Rebecca's taking a break from the RSC Friday newsletter this week, and has asked Dad to handle today's Friday Poll question. As it happens, I've been thinking about this one for the past couple of days...
This week's Friday Poll question stems from statements made by Cumulus Broadcasting's COO John Dickey, regarding the setting and negotiating of advertising rates by salespeople. As reported by RadioINK editor Ed Ryan, Mr. Dickey said:
"If you think about the thousands of salespeople in our business, they are out today pricing access to radio stations, selling inventory. Quite frankly at whatever they feel like selling it for, within reason. They have that kind of autonomy. That’s a bad thing. You can't walk into Starbucks and have the person behind the counter negotiate with you on how much a piece of blueberry coffee cake is. Prices are posted. There is no impression that is given that you have an opportunity to haggle that price. You pay and you leave. In our business, it doesn't work that way. That's been hurtful. If we have 50,000 units of time to sell on our radio station in 2012, in 2013 we are going to have 50,000 units to sell. That’s not going to change. We have to do a better job of selling all of those units, but we also have to do a better job of selling these units at higher rates. Our sales system, our proprietary enterprise software that we've developed is helping us to solve that problem, but it is a work in progress."
Dickey continued: "There is probably no other industry where salespeople have autonomy or leeway in the price at which they sell a company's goods or services. That is alive and well in our business and has hurt our business."
In view of Mr. Dickey's comments, this week's poll question is a two-parter:
1) Should a station hold every advertiser to the same standards where rates are concerned (i.e., no "deals" off the rate card, no exceptions), even if it means passing up a buy on this account, or should station sales reps be permitted to negotiate the best deal they can with every advertiser, regardless of what someone else might be paying for an identical schedule?
2) How should radio deal with widespread practice by advertising agencies--and, unfortunately, the radio rep firms calling on them--of demanding "added value" (read: bonus spots) in order to be considered for the buy--and how is your station dealing with it?
Look forward to hearing your thoughts.
-Rod
The station I work for gives out "added value" like candy. It's no longer and incentive to buy... it's just expected. And quite often in this market it's the most valuable properties that are given away. It devalues the whole product.
I do, however like the schemes that give added value based on loyalty. If the client is spending for 12 months, of course they should get something more than the client who has booked for a week. Schemes like those of New Revenue Solutions that offer a share of unsold inventory seem like a good idea... while still protecting your inventory. (Hey... if the station is busy that bonus spot may go out at 4am... but you've still had that bonus spot)
Mr Dickey is right, but he, like many other long time owners and broadcasters, set the policy to allow this to happen....and radio has done a marvelous job of training and reinforcing all of it's clients and the agencies to expect more than a cup of coffee at a fair price. We taught the agencies that we are weak and cannot be trusted to be fair. It's in their job description to ask and push because they know we will cave...everytime. I know of a case where a very large client tried to force a group to hire a 'user friendly' account executive. So we need to change the mindset, set the guidelines, and stick to the rules. This is how we raise children..but empty threats and no consequences means we will never be more than 7% of the solution.
Very few things in life are black and white. The rates in radio appear to be no different. In the market I work in there is one station that has a rate far less than ours (mainly due to its share) but consumers tend to see the bottom line; and yes I know it's my job to help them understand the difference. I tend to think it is also my job to do what's best for my client, ie; best creative, best rates and so on. When they feel I've done that I have thier trust and ultimately their loyalty.
So no. I don't think there should be a one rate fits all philosophy to radio, but there does have to be some consistency. It's a fine line. I haven't had any problems with it thus far.
In my first career in radio spanning 1973 to 1981 I received my sales training from Jim Williams of the Welsh Co. in Tulsa, OK. Jim was adament abougt rate integritty in a town where there were one or two "big guys" who were expensive and never cut rates and all the rest scurrying for the crumbs left behind, and often sold at near give away prices. In fact, some stations didn't even offer a published rate card to their clients. I returned in 2011 to find things pretty much the same, though even in the small markets my own station rarely hands out a card. We have numerous "broken economy price plans" that seem to be the main way we get things sold. The philosopy is that as tough as times are, it makes more sense to offer a lower rate in order to not only get the business, but have chance to have the sponsor get results,and then buys more. My only way of swallowing this is that all clients are able to benefit from the savings and not just a special deal for one that others can't get.
I don't like it at all because it prevents you from being able to see "normal" prices most of the time.
Part one: Reps on my watch don't have that kind of autonomy. Rate structures are formulated from inventory (supply and demand), and what the market will bare. Incentives are uniform and built into the rate card. No alternatives. Unlike years past, allowing reps to engage in "let's make a deal" not only devalues the product, but in today's litigious world....could create legal issues. I have and will refuse contracts that we a sales rep has given anything that crosses the "Maginot line".
Part two: Agencies. Wow, that has spiraled out of control, hasn't it? Agencies figured (especially after 2008) that they could bully all of us into "dollar a holler" submission. And it looks like they are winning. What to do? My approach is the same as above. We start on rate card and set value added limits for them as well. Set YOUR value, drive it and sell it.
From RSC member Roger Allan: "Mr. Dickey: EVERY Starbuck's charges from the menu. If radio's going to follow suit, EVERY station in the market needs to go along. One "price cutter" will force everyone else to do the same."
Our news/talk station uses this system and it seems to work.
"Added value" is and should be for those with a 12 month commitment.
I believe the salesperson should be able to negotiate prices. There is much competition in our business. TV and radio compete. You also have other stations in your area to out sale, fm and am stations....People are not just spending there money loosely that are looking for the best deal for their bucks..and the one who gives them the best deal will get the sale!! They are already hesistant on spending their money so they want the most out of their investment.
Dickey is wrong. Has anyone here ever used a order form that didn't require management approval? I think not.So much for autonomy. Dickey's market managers are the worst offenders when it comes to dropping spot price. The market managers are under severe pressure to bring in the bucks. You can all help Dickey pay for the overpriced stations he bought by keep your prices high so his market managers can low ball you. Price is always a important part of a media deal,the buyer has to win. Just knowing that you should price accordingly.
Dickey blaming street sellers for bad selling tactics is like a General blaming a grunt for getting shot.Hopefully Dickey will impose his will on his clusters and you can get a little more of the pie.
I think that many radio stations and other media companies are simply immature when it comes to managing inventory.
I work with the view that inventory is like stock in a retail store. If it remains unsold you have to move it on to get additional cash to buy more faster moving stock in.
I do not know how many times I have spoken with media companies that insist that midnight to dawn inventory is unsellable.
If you were a retailer and you had that attitude there would be a lot of stock rotting out the back.
In my experience using only 64% of of your 6am-7pm zone should get you to budget. Yield management is the key to effective rate protection.
In the end though one has to find the balance from where they are positioned in the market and what there clients will pay. Protecting the 6am- 7pm zone is critical though to the success of any media company, and so few do it. Its your best stock in the store...
Simple but true.
A great debate, nice topic Rod and Rebecca.
I can't vouch for the maturity of media types.Mike, to give yourself a better view of the nature of radio inventory you might want to consider it more like a hotel room. Retail stores unsold inventory has to be stored. This additional storage inventory cost whether it be in freezers or just hanging on a rack is not something that radio deals with. I sometimes joke about dumping all the unsold 30's and 60's in the river on my way home. No question there are fixed and variable cost associated with operating a radio station that must be factored into the price but not like a retail store. How did you come up with 64% of prime time sold as the inventory point to factor success?
Hi Victor...
Very true and also... using the famous airline analogy.
The 64% might be the $65,000 answer...kidding aside, one of my business partners at NRS Media created it to build in safeguards against salespeople putting bonus commercials in 6am-7pm. ( We protect that zone with a passion.)
It was based on inventory in 6am-7pm divided into the total budget and then with a few more clever packaging options you could calculate the yield you wanted off that.
Also using horizontal and vertical use of day parts inventory.
It was the basis in the early days of our company selling unsold inventory across a 24 hour clock.
No. one ever works out how we did it, and always thought we were discounting, but in actual fact when we calculated the 6am-7pm rate we were getting more than the market.
