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Stop Complaining About Competitors Dropping Rates

by Wayne Ens
In a recent survey of 110 radio account executives we asked What is the biggest hurdle to sales that you face each day?  The most common answer? Our competitors are driving our rates down. Im sorry, but your competitors dont set your rates at the local level, you do. We have numerous station managers who we consult and mentor who we have coached to significantly higher rates, and we continue to do so with great success. Admittedly, it has not been easy, but weve proven rates can and should be increased.

Ive heard all of the defensive excuses for cutting rates, the most laughable is the perishable inventory argument.that its better to sell unsold inventory at any price rather than see it go unsold. I dont think an audience that wants more news or music, or advertisers who want a stronger share of voice on your station, would agree.

The defenders of unsold inventory discounts always point to the airline industry as the icon of perishable inventory pricing. Do you know any airlines that are not in trouble? And how do passengers feel about airlines gouging them when they need them the most in peak periods? Why would we hold the airline model in high esteem? Business leader Jack Welch said There is always a better way. Find it!  Here are six better ways you can consider to motivate you to take control of your rates. We'll post six more Thursday of this week.

1.) Your Commission Structure
Many stations reward sales people, and sales managers, on gross sales, whether those sales are profitable or not. Talk about lunacy! I liken it to the real estate sales person who would rather sell your house for $450,000 than $500,000. With commissions in the balance in excess of $20,000, and only a couple of thousand dollars difference in commission between the low price and the high price, many agents would rather take the least line of resistance and sell at the lower price (I use the word sell very loosely). Car dealers dont pay commissions on the total price of the car, they only pay on the gross profit of each car.

While your bean counters might protest its more difficult to manage commissions based upon profit per spot than on gross sales, you know your rates would go up if you paid more for better rates. Right now your sales people only care about the total sale, and have no incentive to drive rate. This strategy leaves you with the headache of inventory management.  

2.) Leaders Need to Lead
Just say no to rate choppers! I shutter when I hear a heritage station manager or market leader talk about the competitive pressures created by the underdogs in the market. And the programming and promotions people who have worked so hard to give those stations a leadership position must think were just order takers. The market rate is established by the market leader. Period. If the market leader cuts their rate by 10%, the underdog will follow suit with a 15% rate reduction and the downward spiral begins.
Market leaders have to act like leaders and be willing to walk from cut-rate business or be prepared to enter the never-ending downward spiral of rate cutting. 

3.) Practice What You Preach
You have probably told some of your clients about the importance of branding, and that only butchers and barbers can cut their way to success. Its time to put an end to hypocrisy. You know that to a large degree you establish your image and credibility with your pricing policies. Can you say Rolex or Mercedes Benz ? 

And when you hear a 50% off sale at a furniture store or mens wear store, you tell yourself Boy, they must have a heck of a lot of margin. That 50% off is probably all the product is really worth. Could it be that radios small share of the over-all advertising pie is directly attributable to the credibility and image weve established for radio with our one day sales, unsold inventory bonuses and rate slashing?

4.) Focus Upon Your Real Competitors
Radios share of total advertising budgets is so small that its almost laughable to call another station thats nipping at your heals a competitor. I recall when I left the newspaper business to begin my radio career. A stand alone ad, you had to have a full page to stand alone, in my paper cost $1,800 at the time. I was astonished that a stand alone ad on the radio was less than $30! Every ad is stand alone on radio.

With that attitude I quickly became the stations number one sales person outselling many seasoned veterans who were focused on other stations rates rather than on the rates at the paper. Im shocked when I ask a radio sales person today how much a billboard, a newspaper ad or a yellow directory ad in their market costs..many dont know! Youre reps have to be trained how attractive your pricing is relative to their real competitors.

Our market audits consistently prove that reps grossly under-estimate the rates at competing radio stations in town. Sure, every station has the  occasional stinky deal. You probably have one yourself. J But dont think for a moment that every advertiser gets the same rate as that stinky deal you uncovered.

5.)Train Your Sales People to Embrace New Media
Advertisers have always needed two media strategies, and intrusive media push strategy and a passive media pull strategy. In the old media world  most passive media, catalogues, newspaper, flyers, coupons, phone directories, invitation events, brochures, etc., were all expensive print products. Expensive because of the heavy production and delivery costs of pulp and paper, printing presses, and delivery.

Today the production and delivery costs of passive media, anything digital or online, are basically free or very inexpensive. Compare the costs  of a full color web page running 24/7 for a year, to that same page running in the local newspaper everyday for a year and youll see what I mean.

Or compare the cost of putting a coupon on your website versus a printed one delivered by the post office in a coupon envelop.Traditional medias share of ad budgets, largely print in the forms of brochures, coupons, newspapers, directories etc, is predicted to decline  more than 10% from the 85.9% captured last year.

By the year 2015 traditional medias share of ad budgets will shrink to 76.4%, still by far the largest share, largely because the shift to online  passive media is so inexpensive to produce and deliver. A properly trained radio sales force that understands the respective roles of intrusive and passive media in the new media mix can capture an astronomical growing share of that 76.4% and create an inventory shortage. The unsold inventory problem will melt with the training of account executives to sell the new media mix with radio as a dominant player.    

6.) Quit Selling Spots or Cost Per Point
At the local level, you commoditize your product, making you vulnerable to price comparisons, when you sell spots or CPP or CPM. A competitor will always claim to sell spots cheaper. Ive often told advertisers We have a quarter hour average of six radio reps from competing stations, and everyone of them is going to hear your campaign and tell you that youve bought the wrong station or theyll sell spots cheaper than we do. But local advertisers dont really want spots anyway, and most dont believe your audience claims and CPP numbers. Our research of 540 local advertising decision makers in three different markets reveals that advertisers dont buy to get a lower spot rate or lower CPP.

They buy to increase sales. Period. When you consult with your clients to establish strategies that will increase sales, and present creative campaign ideas to achieve their goals, the schedules and spot rates are inconsequential. Often when I ask an account executive to tell me about a clients campaign, they'll say something like They bought 30 spots a week or they bought our 8 AM news. Thats not a campaign.thats a spot schedule. A campaign has a marketing strategy, an objective, and creative communications solutions to achieve those objectives.

The advertiser cares more about how much they need to invest to increase their sales than how much a spot costs. What good is a cheap spot if sales dont increase? And notice, weve taken the focus off of cost and we focus on investment and return on investment. 

Check back Thursday for the remaining 6 tips from this list.

Wayne Ens is President of ENS Media Inc and can be reached via e-mail Wayne Ens

Wayne Ens is President of ENS Media Inc and can be reached via e-mail Wayne Ens

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