If Your Business Model Is Based On Hoping Your Customers Never Do Math, You're In Trouble

from the ny-times,-we're-looking-at-you dept

As we get closer to the NY Times finally putting in place its long-promised, often-mocked paywall concept, it's worth pointing to a story from a couple months ago, which I didn't have time to write about when it came out. It involved some comments on a panel from Gerald Marzorati, the Times' assistant managing editor for new media and strategic initiatives, in which he more or less mocked the subscribers of the print publication for being too ignorant to do basic math and realize just how much they were paying:
"We have north of 800,000 subscribers paying north of $700 a year for home delivery," Marzorati said. "Of course, they don't seem to know that."

As evidence that Times subscribers don't realize how much a subscription costs, he pointed to what happened when the paper raised its home-delivery price by 5 percent during the recession: Only 0.01 percent of subscribers canceled. "I think a lot of it has to do with the fact that they're literally not understanding what they're paying," he said. "That's the beauty of the credit card."
Of course, another explanation (which is much more favorable to the NY Times) is just one of general price inelasticity to a newspaper like the NY Times. If that's the case, where the price rises and most people keep subscribing, it suggests that most of those people continue to value the subscription more than the price, and the newspaper might even be able to get away with raising the price further. What's odd, however, is this assumption by Marzorati, that it's the general ignorance of their subscribers that keeps them in business. We're in an age when assuming ignorance on your customer base is a very dangerous position to be in.

If the company's guy in charge of new media and strategic initiatives seems gleeful over ignorant readers, rather than focusing on ways to make sure they continue to get more value out of their subscription than they pay for it, it makes you wonder how long this sort of setup can really last. There are all sorts of ways that a publication with the reputation of the NY Times can make lots and lots of money. But betting on the ignorance of subscribers does not seem to be like the best overall strategy.

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  1. icon
    Lance (profile), 13 Jan 2011 @ 5:04am

    Another thing to consider

    Marzorati's comments are completely ignoring something very simple. Raising the rates by 5% on a $65+ per month bill is not likely to raise a lot of eyebrows. People will usually accept a small enough raise in the prices for goods that they find useful. It is easy to allow your credit card to be charged an extra $2 to $3.

    With the paywall, people that have never had to hand over their credit card number will now be required to do so. What is the incentive to start paying for information that they might just as easily acquire elsewhere? I believe that getting your current customers to go from x dollars per month to x+5% dollars per month is probably easier than getting your casual reader to go from paying nothing per month to two dollars month (unless that two dollars gives them something they didn't get before).

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