We also created a Prime Time plan zone 6am-9pm using the same option.It never really took off in the US, but in other markets it works well.
I am also in retail and its fair to say that radio stations do have a high fixed cost, but once breakeven is reached (as i am sure you know) then $$$. retail can be trickier, if you want to boost sales with good stock you have to upfront it... so can throw your numbers out.
Good debate, liked your river example.
Thanks for the feedback
First off - Lew Dickey is incorrect and several others on this forum are spot on. The fault is not with the street sellers - it is with their immediate management.
The problem isn't rates - it's pricing. "What???" you may ask, "Aren't rates and pricing the same thing?"
No - the key is for a manager to provide a way for salespeople to appropriately price an effective campaign for an advertiser; a campaign that will work, produce results, and bring that advertiser back to the station again and again.
There are scores of tools to make this happen, but they all involve hard work and discipline. One simple approach that comes to mind is to price based on the value of selling a certain percentage of prime inventory (like @MikeBrunel's 64% of 6A-7P) at a high enough value to exceed the station's budget by 10%. All the rest is gravy, and can be priced as you wish. A campaign like this is priced as a package to the customer, with no individual rates per spot. This technique is exercised by all salespeople and strictly enforced by the sales manager, no exceptions.
Another tool is effective yield management software. It requires extreme discipline and hard work to set it up and use, but the results are stunning. Everyone gets a fair shake based on their purchase and the process is completely transparent.
Transparency - this is the final key. Salespeople and customers must feel that your pricing mechanism is transparent and fairly administered. Especially salespeople - because if they have even a hint of a lapse in trust, they will rightfully call you on it and all is lost.
From RSC member Bill Wayland:
I worked in New York at a rep firm during the seventies. Stations had elaborate rate cards.But along came the "buying services" who scared the hell out of the agencies, and the broadcasters. They simply tore up the rate cards and started negotiating rates.
Everybody went along with it (including some of today's broadcasting leaders).
And that is why we have negotiated rates today.
Bill Wayland
WCAP 980am
Serious Service for the Merrimack Valley
24 hours every day
The Merrimack Valley's News and Talk Station
www.980WCAP.com
Love this! Made me laugh. Haven't we all dealt with a client like this?
Thanks for the great discussion. I think everyone on this forum can see the consensus here. Rate integrity starts at the top. You can increase the rate card, tell all your sellers to not sell below it, but as soon as a selling Owner, General Manager or Sales Manager makes a "deal" the whole card is compromised and the trust between management and seller is broken. And worse yet, the trust between client and station is broken when they hear a gajillion ad schedule that they know their competitor can't possibly be paying for at the rate they are.
Maybe you should only be able to negotiate the proportion of the deal that is your commission?
So if you would earn 20% on rate card sales, if you discount 10% you would only get 10% commission. Same with any managers....
It would be interesting to see how people negotiate deals THEN!
:-)
Your rate card pricing is very interesting. Would you be willing to share with the group?
"He who frames the question wins." Based on that, here are my answers:
Should a station hold every advertiser to the same standards where rates are concerned? No. The best customers get the best price. That's the way it is in every business. Therefore, an "identical schedule" should be the same price.
How is your station dealing with added value? I'm tired of hearing people talk about "rate integrity" and then give units away. I'd be willing to bet that if you ran a commercial every hour for the next 24 hours offering a BOGO rate, you would be surprised how few people would call to take you up on it (other than current customers).
Agencies and added value? I don't really think it helps you get the buy. I'm in a small market. I've said we couldn't do added value because of inventory - we got the buy. I've said we can do 10%, but only from 7p-mid - we got the buy. I've said we will match the schedule - we did NOT get the buy. We never bonus our website.
From an essay by media management guru Jim Taszarek in Radio-Info.com's email of 8/13/2012:
Let's ask the question, do we want higher rates or more total revenue? Think about it – I can get good rates but still lose money or not make quota. Treating rates as a separate subject doesn’t work. Imagine an airline with lots of empty seats that raises prices. Imagine a poorly performing baseball team raising prices on stadium seats.
