As we start the new year, there seems to be a lot of discussion about rate integrity or lack there of at radio stations. I wanted to share my opinion on the issue with you.
For as long as I have been a sales manager or General Manager at radio stations, I have always had a simple philosophy about pricing our commercial inventory. It is a philosophy that I have tried to instill with our team as well. It is summed up in three words, “Maximize Every Opportunity”.
This is a concept that I first learned in high school economics and then again in college. Maximizing Every Opportunity is nothing more than the law of supply and demand. If you have an abundance of inventory and limited pressure or demand, stimulate demand by adjusting your rates down until there is more pressure on your inventory, thus putting you in a sell out situation. Conversely, if you have a limited inventory with heavy pressure, you raise your rates to slow down demand so you don’t sell out to soon. In both cases, you are getting the highest rates based on the current conditions. Thus, Maximizing Every Opportunity!
This yield management concept is very similar to the pricing structure of the airlines, hotels and other industries that deal with products or services that are perishable.
While I understood the laws of supply and demand it did not crystallize with me until my first sales managers’ job back at KOOL AM/FM in the mid 80’s. It was amazing how this simple concept of “Maximizing Every Opportunity” actually generated additional revenue. I'm not talking about an insignificant amount of revenue either. I'm talking about serious money, hundreds of thousands of dollars of distressed inventory that at other radio stations that prided themselves on rate integrity would have let this go unsold. What we did then and continue to do today is give our customers a fair deal and the best rates and advertising packages based on the current station and market conditions.
It is very interesting to see the way our competitors are reacting to the current economic climate and market conditions. Stations in town that have always prided themselves on having rate integrity and driving the highest rates are suddenly realizing that in order to maximize their opportunity’s they have to attack the rate issue from both sides now by adjusting their rates (sometimes dramatically) to market conditions.
This is smart on their part. My only regret is that they finally figured it out!
It goes without saying that in order to succeed in today’s economy you have to do all the right things. You must have a product that gets results for clients, provide great customer service, be innovative with campaigns, creative, added value and so on. But you also need to be nimble with your rate structure and “Maximize Every Opportunity” even if it means adjusting your rates lower. In the long run, you win!
Airlines have one day sales and last minute e-saver fares, why cant radio stations be able to do the same. They can, and the smart operators do!
Jim Taszarek has had some discussions both pro and con on this topic in his daily news letters. subscribe here: