If the daily paper were more expensive, the elasticity would increase.
In terms of profit, the daily paper is a strong proposition. Clearly priced well above the variable cost, the daily paper takes advantage of the low price elasticity of demand to generate a strong contribution margin.
The $1.99 Sunday newspaper functions similarly to the daily. This paper, however, is packed with far more features. Thus, it is sought out by consumers rather than purchased on impulse. As a result, the price elasticity of demand for the Sunday paper is lower than for the daily editions. The significantly higher price reflects that.
In terms of profit, the Sunday paper is the key driver of contribution margin. The high price, combined with high circulation and strong ad yields, makes the Sunday paper the big earner for the Sun-Times. Low price elasticity of demand contributes to this contribution.
The...
In part, this is because the ticket is higher, which triggers additional consideration on the part of the consumer with respect to the value proposition. As a consequence, the Sun-Times prices its monthly subscription sufficiently low as to overcome that additional consideration.
With regard to profit, the subscription plays an important role. Although the per-paper contribution is much lower than for newsstand papers, the guaranteed circulation is vital to the company's overall profit. It allows for fixed cost planning and the appropriate setting of ad rates. Without guaranteed circulation, the Sun-Times would need to reduce ad rates and run a smaller operation. This would put the paper at a competitive disadvantage because this risk reduction strategy would reduce the quality of the product offering.