Now understand that's what we're doing when we're asking for a big rate with no additional element and we're at less than 80% sellout.
...How come we're not calling on Costco, Wal-Mart, Steinmart, Kohl’s? Locally! Not showing them reach, frequency, CPP blah, blah, blah, but rather a whopper of a multi-media presentation with great creative. When the idea is good, they care less about rate.
Right now we consider getting 50% of a six-week flight as ginourmous success. Hey, that's Media Chump Change. We need to crank up some big products with a big presentation with a BIG idea and call on the biggest businesses in our core success categories. Then we need to either decrease inventory or add more salespeople making far more ask presentations.
The reality: We don't determine rates, the market does.
The market will tell us what they think we're worth. My drug of choice is a Dairy Queen Heath Bar Blizzard. DQ has the right to price it anywhere they please. Let's say they price it at $1,000. I'm sure nobody would buy it. What about $500? $50? Maybe somewhere around $8-9 somebody would buy one.
Only when they get down to a level that the public perceives to be fair ($2.50) they'll go flying out the door.
Southwest Airlines recently looked forward and saw they had a substantial amount of unsold seats. When they announced an online sale, with rates ranging from 10-40% lower than usual, the demand was such that their servers couldn't handle the traffic; the software went berserk making national headlines. They decreased inventory and can now ask for higher rates.
Sell the station out at whatever rate you can - that's the REAL rate - not the fairy tale rate in our minds. If I want $100 bucks a spot and get it - and I'm only 50% sold - my REAL rate is $50 bucks.
Raise rates when you find out what you’re really worth. You can increase demand by:
- Adding attractive, desirable product,
- Adding salespeople creating demand on the inventory,
- Make large-budget presentations to large budget advertisers, and
- Make more of them.
We need to earn the right to raise rates.
______________________
Jim Taszarek is a media management consultant having successfully managed sales in radio, TV, print and online. He now consults, strategizes with and speaks to scores of media companies and State Broadcaster Associations. He loves this subject and would enjoy visiting with you. Email Jim: [email protected]
I will reply to you directly Jack if that is okay... I just asked to be friends... scary but true
Talk soon
Mike
Great debate. Interesting perspectives. For what it's worth, here's mine...
Starbucks is a terrible analogy. Starbucks is one company and can control their prices as they see fit. I don't patronize Starbucks so I have no idea if their prices are uniform across the country. I do know the local Food Lion stores here offer different prices for the same specials depending on where the store is located. I also have negotiated prices with national retail stores on occasion. Price is NOT always "set" anywhere.
Inventory. Interesting concept when applied to radio. Does your station fix the number of ads available or is that flexible? I've ran boards at Christmas where I've had to select the shortest possible cuts in order to fit all the advertising in. I'm sure my listeners loved it.
Value. Value does NOT EQUAL price. Forget that idea, right here, right now. Value is in the eye of the beholder and in radio that often means ROI. And ROI is not always easy to calculate. Does a bank sponsoring the 7AM news calculate that value the same way an auto dealer calculates a promotional run? If you can prove the affirmative, please let me know.
So whats the answer? I'm not sure I know. I'm positive if I had the "perfect" answer it would never be universally accepted. That's the nature of this beast called radio. (or business, if you will)
I like the idea of a tiered pricing system - it has a lot of merit in my book. Another option would be an auction type market. In such a plan the station would have to have a rigid inventory policy and never, ever deviate from that without a stated policy change. Spots could then be scheduled well in advance with any unsold time going on the auction block.
There are few incentives as powerful as scarcity and a fear of loss.
Andy
Andy, I like your statement at the end here! We have two stations in our 8 station cluster that are habitually "out of stock". Owners have set the maximum allowed inventory and our programmers have been instructed to never go over that number of ads in a 24 hour period. It has been a great selling tool. I LOVE telling a client they had better get their schedule in now or risk not getting on that station at all. Those are the two stations, in my opinion, that there should never be a deviance from rate card, period! And that is what I preach to my sellers. We have more wiggle room and "bonus" power on the other stations and that works pretty well.
