The optimal ratio between advertising and sales income

International Journal of Revenue Management

Volumn 1, Issue 1, 2007, Pages 65-78

  Mangani, Andrea ^a  

^a UNIVERSITY OF PISA   (Italy)

Author keywords

advertising; Media markets; Pricing; revenue management

Indexed keywords

EID: 79960539099     PISSN: 14747332     EISSN: 17418186     Source Type: Journal    
DOI: 10.1504/IJRM.2007.011194     Document Type: Article

References (29)

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25. Baye and Morgan (2000) put forward an explanation of the ratio between advertising revenues and subscription revenues. The results, however, are difficult to interpret through standard empirical tools possessed by practitioners.
26. However, there are some media that permit to differentiate the product according to the characteristics of consumers, such as the internet service providers. The study of Prasad et al. (2003) is particularly interesting in this context. These authors suggest that, with contemporary electronic media, media providers can inexpensively design and offer several price-advertisement choices to consumers, and the managerial decision (related to balancing the revenue from advertising and subscription) is not restricted to setting a single price and advertising level. In relation to the newspaper market, the diffusion of online versions among readers-consumers and the enhancement of the interactive relationship between the publisher and readers offer the opportunity to provide personalised media products, effectively segment the demand, adopt price discrimination and thus vary the optimal advertising/sales ratio, depending on the characteristics of each segment of readers.
27. The proof, although straightforward, is available from by the author upon request.
28. If we introduce a quality dimension in the model, this does not mean that the newspaper will necessarily be a ‘high quality’ publication, but only that the publisher decides to devote an amount of money to reach a given level of quality.
29. Saying that condition in Equation (13) holds also for free media products does not mean that the ‘values’ of the formula are the same for free and paid products: we are considering two distinct markets, hence the value of elasticities may be different and thus quality investments and advertising revenue may vary.