Researching and implementing a new tiered pricing model CASE STUDY. Charlie RAPPLE TBI Communications

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1 Researching and implementing a new tiered pricing model 9 Learned Publishing, 24:9 13 doi: / Researching and implementing a new tiered pricing model Charlie Rapple CASE STUDY Researching and T he background Readers increasingly prefer to access scholarly content online. Institutions that previously subscribed to multiple print copies (to serve large sites) are cancelling in favour of a single print edition with online access. Alternative pricing models, such as tiering, can help to arrest the associated revenue decline by more closely aligning the price paid to the value it represents to that institution. Alternative price models also support sales in new, peripheral markets (the long tail ), by offering a lower, more flexible rate for very small institutions, or those that may only have occasional usage of the journal content and therefore could not justify investment in a full-priced print subscription. The brief A society publisher of scientific journals asked TBI to analyse its current sales and the profile of its institutional subscribers in order to develop a new tiered pricing strategy, which would provide a platform from which revenues could be protected and developed in the face of an increasing shift from print to online subscriptions. Tiered or differential pricing offers the same product at different prices, for example to different types or sizes of customer. implementing a new tiered pricing model Charlie RAPPLE TBI Communications ABSTRACT. Tiered pricing can help to arrest the revenue decline associated with the transition from print to online subscriptions. This case study reviews the objectives, challenges, project phases, impact, and key lessons of a project to research and implement a new tiered pricing model for a society publisher. We analysed current sales and profiled institutional subscribers to define, model, and refine appropriate price tiers. This led to the introduction of fair and transparent pricing that encourages usage, is manageable for supply chain stakeholders and minimizes the need for custom licences. We then planned and implemented a segmented communications strategy to increase current customer awareness of and support for the new pricing, and identified prospective customers and segments for potential sales growth. Objectives The publisher s goal was to introduce a pricing system that: 앫 would help secure revenues in the face of the increasing shift from print towards online access as the primary format for accessing journal content; 앫 would encourage, rather than restrict, usage; Charlie Rapple Charlie Rapple 2011 LEARNED PUBLISHING VOL. 24 NO. 1 JANUARY 2011

2 10 Charlie Rapple The publisher wanted to make journal access affordable for all organizations, with pragmatic site licensing would be fair and transparent for customers; would be manageable for subscription agents; would reduce the amount of time required negotiating bespoke licences; would accelerate a move towards online-only subscriptions, helping to reduce costly print circulation. Challenge 1: multiple sites Several of the publisher s customers had indicated that they wanted access to their subscriptions across several sites, e.g. from a university s central library as well as its medical school, or at sites across more than one city. Under the incumbent model, this would involve customers purchasing a second or third subscription sometimes just for a handful of users, a few buildings away. The incumbent model was restricting usage, frustrating customers, and creating unnecessary administration for the publisher and its customers. Challenge 2: different customer types and sizes Under the incumbent model, large corporations were paying the same amount for access as small not-for-profit research groups. The publisher wanted to make journal access affordable for all organizations, with pragmatic site licensing. Challenge 3: easy transition It was also important to the publisher that the tiering model was easy for librarians and subscription agents to understand. We felt it was essential to pre-allocate customers to tiers at the point of subscription renewal rather than relying on customers to self-allocate. However, the model also needed to be easy for customers to understand their tier allocation. A high degree of accuracy was required for tier allocation in order to minimize tier disputes, which could have proven to be a significant administrative burden. Phase 1: data audit TBI cross-analysed the publisher s current subscriber data against the Ringgold database, which covers over 125,000 institutions andaround4,500consortiaintheworldwide healthcare, government, and corporate sectors. It assigns unique identifiers to each institution within an overall hierarchy that shows relationships between multiple levels of institutions (e.g. consortia, institution, faculty, department). The database holds information on location, sector, and size of these customers as well as consortia membership. The data audit phase enabled us to find out: what types of organizations were purchasing; where they were; how big they were, in terms of staff and student full-time equivalents (FTEs) or corporate employees; what combinations of products they were buying; where seemingly different customers were actually the same customer buying for multiple sites e.g. the Oxford Internet Institute and the Oxford SuperComputing Centre are both part of the University of Oxford. We then carried out basic exploratory data analysis techniques to provide a high-level overview of the publisher s customer base. This answered questions such as the following: How many subscribers and subscriptions are derived from each geographic region? Which countries are responsible for the highest revenue? What proportion of journals are sold to hospitals, academic institutions, or public bodies? What is the most common combination of journal purchases by customers in a particular sector? Which organizations are only purchasing one product, but share a profile with customers whose purchasing range is much higher? We completed phase 1 with a full gap and penetration analysis, to identify prospective customers and understand which market segments would potentially support sales growth.

