The Newspaper Agency’s 100-Subscriber Scheme
Meera runs a newspaper and magazine agency with 1,200 home-delivery subscribers. Each subscriber pays the cover price of ₹150 a month; the agency keeps a 20% commission and pays ₹18 per subscriber per month to its delivery boys. The publisher now offers a growth scheme: if Meera signs 100 new subscribers at a discounted price of ₹120 a month for twelve months, the agency keeps the usual 20% commission and also earns a 3% volume incentive, calculated on the ₹150 cover price, for each genuinely new subscriber. The new subscribers would be in the same two colonies as existing ones, so delivery cost stays at ₹18 each. Meera’s son, who has just finished an MBA, is enthusiastic: “Any positive contribution is worth taking.” Meera is worried about one thing: many of the 100 “new” subscribers may simply be existing customers who downgrade to ₹120 to get the discount. The publisher has said it will verify and withhold the incentive on any subscriber who was already on the agency’s list.
1. Calculate the monthly contribution from one genuinely new subscriber and from the full 100, and compare it with the agency’s current monthly margin.
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One genuinely new subscriber, per month:
- Commission: 20% × ₹120 = ₹24.00
- Volume incentive: 3% × ₹150 = ₹4.50
- Inflow: ₹28.50
- Delivery cost: ₹18.00
- Net contribution: ₹10.50
For 100 new subscribers: 100 × ₹10.50 = ₹1,050 a month, or ₹12,600 over the year.
Current margin: 1,200 × (₹30 commission − ₹18 delivery) = ₹14,400 a month.
The scheme adds ₹1,050, about 7.3% of the existing margin, for a 12-month commitment and 100 new addresses to service. That is thin but real. Note the structure: the discount costs the publisher, not Meera - her commission falls from ₹30 to ₹24, but the incentive more than makes up the difference. The son’s statement is directionally right and practically useless: “positive contribution” describes the sign, not the size or the risk.
2. Using the publisher’s verification rule, how many of the 100 sign-ups must be genuinely new for the scheme to add nothing?
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Let n be the number of genuinely new subscribers and 100 − n the downgraders.
- Each new subscriber adds ₹10.50
- Each downgrader loses ₹6.00: commission falls from ₹30 to ₹24, and no incentive is paid on an existing customer
- Net: 10.50n − 6.00(100 − n) = 16.50n − 600
Set to zero: n = 600 ÷ 16.50 = 36.36, so the scheme breaks even at about 36 to 37 genuinely new subscribers. If fewer than 37 of the 100 are new, Meera loses money.
Read that as a cannibalisation tolerance: over 63 of the 100 could be existing customers before the scheme turns negative. That sounds safe until you notice the incentive to game - a ₹30 discount is a strong reason for an existing subscriber to re-register under a spouse’s name. If the publisher were to pay the incentive even on downgraders, the loss per downgrader drops to ₹1.50 and break-even falls to only 13 new subscribers. The whole calculation therefore hinges on how strictly the verification rule is applied.
3. Should Meera run the scheme? Give a decision with the safeguards you would insist on.
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Run it, but as a controlled trial rather than a 12-month commitment. The expected gain of ₹1,050 a month is 7.3% of margin - worth having, too small to justify risking the ₹14,400 base.
Safeguards:
- Verify before paying out. Require proof that the household was not already a subscriber, and check for duplicate addresses. The 37-subscriber break-even gives no room for a loose list.
- Pilot first. Run 25 subscriptions in one colony for three months. If at least 60% prove genuinely new, the full scheme clears break-even comfortably; if only a third do, it does not.
- Protect the base. No downgrade path for existing subscribers; the ₹120 rate applies to new households only, in writing.
- Watch service quality. 100 extra addresses on the same two rounds may delay delivery and cost more than ₹18 each in complaints and cancellations - a risk the arithmetic above ignores.
The judgement is that the numbers justify a test, not a commitment. The son answered the wrong question: not whether the scheme is positive, but whether it is positive enough to be worth the measurement and the risk.