables in the case of newspapers are:
1.
Number of copies sold
2.
Amount of advertising space sold
However both these variables are constrained by various factors.
1.
The number of copies for circulation has to be forecasted on the previous day and printed. A newspaper cannot print extra copies after seeing excess demand. Also the price per copy cannot be increased beyond a particular level due to the stiff competition, which is already pricing at discounted rates
2.
The advertising to news ratio in The Hindu is typically 40:60; also the number of pages in any day’s newspaper is restricted to 16 – 20 pages. This means that a newspaper cannot generate excess revenue by increasing the number of pages
Products
The ad space in The Hindu is divided into different parts based on the number of eyeballs expected, format, colour etc. Some of the types of ads which are available are:
1.
Solus – Single ad in a given page
2.
Semi solus – 2 ads in a single page
3.
Jacket – The cover page would completely be taken up by an advertiser
Revenue Management Page 5

4.
Silent ads – a small ad which appears just above the list of supplements in the front page. These ads are typically booked for months together.
5.
Skybus - This is the strip of ad which comes, right below the newspaper name on the front page
Newspapers need to forecast the number of copies expected to be sold in order to print for everyday circulation. This would mostly depend on the quality of news to be printed, i.e. the circulation number would be different on the budget day, election results, natural calamities, etc.
For this The Hindu typically projects the demand depending on past circulation for similar events.
The other level of forecast necessary for a newspaper is the extent to which they could sell the space available in everyday’s newspaper for advertisements. This would depend on the expected number of eyeball views an advertiser expects for a given ad on a particular day. For eg. Jewellery showrooms might be interested in advertising during “Akshaya Tritiya” period. Thus in this case the newspaper has to concentrate on which advertiser to focus during particular time periods.
The price for the ad space in a newspaper has to be fixed based on the value it generates for the customer. The value would depend on the number of copies circulated on any given day which is decided by the news printed in it, and this news depends on the current events which cannot be predicted by a newspaper. So the newspaper could potentially lose on any additional revenue it could have generated due to increased circulation.
The circulation for a newspaper on a given day can be affected if a competitor runs a promotion which attracts the readers to other newspapers. This would directly affect the sales and cannot be easily predicted ahead.
Newspapers use extrapolation to project circulation numbers. The circulation number for newspaper is currently projected based on the historical data and the current factors prevailing.
Revenue Management Page 6

For advertisement space no forecasts are being done. The ad agencies can book advertisements even till the last day. Ad space is filled based on the demand as and when bookings are made. The sales personnel are advised to sell the space at competitive rates. Also it is found that though there is demand for the front page space even on last 2 days it is typically sold out much before. Thus in this case the newspaper loses out on a opportunity to earn incremental revenue.
In the moving average forecast we estimate the single parameter of the model at time T as average of the last m observations, where m is the moving average interval.
Since the model assumes a constant underlying mean, the forecast for any number of periods in the future is the same as the estimate of the parameter:
In practice the moving average will provide a good estimate of the mean of the time series if the mean is constant or slowly changing. In the case of a constant mean, the largest value of m will give the best estimates of the underlying mean. A longer observation period will average out the effects of variability.
Basically for any product or service, the pricing can be done in three ways
1.
Cost based pricing
2.
Value based pricing
3.
Competitor based pricing
Cost based pricing: In this strategy the overall cost of running the newspaper is taken into consideration and the cost is spread across the total advertisement space. But this strategy is not very efficient and cannot be used to maximise revenues when the opportunity is available.
Revenue Management Page 7

