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Case Studies for Part I: Apply Daily

Newspaper Crisis: The Cut-Throat Price War

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Guide To Case Analysis – Ten Commandments

1. Read the case twice, once for an overview and once to gain full command of the facts; then take care to explore every one of the exhibits.

2. Make a list of the problems and issues that have to be confronted.

3. Do enough number crunching to discover the story told by the data presented in the case.

4. Look for opportunities to apply the concepts and analytical tools in the text chapters.

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Guide To Case Analysis – Ten Commandments

5. Be thorough in your diagnosis of the situation, you may make a one- or two-page outline of your assessment.

6. Support any and all opinions with well-reasoned arguments and numerical evidence; don’t stop until you can purge “I think” and “I feel” from your assessment and, instead, are able to rely completely on “My analysis shows.”

7. Develop charts, tables, and graphs to expose more clearly the main points of your analysis.

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Guide To Case Analysis – Ten Commandments

8. Prioritize your recommendations and make sure they can be carried out in an acceptable time frame with the available skills and financial resources.

9. Review your recommended action plan to see if it addresses all of the problems and issues you identified.

10.Avoid recommending any course of action that could have disastrous consequences if it doesn’t work out as planned; therefore, be as alert to the downside risks of your recommendations as you are to their upside potential and appeal.

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Teaching Objectives of Apple Daily Case

• To analyze the impact caused by a new entrant, Apple Daily, on the Chinese newspaper industry.

• To explore Chinese newspaper readers’ attitude and behavior.

• To discuss the situations under which a market reader will pursue a cut-price strategy.

• To explore the effectiveness of marketing strategies applied by different publishers in the newspaper battle.

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Synopsis (1)

The price of Chinese newspapers was traditionally determined by the Newspaper Society of Hong Kong and members of the Society would standardize their press price accordingly.

Although there was no written rule that members had to follow the standard price, all newspaper publishers including non-member, Oriental Daily News, cooperated by following this rule for many years until a new Chinese newspaper, Apple Daily, entered the market in June 1995.

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Synopsis (2)

Apple Daily was launched in the newspaper market with indirect promotional strategies to reduce its cover price to $2.

Such price cutting caused confusion and uncertainty in the newspaper market in Hong Kong where the selling price was standardized at $5.

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Synopsis (3)

On December 9, 1995, Oriental Daily News sparked the price war by cutting its newsstand price from $5 to $2 a copy, a giveaway level.

Apple Daily, Sing Pao, Hong Kong Daily News, and Tin Tin Daily News soon followed suit with their prices varying from $1 to $4.

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Discussion Questions

About Apple Daily & the Chinese Newspaper Industry:

1. Analyze the Chinese newspaper industry according to Porter’s Five-Factor Model. Which factor(s) would you most important in this industry?

2. Discuss the key factors leading to the successful launching of Apple Daily. What do you think is Apple Daily’s core competence?

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Discussion Questions

About the Price War:

3. When is it justified for a new entrant to adopt a low price to gain an advantage in the market?

4. As soon as Oriented Daily News reduced its selling price from $5 to $2, other newspaper also followed suit with a price cut. Do you think that was a good move? Was there an alternative to the price cut?

5. Did the price cut spark a sensible war in the Chinese newspaper industry?

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Discussion Questions - Porter’s Five-Factor Model (1)

The important forces are the rivalry among the incumbents and the power of suppliers.

Justification:The market is dominated by the 5 most popular Chinese-language newspaper.

The major input into a newspaper is newsprint but its costs had soared about 30%. The supplier power is very strong as the Hong Kong market is only a small part of the global market

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Discussion Questions - Porter’s Five-Factor Model (2)

The threat of substitution (magazines or TV programs) is also significant.

The threat of entry is relatively low as the newspaper industry has no specific regulations and barriers against a new contender.

Buyers have limited power as they cannot affect the selling price of newspaper.

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Discussion Questions - Porter’s Five-Factor Model (3)

However, when considering some negative factors:

soaring newsprint costs, slack advertising, self-censorship ahead of Hong Kong’s reversion to Chinese rule in 1997, the economic recession in Hong Kong

The newspaper industry becomes less attractive.

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Discussion Questions – Key factors to success (1)

Key factors to success: a. Target segment – a newspaper for the whole family

b. Marketing concept – identify the changing needs and wants of newspaper readers. Position itself as a daily magazine newspaper. Differ from other traditional newspaper in terms of design, content and writing style.

c. Coordination of the marketing mix elements – -improve content (product)-aggressive price-cut strategy-good incentive to the distributors-advertising & sales promotion to create

awareness and encourage trials on the product

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Discussion Questions – Key factors to success (2)

d. Distinctive image – creating a reputation for:-charging the lowest price-providing prestige quality at a good price-going all out to give superior customer service-designing unique product attributes-coming up with unusually creative advertising

Core Competence:Innovative newspaper content & an aggressive marketing strategy

But this competence was not sustainable because it was easily imitated by other newspapers.

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Discussion Questions – Justification for adopting a low price (1)

Difficulty in creating sustainable differentiation- Even if the publisher is tactful enough to create various unique selling points or identify promising niches, rivals are still able to imitate this so-called “uniqueness” without much difficulty.

Consumer Purchase pattern - Reading habits are difficult to change and long-term readers are very unlikely to switch.- A low price can encourage the variety-seeking behavior especially from price-conscious customers.

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Discussion Questions – Justification for adopting a low price (2)

Publishers tend to adopt this strategy in the hope of enjoying scale economies.

If the publisher can successfully convert price-conscious readers into loyal readers, it can eventually fine-tune its cost structure.

Whether the product package (in terms of design, format, content) of the newcomer is attractive enough to retain customers remains the key to the success.

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Discussion Questions – Following a price cut is a good move or not? Alternative actions?

All these newspapers targeted the mass market, they would have definitely lost a market share if they did not follow the move.

Discounting a price cannot be a long-term strategy and they would have to improve the quality of their content (consumer survey, top 8 criteria concerned content)

Alternative actions:- Entered the price war and simultaneously improved the

quality and attract new readers (e.g., Hong Kong Daily)- Cut the price but made no improvement caused readers

to switch (e.g., Tin Tin Daily & Sing Pao)

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Discussion Questions – A sensible war or not? (1)

The main effects of the price war

1. It sifted out the less competitive newspapers and reallocated the market share among the rest of the competitors.

2. It also forced the publishers to improve their newspapers’ quality to meet customers’ wants and needs.

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Discussion Questions – A sensible war or not? (2)

Not a sensible war:

In the short run, it caused publishers to suffer a big loss. The revenue could not cover the increasing costs of operation and could not compensate for their losses through larger market share.

In the long run, it drive out some marginal firms with weak capital base and led to a higher unemployment rate.

Publishers should have put more effort into content, style, and paper quality according to what consumers wanted. The main factor affecting the sales volume is the product itself rather than promotion.