From an economic standpoint, the data suggest that there isn't a huge benefit to the co-op to lower pricing.
Take a look at the following table, illustrating new customer acquisition, and profitability levels, given different co-op pricing tiers per prospect. The table assumes mailing to an incremental loss of $15.00 per new customer (at the margin).
Co-Op Elasticity Table | ||||||
Cost/HH | Circ | Buyers | Demand | Profit | Prof/Cust | Co-Op $ |
$0.00 | 210,000 | 2,724 | $354,151 | $8,453 | $3.10 | $0 |
$0.01 | 195,000 | 2,587 | $336,247 | $8,486 | $3.28 | $1,950 |
$0.02 | 185,000 | 2,493 | $324,082 | $7,979 | $3.20 | $3,700 |
$0.03 | 175,000 | 2,398 | $311,717 | $7,601 | $3.17 | $5,250 |
$0.04 | 165,000 | 2,301 | $299,139 | $7,349 | $3.19 | $6,600 |
$0.05 | 155,000 | 2,203 | $286,330 | $7,215 | $3.28 | $7,750 |
$0.06 | 150,000 | 2,153 | $279,833 | $6,441 | $2.99 | $9,000 |
$0.07 | 140,000 | 2,051 | $266,639 | $6,524 | $3.18 | $9,800 |
$0.08 | 135,000 | 2,000 | $259,937 | $5,928 | $2.96 | $10,800 |
$0.09 | 125,000 | 1,895 | $246,304 | $6,206 | $3.28 | $11,250 |
$0.10 | 120,000 | 1,841 | $239,365 | $5,778 | $3.14 | $12,000 |
Assume that you're one of the poor souls paying $0.08 per name for prospects from your favorite co-op. You are able to mail 135,000 households (in my example), generating 2,000 new customers, and $5,928 of profit. Your co-op generates $10,800 revenue.
Let's say that you want the $0.05 pricing level that a larger competitor enjoys. Well, you'd benefit! You could now mail 155,000 households (in my example), generating 2,153 new customers, and $7,215 of profit. Your co-op, however, generates just $7,750 revenue.
If we exclude competitive pricing pressure between co-ops, there simply isn't any incentive for co-ops to lower prices for you. And because most co-ops have achieved a critical mass of households and transactions, there isn't enough of a threat of you leaving the co-op to encourage price incentives.
If you decide to participate in a co-op, you need to participate in at least two co-ops, clearly communicating to each organization how you are shifting circulation between them, being fully transparent about overall performance.
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