The Economist in the USA
23 May 2007The Economist’s Bizarre Baltimore Blitz
When a Test Is Not a Test
A Magazine’s Blitz of Baltimore
The Economist, the venerable weekly published by the British company Pearson, is using Baltimore—chosen because it is a typical American market for the magazine—to test a new effort to increase newsstand and subscription sales, along with brand awareness. The test involves employees of the magazine and four agencies on both sides of the Atlantic. The test, costing an estimated $500,000, is unleashing a panoply of advertising and promotional efforts on metropolitan Baltimore. Among them are posters, print advertisements, banner ads on Web sites, radio commercials, direct mail, local events, signs at newsstands and a public relations campaign.
—Stuart Elliott, The New York Times, March 20, 2006
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The Economist’s US marketing plan is explained below by Denny Hatch.
He pitched for The Economist’s business around 20 years ago and clearly remembers the incident very well. He includes some interesting calculations on the kind of return on investment The Economist’s marketing blitz is likely to achieve (not very much).
“Many years ago—long before 24/7-cable news and the Internet—I was a regular subscriber to The Economist, a highbrow, dense, British-based newsweekly.
I would let my subscription lapse, then miss it and sign up again, only to find it brilliant, but a guaranteed cure for insomnia.
A long time circulation consultant to The Economist sent me an RFP to write and design a direct mail acquisition effort to bring in new subscribers.
Marjorie Scardino
I sent back a frankly nutty proposal that was shot down within two minutes of its hitting the desk of Marjorie Scardino (today Pearson’s Chief Executive).
When I learned the reason for the rejection, I thought they were nuttier than my proposal.
When I read last week that The Economist is planning a test using four agencies here and in the UK to blow $500,000 on a six-week, multi-channel, multi-media assault on Baltimore in hopes of getting a bump in awareness and circulation, I was filled with a deep sense of dread.
My Off-the-Wall Proposal to The Economist
As a subscriber to The Economist, I knew the magazine and knew that it was written at a graduate school level and filled with grey walls of type from cover to cover. I could have suggested a typical, copy-heavy, #10 or 6” x 9” package with four-page letter and all the standard accompanying elements—brochure, order card, lift piece and business reply envelope. I probably would have gotten the assignment.
But I decided to swing from the heels. The teaser copy on the envelope that I proposed was:
“AT LAST! A NEWSWEEKLY FOR GROWN-UPS!”
The premise was that in their desperation to reach a larger universe of subscribers, Time, Newsweek and U.S. News & World Report had dumbed down their design, editorial copy and article lengths to roughly the fifth grade reading level. The Economist was the only newsweekly aimed at intellectuals.
The copy drivers:
Fear: “You are not getting in-depth news and will be looked on as unable to carry on an intelligent conversation.”
Anger: “The other publications assume you are an idiot.”
Exclusivity: “Be the first on your block …”
Salvation: “You will be completely informed.”
Flattery: “This offer is being made only to a select few members of the intelligentsia of which you are a part.”
I fully expected that the “Newsweekly-for-Grown-Ups” approach was far too flip and radical for a publication with such weighty pretensions.
If I were in the circulation department’s shoes, I would have said no.
Astonishingly, I was turned down because of “positioning.”
Since the publication was called The Economist, Scardino insisted that its competition was Fortune, Forbes and Business Week—not the three newsweeklies.
I was stunned! As a subscriber to The Economist, as well as to Time and Newsweek, it was obvious to me that all were covering the same beat—national and international news, politics, science, technology, people and the arts. Of course economics, finance and business were a big part of the mix. But The Economist was not emphatically business-centric in the model of Forbes, Business Week or Fortune.
I could only conclude that Scardino was not a reader of her magazine.
That was 20 years ago.
Several years ago I wrote a cover story for Target Marketing on The Economist COO, Beth O’Rorke, and told her the story of my proposal based on the proposition that the magazine’s real competitors were the newsweeklies.
“You were ahead of your time,” she said.
In the last 12 years under the direction of Editor Bill Emmott, COO Beth O’Rorke, and circulation director, Hilde Sprung, the magazine has come up with a bright, powerful self-mailer format that works both in the mail and as a freestanding newspaper insert. More to the point, circulation has doubled to more than 1 million paid subscribers, of which 52 percent is in North America.
Early in March, it was announced that O’Rorke would be retiring.
On March 23, 2003, it was announced that Emmott was stepping down, to be replaced by John Micklethwait, 43, who told Stuart Elliott of The New York Times that he considers his competition to be the three big newsweeklies, plus The Weekly Standard and The New Republic.
For a long time, The Economist was doing things very, very right.
Until now.
The Baltimore Blitz
“We want to see if we can move brand awareness, newsstand sales, subscription sales, by doing some of the things here we do in the U.K.,” Paul Rossi, the U.S. publisher told Stuart Elliott of The New York Times. “Research shows there’s an opportunity.”
Susan Clark, the London-based global marketing director of The Economist, said, “It’s a kind of multilocal strategy.” She described her customers as high-income, high-education people that tend to cluster in urban markets such as Baltimore, Boston, Dallas, Denver, San Francisco and Austin. “While we think we have the ability to double our North American circulation within five years, we don’t think we can afford to do a truly national initiative.”
So Baltimore was picked as a test site.
Using four agencies in the UK and the U.S. plus in-house staff, the multi-channel, multi-media approach will include PR, posters, Web banner ads, radio, local events, point-of-purchase (P-O-P) material at newsstands, print ads, direct mail and giving away red umbrellas that bear the slogan, “Talk about more than just the weather.” The campaign, which started Feb. 22, 2006, was scheduled to run for six weeks.
