Where Reader's Digest -- and many other companies -- REALLY make their money....

Here's something I was told by a friend of mine, who has done some research about the publishing industry in order to set up her own company.

(You can check out my friend's company at www.bookface.com -- where you can read some free books! :)

You know Reader's Digest magazine? Well, apparently the magazine is NOT where Reader's Digest makes its money.

The low cost magazine accounts for less than 30% of Reader's Digest's revenue.

It's actual main purpose is as a "lead generator," so that Reader's Digest can sell products (like condensed books, music, and videos) to its subscribers. They make their real money - over 60% of their revenue - on the other products that they sell.

That's where the real money is. This system is true in a LOT of businesses - where you might think they are making the money, is not really where they are making it.

In some cases, a business might make far more from selling sponsorships or advertising than it does from selling the actual product. (This is quite clear in the case of free local community newspapers, for instance.)

Other cases are like Reader's Digest - where you first think they are making money is really just what is called the front end. The back end is another product which they sell to those who buy or receive the front end, and it is at the "back end" where they make their money - like Reader's Digest and their condensed books, music, and videos which they sell by mail to subscribers.

If you read mail order books, you'll see this discussed at length. It is a standard practice in mail order.

For example, you might see ads (especially in the classified sections) where you are asked to write in to get a free booklet, or something like that. That free booklet is really just an excuse for them to send you their advertising material for their real product. That real product could be the main product, or it could in itself lead to an even more expensive product. It is a strategy which works.

It's good to know about! Sometimes, when you read these books about mail order, you might think that only little mail order companies you might not have heard of use this tactic. However, it is a well-known approach even in big business, like the example of Reader's Digest!

Hope you enjoyed the post! Now back to your regularly scheduled presidential election programming.... :)

Dien Rice

I never thought of Readers Digest as a front end product before. I suppose it's the equivalent of an online opt-in strategy where there is an acquisition cost for each customer.

In fact you may find that Readers Digest loose money on selling the Readers Digest itself and make money on the back end products.

Warmest Regards,

Jon Lawrance

Hi John,

> I never thought of Readers Digest as a front
> end product before. I suppose it's the
> equivalent of an online opt-in strategy
> where there is an acquisition cost for each
> customer.

You could think of it as a kind of opt-in strategy....

Once you take the bait, they've got you on their hook! :)

Though that's not necessarily a bad thing.... If you're interested in their other stuff, it can be good. :)

It's also a way of building trust.... When you receive the first thing you ordered and see it's good quality, then you'll feel more comfortable ordering something else too....

If you go on a first date with someone, and you feel good about it, you'll be keen to go out on another.... And it's the same sort of thing. :)

> In fact you may find that Readers Digest
> loose money on selling the Readers Digest
> itself and make money on the back end
> products.

I think they probably do make money on the magazine, it's just that that's not where they make most of their money from....

It's easier to get financial information about Reader's Digest, because it's a publically listed company. However, there are plenty of other businesses which use the same technique, many of them online.... It's quite common. :)

Dien Rice

Talking of opt-in, has anyone here read Seth Godin's book "Permission Marketing"? Got an opinion on it?

I am considering buying it as I thought his book on viral marketing was very good. Also, some real audio clips of his were very interesting.

Warmest Regards,

Jon Lawrance

Dien:

Almost 20 years ago, I was a guest speaker at a Newsletter publishing conference ... sponsored by a group of "journalists."

All day long, the speakers went on and on about the need for sophisticated graphics, and journalistic style, in newsletters.

When it was my turn to speak, I advised that over-sophisticated audience that the "ONLY" reason for publishing a newsletter was to "sell" your other products. Content, style & graphics weren't really important - IF - you gave the readers what you promised and what they wanted.

The whole group was ready to throw me out. I had sinned against "journalism" by mentioning that nasty word "sell." -- Then they wonder why "journalists" are the lowest paid professionals.

Jim


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