3 Researching and implementing a new tiered pricing model 11 Phase 2: market research We researched the pricing models currently used both within and outside of the publishing industry e.g. the various existing methods for categorizing organisations (such as those created by JISC 1 and the Carnegie Foundation, 2 which use a variety of variables such as size, student profile, and usage to group institutions) and how these methods were being applied by publishers to created a workable pricing model. Key subscription agents were consulted for their views on the implications of moving to a tiered pricing model. Phase 3: data cleansing The publisher had to undertake some work in-house to ensure that the data it held on file was accurate e.g. that reference numbers were correctly synchronized with agent systems and that the data could be readily cross-referenced with other internal data sources such as website usage. Phase 4: data modelling We proposed key parameters of a new pricing model, which were then applied to the existing customer base to ascertain the likely impact of different scenarios on subscription levels. Parameters were changed and data remodelled until a final set of tiering criteria was identified that balanced price decreases and increases fairly across the customer base. The fundamental principles underlying the chosen pricing structure are: a five-tier model based on the type of organisation and its relative size; a range of licences that provide access in either one or two cities as standard, enabling multi-site access for most organizations without having to purchase multiple subscriptions or negotiate custom terms. TBI then modelled further variables to forecast the financial impact of the new pricing model on our publisher s journal income, including: It was essential to test that the boundaries between tiers were clear and easy to understand

4 12 Charlie Rapple For some customers, the new model has enabled them to widen access to journals across their institution at minimal cost, and has resulted in requests to move up a tier anticipated attrition rates; movement from print to online subscriptions; the implications of multiple related customers moving to centralized purchasing; the potential for increased sale value from single sites now eligible for a multi-site licence; the impact of future price rises on the higher tiers; increased take-up of the publisher s author-pays open access publication option. Itwasessentialtotestthattheboundaries between tiers were clear and easy to understand. A random sample of customers in addition to some known unusual cases were used to work through the model, and stakeholders were invited to test the model s usability. Further revisions were made to the model following this testing period. Phase 5: applying the model We applied the model to the audited customer base, researching additional information where necessary to establish a customer s tier. Where information could not be found, the customer was allocated a tier based on whatever information was available, and was segmented into a different communications programme. Phase 6: communicating the change Subscription agents were consulted throughout the planning process and, once the model was finalized, given advanced warning and explanation of the forthcoming changes along with a full list of tier allocations for their customers. Agents were able to consult TBI and the publisher to resolve any queries prior to customer communication. Customers both direct and via agents were contacted approximately eight months before the new model would take effect, with information packs, explanatory documents, and access to an online tool to enable prospective customers and agents to selfallocate tiers. This tool, and its associated forms for querying allocations or requesting a customized quote, reduced the number of enquiries to the publisher s customer service team. Communications were timed to ensure librarians were aware of any changes to their pricing well in advance of setting budgets. This helped to avoid some of the criticism that can result from introducing pricing changes at shorter notice. Communications were segmented, e.g. by agent or online activation status, to ensure that only the most relevant information was received by each customer. Phase 7: customer response We prepared a set of template responses to help the publisher address queries relating to tier allocation, tiering criteria, and the new model in general. Customers generally accepted the value of moving to a new model, and the large amount of preliminary research meant that reallocation requests were minimal, with approximately 10% of customers being reallocated to a higher or lower tier. For some customers, the new model has enabled them to widen access to journals across their institution at minimal cost, and has resulted in requests to move up atier. Phase 8: related projects Creating a pricing model that was based on real and accurate data provided a strong foundation for ongoing strategic decisions. The profile information created during phase 1 was used to segment customers and prospects for ongoing marketing campaigns. The information gathered during phase 4 is supporting ongoing statistical analysis to understand customer profiles in more detail, and subsequently to identify key prospects and subscribers at risk of lapsing. TBI continues to work with the publisher to develop a solid marketing strategy that fully exploits this data. Planned campaigns include upselling journal subscriptions to existing customers, awareness campaigns to end users at low usage institutions, and free trial offers to potential customers who have a similar profile to existing subscribers. Impact So far, the new pricing model has resulted in the achievement of the objectives set out at the start of the project. The publisher has a

5 Researching and implementing a new tiered pricing model 13 pricing and business model more in line with how their publications are used and with the relative size of their customers. Attrition rates were lower than anticipated, revenue renewals have been better than anticipated, and the trend from print to online-only has continued with the subsequent reduction in printing and distribution costs. Key lessons Researching and implementing a new pricing model will require time and resource from all parties but will result in fewer individually negotiated licences. Time spent cleansing data and researching additional information is a good investment in a smooth transition. The data analysis and modelling required to develop a new pricing model takes between four and six months, depending on (for example) the number of unusual cases to be modelled, or the amount of datasets to be collated. Allow plenty of time (a further 8 12 months, depending on the complexity of your customer base) for customers to factor the new model into their budgets and to discuss any concerns with you. Be aware of local business arrangements. A robust model must be detailed enough to be clear and usable, but flexible enough to be relevant to all your customers. Test, test, and test again. It is vital that the model does not have holes or contradictions in it. There is no substitute for working through the model with real customer data to spot where the modelling criteria are not as clear as they could be. Work closely with subscription agents to ensure that they have implemented the new model correctly for their customers. Quick, personal responses to communications from customers and agents were much appreciated. Full commitment and teamwork from both partners (the publisher and TBI) was the most important element in achieving objectives. Acknowledgements The author would like to thank Suzanna Marsh for her assistance on preparing this article for publication. References 1. For further information about JISC Banding for Higher and Further Education Institutions, see 2. For further information about Carnegie Classifications of Institutions of Higher Education, see Charlie RAPPLE Head of Marketing Development TBI Communications 62 Church Road Wheatley, Oxford OX33 1LZ, UK charlie.rapple@tbicommunications.com