Media: Cut-price offers or cut throats?: As newspapers fight a relentless circulation war, Michael Leapman warns that buying reader loyalty brings short-term benefits and long-term losses

The quality price range

Financial Times 65p

Independent 50p

Daily Telegraph 48p

Guardian 45p

Times 30p

Cheap papers, cheap holidays, cheap lunches, even cheap seats at the opera: that is today's world of national newspapers. It has not seen such cut-throat competition since the Thirties, when the Daily Mail, Daily Express, Daily Herald and News Chronicle sought to lure new readers with free life insurance, cameras, mangles, cutlery and bound volumes of the works of Dickens.

Charles Wintour described this Thirties mayhem graphically in his 1989 book The Rise and Fall of Fleet Street. Teams of canvassers armed with the goodies would go out and recruit readers individually - and as soon as they had gone, rival teams would go to the same readers with even more tempting inducements. Someone calculated that you could clothe your entire family if you were prepared to read the Daily Express for two months.

The campaigns succeeded in expanding the market. In 1930 only 7 million people bought a national morning paper, but this figure had risen to 8.5 million by 1937. However, the increase came at a price: each new Daily Herald reader cost the paper pounds 1. The Herald struggled on until 1960, when it was bought by the Mirror Group, turned into the Sun and sold to Rupert Murdoch in 1969.

Now Mr Murdoch is the central figure in what many see as a costly, even suicidal, battle for readers among the national dailies. His deep cuts in the cover prices of the Sun and the Times have set off a spate of expensive offers and promotions as the other newspapers seek to protect their readership base - the most valuable being the Daily Telegraph's offer of up to pounds 600 off a package holiday to readers who collect 60 of its vouchers by the end of the year.

Mr Murdoch's price cuts also have a Thirties parallel. In 1930 Lord Camrose halved the price of the Daily Telegraph to a penny and saw its circulation double to 200,000 in three months. That is the example quoted by News International executives when media analysts tell them that the broadsheet newspaper market is not price sensitive.

The Times has so far done well from its September price cut from 45p to 30p - better than the paper's executives say they anticipated when they decided to take the drastic action. Circulation figures for October show that it is selling an extra 89,000 copies a day since the price went down. It now sells 444,503 compared with 403,124 for the Guardian and 328,562 for the Independent. Yet the Times's competitors are sceptical about the long-term effectiveness of the price-cutting strategy.

'Logically, they couldn't have done it,' says David Pugh, marketing director of the Daily Telegraph. 'The Times was making an annual pounds 4m trading loss in my estimation before the cut and I now guess it's losing pounds 20m- pounds 25m. The rest of us could not afford that, but News International can. Advertisers are not going to pay a higher price for the Times until they see what kind of readers they've taken in six months' time. Have they taken the young and the rich or the old and the poor?'

No News International executive would agree to an on-the-record interview on the subject, but in a written response to my questions the company said: 'It is too early to say how the readership profile will develop. It is quite likely that we will attract high-profile readers from a good many other titles, including the Telegraph, the Express and the Mail. There are already signs that the increased circulation will generate significant new advertising.'

Terry Damer, UK marketing director at the Financial Times, has different objections from those of Mr Pugh: 'Quality papers have a real problem in Britain in that, for historical reasons, we have tended to undervalue our own products,' he says. 'Quality papers represent astonishing value. What else can you get for 65p? Not even a tube ticket. Not even that much gift-wrapping paper. We do ourselves a disservice by reinforcing the image that that newspapers are not value for money.'

Mr Damer, like many of the Times's competitors, believes the paper's price will soon have to go up again, whether or not VAT is imposed on newspapers in this month's budget. 'I suspect it will not sustain its cut, at least not at such a deep level next year,' he says. 'But it's a wonderful sampling exercise, with 90,000 new people trying the newspaper every day.'

Both the Financial Times and the Daily Telegraph have shown that there are ways other than price to increase, or at least protect, circulation. Both have been luring readers with imaginative special offers. The Telegraph's 'biggest holiday offer on earth', giving up to 20 per cent off package holidays, took its October circulation up to 1,011,172. Before this it had seemed in danger of sinking beneath the psychologically critical 1 million.

'We put on about 25,000 copies a day in the first week,' said Mr Pugh. 'Readers need to collect 60 vouchers for the full 20 per cent saving, so if they claim the maximum pounds 600 on a pounds 3,000 holiday it means each copy of the paper is worth pounds 10 to them.'

The Financial Times has engaged in a series of less valuable, but equally enterprising, promotions, targeted directly at its upmarket readers. Four have been undertaken so far this year: lunch at any of several leading restaurants for a fiver; two British Airways Club Class tickets for the price of one; good seats at the Royal Opera House for only pounds 10 each; and a copy of the Lotus Organizer computer software (normal price pounds 99) for pounds 10.

The opera tickets were the most successful, Mr Damer reports, with 16,500 readers taking up the offer - nearly 10 per cent of the paper's British circulation of 170,000. The Lotus software did well, too. 'We saw an increase in sales in all of them, but they're mainly short-term sales. A lot of the new readers don't stick.'

With the Independent offering its readers the chance to win a life- changing pounds 30,000, the comparison with the frenzied competition of the Thirties is valid, although the precedent is not an altogether happy one. The cost to the papers 60 years ago greatly outweighed the benefits, and it took the Second World War - with newsprint rationing to save money and a strong running story to boost circulation - to replenish their coffers.

(Photograph omitted)