I worked at Time Inc. , one of the biggest companies in the magazine industry, for the last two years as a data analyst. Time Inc. owns many of the major brands that people typically purchase such as People, Time, Sports Illustrated, Money, Fortune, and many more. The trends in this industry have led to large declines in print, which I will refer to as newsstand copies, and increased content on the brand’s respective website. I worked specifically for People and Sports Illustrated and our team was tasked with slowing down the declining sales of the newsstand copies.
This industry has been around for a few decades and the major companies had no new ways of differentiating themselves. Every company began to start cutting their overall newsstand copy distribution by more than 10% each year as sales were dropping at an even larger rate. In hopes of driving print copy sales up instead of down 10 or more percent the companies decided to cut the magazine’s price. Most companies dropped the price of the magazine by over a dollar, but in order to match their own costs with the new lower price they had to make more sacrifices.
One of the processes the competitors changed in order to offer a lower cost product was that they started printing the copies on lower quality printing paper to save costs in production. They also had a few instances of major layoffs, both in management and in the brand edit teams. The magazine was not only printed on lower quality paper, but it also now had less pages than before and less than all of Time Inc. ‘s competing products. Less pages saved them in production costs, but it was also a direct result of having laid-off many of the brand’s writers.
These competitors continue to this day to make more decisions based on a lower cost and lower quality value chain. However, these changes are not working as the unit declines continue and the profits are as slim as ever. Time Inc. , whether it is because they are the leader in the industry and as a result have the best writers or because of the situation with the rest of the competitors, has decided to follow a high quality high cost value chain.
As the author of the article, Jim Riley, suggests, not all companies in an industry operate under the same value chain as they operate under different financial circumstances and were created for different reasons. In this case. Time Inc. is the most profitable company in industry so they did not have to rush to the restricting decisions the competitors made and they also were able to see how the industry reacted to the declines. (Riley 2012).
In the OMILA Time Inc. s management, led by CEO Joe Ripp, decided that they would offer a high quality high cost product as the rest of the industry offered the low cost low quality product. As all of the competitors turned towards this lower cost model, they all became seen as a similar product by consumers and therefore were no longer differenced from the rest of the magazines. Ripp and Time Inc. used this situation to their advantage as offering the higher value product would be differentiated and the higher cost may help offset the assumed loss in unit sales. Riley 2012).
Analytics played a large role in this decision as Time Inc. tested this theory before implementing it. They decided to conduct price tests across the nation for a year, spoke with test groups, analyzed survey data, and more to determine the price sensitivity in the nation and the effect that a price increase would have on the unit sales. This data all confirmed what they expected, which was that a higher quality product would be valued in this industry and that a price increase would be ustified. Possibly more important was that many individuals showed that they would still buy the product at the higher price which showed the company that there would not be a drastic hit to their profitability. (Riley 2012).
After a year or two of this new value chain of higher value products, Time Inc. is still the only major company offering this type of product and as a result they continue to reap the benefits. For example, in the past two years, Time Inc. s largest publication, People Magazine, has increased its market share by over one percent (1%) a year, moving from 33% to 35% after the market share was relatively steady the previous 5 years. (Riley 2012). This was as a result of two items at play-cost and value. As | mentioned, they are the only major company offering this product so consumers are choosing this differentiated product over the low cost stack of competitors more often. This is obvious as the industry continues to decline by 10% or more but Time Inc. ‘s unit decline is only around 5. 5%.
Even if there was no price increase they still would have picked up market share as the declined at a lesser rate. However, since they do charge more for the increase in quality that has allowed them to gain more revenue on their competitors than in years past and thus a higher market share (when market share is determined by revenue and not units). (Riley 2012). The article mentions that there are two types of activities for value chains-indirect and direct. Direct activities are the primary activities of a company and they consist of sales, marketing, logistics, operations, manufacturing, purchasing, and customer service.
The indirect activities, or support activities, are parts of the company like finance, legal, human resources, research departments, and more. The difference is with concern to the product itself. The primary activities relate directly to the product creation and sale, while the support activities assist in this process and may optimize or increase the products efficiency. Time Inc. focuses on many of these areas, both primary and support activities, with regard to their new model of higher quality. (Riley 2012).
The manufacturing department at Time Inc. s called productions and there they print every brand’s magazine and prepare them for distribution. Time Inc. has production centers all across the nation to shorten the delivery time so that the news that the report is still current, like when a sports team wins a championship game the magazine is out on sale the next day. Management has made changes to the productions department as a result of the new value chain. (Riley 2012). For example, since they want to offer a higher quality product, they decided to print the copies on higher quality paper.
This paper is more expensive, but after conducting survey research Time Inc. learned that the consumer would pay for this more supportive paper. This new paper gives the magazine a “booky” feel as it won’t tear or rip as easily and can be kept for longer periods of time. This was one of the changes that needed to be made in order to offer a higher quality product to the consumers. (Riley 2012). There was also a change to the size of the magazine. As rival companies continue to create smaller publications, Time Inc. wants to publish more content and larger content.
Time Inc. as extended each magazines total pages by a few pages to make the magazine larger so in comparison to the smaller competitors it demonstrates high quality. Readers want more so the more pages of content you offer them, the more likely they are to buy your magazine and in this case even pay more for the magazine. These two changes to the productions department were and still are a major focus of Time Inc. (Riley 2012). Another area that Time Inc. focuses on with regard to the new value chain is operations. Operations for Time Inc. is the actual business operation of writing content and selling it.
So here I will explain the changes that were made with respect to the content for sale. Joe Ripp said in a recent interview, “Quality content will always prevail. ” Here, it is evident, that Ripp believes not only does the magazine need to be created with higher quality, but it also needs higher quality content inside the newly designed build. (Digiday 2015). Some of the magazine’s top grossing brands are in the celebrity entertainment category and many of those brand’s competitors write rumors, or in some case make up stories, to try to sell more copies.
Ripp decided that these brands needed to change so they could be less like a tabloid and be more trusted by the readers. These brands are encouraged now to only write about what has happened and not what might happen. Management is also utilizing the analytics given to them from the research department on what each brand’s audience prefers to read about in each respective magazine. Utilizing this data allows Time Inc. to help maximize consumer interest in each volume. Ripp and upper management also purchase other smaller companies to use their content if they felt the content was something they couldn’t or weren’t offering. (Riley 2012).