Competitor based pricing: This is a bad strategy for The Hindu, as we being the leaders in our segment cannot follow our competitor’s models. Also, this strategy has the potential to trigger price war among the players in our industry.
Value based pricing: We propose to use this strategy for pricing the advertisement rates. In this strategy we identify the value the advertiser gains by advertising in our newspaper. This value depends on a whole gamut of parameters which varies for each case. For example, the value gained by a jeweller, whose customers are middle and upper middle-class families, advertising during
“Akshaya Tritiya” can be rated as 5 in a 1-5 point scale as his customer base matches exactly with our readership base. Also, this rating can be used to even select advertisers during high demand periods to maximise revenue.
We would follow pagination of ads and suggest the customer to advertise in the appropriate pages so that maximum eyeballs are generated for the ads.
Our newspaper also allows advertisements in the form of classifieds. These advertisements are sought from individuals and small companies. The rates for these advertisements are constant so as to enable individuals in all income groups to advertise in our newspaper. However the current practice of charging different rates for different headings will be continued. This provides an opportunity to charge a premium for a corporate firm which wants to give ads for recruitment.
Whereas in the case of individuals who are advertising for matrimonial or rental ads we would be charging lesser by considering the buying power of these individuals.
Price revision can be done according to the demand forecasts with the objective achieving maximum revenue every day. The frequency of price revision should be dynamic and should be associated with the changes in the demand forecast. When a sudden event triggers a shift in the demand the advertisement pricing for that edition should be revised accordingly.
Price elasticity, or change in demand in response to change in price, is a measure of how sensitive demand is to price. The demand will be more when the events are in favour of the advertisers and demand is less when there is less incentive for advertisers to advertise. During festivals, current events and other factors which contribute to revenue are triggered the demand will be more and
Revenue Management Page 8

the rates can be increased. The elasticity is maintained so that the maximum revenue is derived out of the edition.
The revenue classes can be made using the “importance scale” where the advertisement factor is measured in a scale of 1 to 5. We propose to use 5 revenue classes for the newspaper advertisements. The prices for the base class E is taken as the existing rate per square centimetre.
We have assumed premium rates for the subsequent classes. The customers would be ready to pay these premium rates depending on the importance of placing the advertisement in the newspapers.
The Hindu would have to employ its sales force in order to identify this aspect about the customer.
Only then would it be possible to generate a customized package for each customer and earn incremental revenue.
The revenue classes and the price which would be charged for each class are:
A
B
C
D
E
A
B
C
D
E
Class
Rate/sq cm
3270
3114
2966
2825
2690
We can calculate the space to be protected for each revenue class be calculating the expected marginal revenue for the space which we are going to sell. The detailed calculation and assumptions is available in Appendix 1 of this project. The net protections and authorized units for each of these classes is:
Class
Rate/sq cm
3270
3114
2966
2825
2690
Forecast
Area
937
1406
1406
469
469
Error Protection
120
269
367
56
48
949
1416
1398
463
461
Authorized
Area
4687
3738
2322
924
461
Revenue Management Page 9

When The Hindu sells the ad space in Metro Plus supplementary edition at the same rate for all the customers the revenue generated per edition is as follows:
Revenue = Ad space * Price per sq. Cm
= 4687 * 2690 = Rs. 1,26,08,030/-
When the same ad space is sold using different classes we can see the impact on revenue for three cases:
6.
While selling forecasted level of space
7.
While considering margin for error
8.
While selling upto level of protection in each class
A
B
C
D
E
Class Rate/sq cm
3270
3114
2966
2825
2690
Forecast Area Revenue
937 30,64,701
1406 43,78,144
1406 41,69,661
469 13,23,702
469 12,60,669
1,41,96,877
A
B
C
D
E
Class Rate/sq cm
3270
3114
2966
2825
2690
Forecast Area
- ERROR
Revenue
817 26,72,335
1137 35,40,475
1039 30,81,240
413 11,65,530
421 11,31,549
1,15,91,129
Forecast +
Error
Revenue
1057
1675
1773
525
517
3457066
5215813
5258082
1481874
1389789
1,68,02,624
Revenue Management Page 10

Class Rate/sq cm
A
B
C
D
3270
3114
2966
2825
E 2690
Forecast Area Revenue
949 31,02,957
1416 44,09,440
1398 41,46,084
463 13,07,744
461 12,40,090
1,42,06,315
We can clearly see the chance of generating incremental revenues in this case.
The effectiveness of revenue management process can be measured by comparing the new profits generated with the target which was to be compared
Revenues
Circulation
Advertising
Total
Costs
Wages
Newsprint
Other
Total
Target Ad-Yield + 5% Ad-Yield -5%
300
500
800
300
525
825
300
475
775
350
300
100
750
350
300
100
750
350
300
100
750
Profit/loss
Total
Revenue
Total costs
Profit target
% To target
800
750
50
100%
825
750
75
150%
775
720
25
100%
Another measure of effectiveness is to check the amount of space which is being filled up for ads in every day’s newspaper.
Also the effectiveness of pagination for the advertiser should be measured by gathering data from the advertisers. This could be generated by comparing the difference in sales after coming out with
Revenue Management Page 11

