Breakthroughs in digital magazine pricing and contrast pricing yield startling results
A few years ago, we were still huge fans of universal pricing for digital, print and website subscriptions.
We still like it. We just don’t like like it.
Universal pricing, in which the subscriber gets access to your content on all of your platforms, certainly has its advantages. First, the subscriber who buys your tablet edition gets access to your entire website, which allows you to build a long-term relationship, increase brand loyalty and sell your other products.
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And we still believe, as we did in March 2013, that it’s critical to get your print audience engaged as quickly as possible in your 21st century platforms – your website and your digital edition – with as few hurdles as possible.
But as with everything else in digital magazine publishing, this type of pricing has become somewhat overshadowed by the success of a new strategy. Even the pioneer of the universal price, The Economist, has abandoned it.
By setting a single high price to cover all of your products in one package, you may get more revenue per order, but you’ll also depress orders and overall revenues. That’s not a strategy we recommend going forward.
Contrast pricing
While some mega-publishers like Time Inc. still employ the universal price strategy, The Economist, like some forward-thinking publishers, has moved on to our new favorite digital magazine pricing model, contrast pricing – also known, less politely, as decoy pricing.
Contrast pricing takes advantage of the psychological phenomenon in which human beings, when asked to make a choice, tend to rely on the relative value of things compared and contrasted to other similar things. This theory has been beautifully illustrated in depth by Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University, in his New York Times bestseller, Predictably Irrational: The Hidden Forces That Shape Our Decisions.
It’s the same phenomenon, Ariely notes, that causes our headaches to persist when we take a cheap pain pill, but magically alleviates them when we take a much more expensive remedy. As long as we have something to contrast a purchase with, we’ll choose the one that seems most valuable by contrast.
Ariely most famously examined The Economist a few years back, before digital magazines, when it made this offer:
- $59 – Subscription to the website
- $125 – Subscription to the print edition
- $125 – Subscription to the website and the print edition
The decoy price was the middle one: $125 for the print edition alone, when you could have the print edition and the website for the same price, was undesirable, and only served to establish the higher value of the last offer. That’s what I call maximizing your revenues!
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Although we don’t have any numbers from The Economist to show how well it worked, Ariely ran a test by asking students to choose which offer they’d prefer. Unsurprisingly, the decoy worked beautifully, driving consumers to the highest priced offer:
- $59 – Website only: 16%
- $125 – Print edition only: 0%
- $125 – Website and print edition: 84%
Next, he removed the decoy price that made the last offer seem to be the most attractive. The results changed dramatically:
- $59 – Website only: 16% 68%
- $125 – Website and print edition: 84%32%
The lesson? Bundle that digital magazine with at least one other product, and make sure you have three offers to drive more buyers to the highest price point.
Even if you do embrace contrast pricing, you have to be careful which prices you use. If you don’t calculate a decoy price whose purpose is to drive subscribers to the highest price point, you’re still leaving money on the table.
Consider these price points for pricing a magazine, website and combo package:
- $20 – Magazine: 70%
- $30 – Website: 10%
- $45 – Combo: 30%
| Total Orders | 1,000 | |||
| Response | 1 | TOTAL | ||
| Distribution | 70% | 10% | 20% | 100% |
| Magazine | Website | Combo | ||
| Price | $20 | $30 | $45 | |
| Qty | 700 | 100 | 200 | 1,000 |
| Revenue | $14,000 | $3,000 | $9,000 | $26,000 |
Our experience shows us that the price in the middle is just too far below the highest price you want subscribers to choose, so it doesn’t serve as a decoy. Instead, buyers just opt for the cheapest price – 70% of them, in fact, but at just $20 each, revenues are tepid.
Instead, to make the middle price a genuine decoy price, lower the combo price at the top to make it a smaller financial leap for the consumer. This strategy sends revenues through the roof:
- $20 – Magazine: 20%
- $30 – Website: 10%
- $35 – Combo: 70%
| Total Orders | 1,300 | |||
| Response | 1.3 | TOTAL | ||
| Distribution | 20% | 10% | 70% | 100% |
| Magazine | Website | Combo | ||
| Price | $20 | $30 | $35 | |
| Qty | 260 | 130 | 910 | 1,300 |
| Revenue | $5,200 | $3,900 | $31,850 | $40,950 |
That $5 price increase to the top is just too appealing to ignore!
For another look at how this can be done, here’s the case study for Hidden Gardens magazine from our future publishing company, Green Gardens Network. The concept is the same, only this time we’ve made the first two prices the same, and we’ve repeated that modest $5 jump to the highest price:
- $29.97 – Hidden Gardens print edition and website/archive: 30%
- $29.97 – Hidden Gardens digital edition and website/archive: 20%
- $34.97 – Combo for web, print and digital magazine: 50%
| Total Orders | 1,300 | |||
| Response | 1.3 | TOTAL | ||
| Distribution | 30% | 20% | 50% | 100% |
| Mag+Web | Tab + Web | Combo | ||
| Price | $29.97 | $29.97 | $34.97 | |
| Qty | 390 | 260 | 650 | 1,300 |
| Revenue | $11,688 | $7,792 | $22,731 | $42,211 |
Once again, you can see we’ll drive more orders overall, as well as more orders at the highest price, generating total revenues significantly higher than we would get with the $20/$30/$45 model.
Don’t believe the model? Consider the real-world 2013 numbers from the Biblical Archaeology Society (BAS) that we wrote about in the past.. BAS has a digital magazine price for Biblical Archaeological Review (BAR), a digital library of back issues, and a combo package of both.
- $19.95 – BAR digital magazine: 19%
- $29.95 – BAR digital archive: 22%
- $34.95 – BAR digital magazine + archive: 59%
Once again, the highest price is only $5 more than the middle price. Five dollars more to get $20 worth of the digital magazine is simply a no-brainer for the consumer. The combo offer alone earned BAS $97,000. Digital magazine sales brought in $17,616, and the archive generated $32,017.
Discreet pricing
Finally, many publishers opt for discreet offers with no bundles. (We’re looking at you, Hearst.) This is a more traditional approach, but we don’t think it’s well suited for multiplatform publishers. It might look something like this:
- $19.97 – Digital magazine
- $24.97 – Print magazine
- $29.97 – Website/archive
We fear that publishers use this pricing strategy not because it’s multiplatform- or customer-friendly, but because their technology limits them to it. The consumer won’t perceive any extra value for the $24.97 or $29.97 prices. The only reason to choose anything but the lowest price is if the consumer is one of the vanishing breed who prefers print, or would rather consume content sitting at a desk.
What do you think of contrast pricing versus universal pricing or discreet pricing?
This article was originally published in 2013 and has been updated.