Ignoring the Rules of Copy
Based on the award-winning work by AMV BBDO in London. The copy approach is light-hearted and humourous, with such headlines as:
Money talks, but sometimes it needs an interpreter
Is it a superiority complex if you really are?
The head of British intelligence
The Brits love obtuse, clever headlines that make the reader stop and think. Americans are not used to this. We generally want to see an immediate benefit or we move on. Whether this technique translates into newsstand sales and subscriptions to a Baltimore audience remains to be seen.
Brand awareness surveys were taken prior to the Baltimore Blitz and will be taken after it comes to a close.
Ignoring the Offers of Others
As long-time readers of my columns know, my wife, Peggy, and I launched WHO’S MAILING WHAT! on a premise stated by Dorothy Kerr, circulation director of US News & World Report in the 1980s. “The way to be successful in direct mail,” Kerr told a luncheon gathering, “is to see who’s mailing what, track those mailings come in over and over again (which means they are successful and profitable) and then steal smart.”
The Economist is not stealing smart. The Baltimore offer is 25 issues for $49.90.
Will people pay this much given the current control offers of the competition?
Time: 56 issues for $19.95
Newsweek: 54 issues for $20.00
US News & World Report: 53 issues for $20.00
Business Week: 51 issues for $29.97
Fortune: 28 issues for $20.00
Forbes: 26 issues for $19.99
It remains to be seen if the sophisticated, urban community of Baltimore—that has received the above offers many times—will pay more than double for roughly the same editorial information.
The Ballpark Arithmetic
Here is my estimate of how the Baltimore Blitz will play out over 5 years.
The Economist circulation is roughly 5,000 in the Baltimore area. Let’s say the Baltimore Blitz gives the circulation a bump of 40 percent and brings in 2,000 additional subscribers.
The cost of the blitz is $500,000. If it brings in 2,000 new subscribers, the cost per subscriber will be $250 each. Subtract the $50 payment from each subscriber and the net cost is $200.
Is this affordable? It depends upon the estimated lifetime value—how much will these 2,000 new subscribers pay over the total number of years they do business with The Economist.
It must be assumed that over the years, the market of hard core aficionados of The Economist has been creamed and that the Baltimore Blitz will bring in primarily tangential subscribers.
Given the fact that The Economist is written at a graduate school level—like the Harvard Business Review or Foreign Affairs—for people that are not only news junkies but also policy wonks, my bet is that publication will be way over the heads of 75 percent of the new subscribers. If so, only an estimated 25 percent of respondents to the Baltimore Blitz will convert (be first-time renewers), paying an estimated $100 each for another year.
Thereafter, The Economist might count on an average of 70 percent of those to continue to renew each year. Here’s the arithmetic under this scenario:
REVENUE COST
2006 Baltimore Blitz $500.000
2007 2,000 New subs pay $50.00 $100,000
2008 25% (500) pay $100 $50.000
2009 70% (350) pay $100 $35.000
2010 70% (245) pay $100 $24,500
2011 70% (171) pay $100 $17,100
$226,600 $226,600
Net Loss after 5 Years (-$273,400)
Divide the original 2,000 subscribers into the $273,400 loss, and The Economist is looking at a five-year loss of $136.70 on each of the 2,000 subscribers acquired in 2006. Actually, the loss would be slightly higher, since renewal expenses are not figured in.
Projecting those numbers over the five-year period in which The Economist hopes to double its North American subscription base (from 569,000 to 1.14 million), the publication will spend $142.3 million and lose $77.8 million in the process.
Is This a Test?
Let’s say my arithmetic is cockeyed, wrong, unfair and filled with gloom-and-doom.
What is not cockeyed is that the Baltimore Blitz is not a test.
The object of a test is to invest in proprietary information that can be replicated over future marketing efforts. The Baltimore Blitz is a brand building and consumer awareness campaign with the addition of a direct marketing component that asks for a subscription order or a newsstand sale.
Let’s assume I’m dead wrong and the Baltimore Blitz brings in subscribers at breakeven or at an acceptable cost per order.
The problem it that too many elements are involved for this to be a true test—four agencies, posters, radio, P-O-P, public relations, off-the-page advertising, Web banner ads, direct mail and umbrellas. What was successful and what was not? Which of the various elements resulted in an acceptable return on investment?
At the end of the six weeks, it will be impossible to know what drove the results.
The final brand awareness survey will presumably show that more people heard of the publication at the end than at the beginning.
But in terms of actionable information, at the end of six weeks The Economist will be back at square one and $500,000 poorer.
Takeaway Points to Consider
• Testing is an investment in proprietary marketing information.
• ‘The Holy Grail of direct marketing,’ wrote entrepreneur-consultant Don Nicholas, ‘is the single variable test.’ An example of a single variable test would be two identical mailings going out to an Nth name selection of the same list at the same time with one change, such as $24.95 vs. $29.95. This would also be the case with an A/B split in a print publication.
• The Baltimore Blitz is a multi-variable test. And although Seattle guru Bob Hacker has written extensively on how to perform a multi-variable test, The Economist is not following any known rules.
• The point of a test is to spend money for data that will enable you to use that information in rollout quantities and be far more economically efficient. The construction of the Baltimore Blitz does not allow for data to be analyzed separately. As a result, future efforts will cost the same.
• When constructing a test, be sure to do the arithmetic twice—once on test quantities and again on rollout quantities. Base the success or failure of your test on rollout arithmetic.
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