advertisements in a particular space. Care should be taken to consider other extraneous factors which could have impacted sales before considering this method.
Overbooking is not done in our Newspaper and we also insist on the same being carried over in our model. Since Newspaper advertisements are mostly planned ones cancellation requests are not entertained. And, also from statistics not many requests come for cancellations and they are all negligible. So, overbooking as such is not done in any cases.
We propose to use other methods to maximise revenue by using discounts and bulk bookings over a period of time. This scheme can be given to big corporates who would always like to advertise and by this we can enter into a strategic agreement wherein both the corporate as well as we will be benefitted. The schemes must be decided on a case to case basis.
Consultative Sales Approach
Traditionally, newspapers have sold advertisements based on the products they have to offer – in other words, an internally focused sales process. The consultative salesapproach focuses on the client, the advertiser, and his or her business needs. If the client wants to introduce a new product, highlight a grand opening, improve brand recognition, or reach a certain demographic, then newspaper sales people can construct a campaign including a host of publishing elements to achieve success for the advertiser. The first thing is to identify what customers need. This is very important.
After identifying what they need, it’s very easy to find some solutions for that. During these crisis years, it’s not easy to demand budgets from the client. So you should come up with good ideas, you should come up with convincing ideas, in order to demand budgets. That’s why we should focus more on customers’ needs. That means we must create specific and special projects in order to get revenues. We should come up with multimedia ideas in order to get better solutions.
Audience Focus
In addition to becoming more customer-focused toward advertisers, news media companies around the world are also becoming more focused on their reader/viewer/user audiences on behalf of their advertisers and their editorial departments. Hundreds of media companies are ramping up their audience research in order to develop new products in print and digital, and also to offer their advertisers more insight into their own customers.
This has led to proven results as in the case of Sacramento Bee in California which offers an added value to advertisers a detailed profile of their customers’ demographics and geographic locations,
Revenue Management Page 12

which assists them in creating more successful advertising campaigns that target the right people, on the right channel, at the right time, in the right geography. But before adopting this, detailed database about readers of the newspaper should be collected.
Also The Hindu is already present online form; now focus should also be on develop mobile applications for newspaper. We have to combine offline, online and mobile in our advertising strategy to improve effectiveness and revenue.
Behavioural Targeting
While going online a key digital advertising strategy is behavioural targeting, similar to the one being used by Yahoo BT. In this case the technology engine enables the delivery of behaviourally targeted advertisements. If a user is identified for searching for a certain brand of automobile across a series of Web sites in partnership with the consortium, for example, the technology will deliver advertising to that user that may inform him or her about an offer applicable to the search. The algorithm can create behavioural segments, such as auto buyer, furniture shopper, vacation researcher, etc.
Revenue Management Page 13

Appendix1_Newspap er_EMSR.xls
Advertisement Tariff of The Hindu (Metro Plus)
Edition
Col
Rates in sq. cms. with effect from May 2011
Chennai Retail *
Chennai National *
Coimbatore
Madurai
Trichy
Trichy City
Puducherry
-
Cochin
Trivandrum
Hyderabad City
Hyderabad Edition -
- AP Split
Vizag
Vijayawada **
Bangalore
Mangalore
New Delhi
Metro Plus (Weekdays)
B/W Col
1140
1600
230
110
90
65
130
110
320
145
110
185
55
140
-
-
-
(Saturday)
830 1310
1240 1725
200 230
75 110
75 90
-
55 65
110 130
100 110
255 320
-
130
75
150
45
105
B/W
-
Metro Plus
145
110
185
55
140
Col
-
-
-
** - For Metro Plus Vijayawada means Vijayawada City + Guntur
945
1450
200
75
75
55
110
100
255
130
75
150
45
105
Revenue Management Page 14