Trimming the ratebase

Over the last 10 years or so, almost half of all ABC-audited magazines claiming a ratebase have made at least one cut in their circulations. Perhaps even more noteworthy is that more than half of those cuts have occurred since 1990. It's become one of the more common circulation strategies for boosting profitability.

The trend reflects a decline in the success of magazines' new business efforts, including direct mail, and a long slump at the newsstands. Soft offers (premiums and free issues) dominate the industry. Declines in front-end response, coupled with Poorer back-end pay-up, have become a major concern. At the same time, the ad sales climate has grown colder, meaning that the maintenance of higher, more costly circulation can no longer be justified.

A ratebase cut, in tandem with other strategic circulation moves, can be a very attractive alternative - especially since the advertising community no longer automatically assumes such a reduction shows weakness. Even for those titles that don't make any ratebase claims, there are valuable circulation lessons to be learned from this approach. How do you know if a ratebase cut is right for your magazine? Here are some key issues to consider.

Advertising sales

If ad pages are on the decline and you see no immediate signs of recovery, then it doesn't do much good to keep chasing after those expensive, peripheral subscribers. Ad rate discounting, now a common industry practice, further erodes a magazine's profitability. The issue for circulation directors is to demand better forecasting of ad pages by the advertising department. If ad revenue can't justify circulation spending, then a reduction in ratebase is obviously right.

Circulation health

Cutting the ratebase provides a unique opportunity to improve the overall pricing strategy of your magazine. When you have the luxury of needing to attract less new business, circulation price increases - either newsstand, subscription, or both - are easier to pull off. In other words, you can maintain the same direct mad volume as in the past but still raise your prices and be able to afford the resulting fall-off in response.

Let's say you typically send out five million pieces of new business direct mad per year and pull 1.5 percent net, or 75,000 orders. If you are cutting your ratebase by 25,000, you might stiff mail your normal five minion pieces but raise your introductory offer 15 or 20 percent, or perhaps lengthen the term of your offer. Or, instead of raising the price, you might want to try a harder new business offer by getting rid of free copies or premiums. This should lead to better pay-up and therefore better net response for your mail.

Circulation expenses

Most publishers find that the best place to cut expenses in a ratebase reduction plan is in their own direct mail program. Almost every magazine that uses direct mail in a significant way has a few hundred thousand pieces that lose a significant amount of money. It goes without saying, then, that you need to cut your most expensive - that is, poorest performing - lists right upfront. You'll find that reductions in other new business sources do not provide the same kind of cost savings as direct mail.

Audience quality

When making announcements about ratebase cuts, most magazines are in the habit of saying that the goal is to improve the quality of their subscriber files. While this sounds good and gives the public relations types something to work with, the explanation is actually more of a smoke and mirrors tactic - but one that Madison Avenue nonetheless seems to buy. Cutting the ratebase is a way to improve a magazine's bottom line; it usually has no effect on the demographic makeup of your subscriber file. Your editorial product tends to be self-selecting regardless of your subscription sources.

That said, the "quality" argument will still be a big hit with the folks in your advertising department, so don't dismiss it - even if you know better.

Change in ownership

This is as good an opportunity as any for new management to make a ratebase cut and to blame all the magazine's mistakes on the previous owner.

A ratebase cut need not be a permanent thing. A number of magazines have made temporary reductions in circulation at some point, improved their profitability, and then gone on to grow their circulations again. Other titles have used the reduction as part of the transition toward not making any specific ratebase claim at all.

In either case, the decision to reduce ratebase can open up a whole series of opportunities to improve a magazine's long-term health.

E Daniel Capell is managing director of Vos, Gruppo & Capell, and editor of "Capell's Circulation Report."

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