Are You the Price Leader, Follower, or Cutter?
Updated: Aug 20
Take the lead if you can; if not, then at least follow the leader.
Looking at these three general categories, we know multiple factors ultimately drive prices in a highly competitive media environment. Understanding who is in these groups, what motivates them, and how to respond to them is essential for a good yield and revenue management foundation. There are times where you may find yourself moving from one group to another due to circumstances. It's important as a revenue manager or seller to understand your responsibility to protect the value and know when to react or stand your ground.
The Price Leader
Everyone loves the idea of being the price leader as it typically equates to being successful. What are the characteristics of this leadership role, and what demands come with success? The price leader may enjoy solid premium brands, high media ratings, very differentiated content, natural demand from the market, and usually has a well-paid sales team. Your pricing decisions will impact buyers' perceptions, and you must be careful not to devalue your products (stations) or media competitors as a category.
Standing behind the value you represent is not easy in revenue shortfall or pressures from upper management focused on budgets. A discount shortcut to quick revenue solutions with clients will diminish your quality standing and undermine future pricing practices. As the price leader, you must also understand your prospects as to who can step up to your pricing levels. Do not chase business that pushes you in the wrong direction.
The Price Follower
You might be like the famous Avis ad slogan, as they were #2 in car rentals, trying harder than the leader to generate customers and revenues. The price follower must understand how to manage their revenue generation strategies and simultaneously support the price leader. As a follower, you have room to move between a premium pricing position on some sales opportunities and still appear affordable to most of the customer base. If the leader makes a move up in price, you must consider your price position and its impact on market pricing perceptions.
Market awareness of pricing by competitors is not collusion (actual collusion is illegal and not suggested); it is a comparative pricing strategy to protect the value of similar products by supporting price leadership. In the airlines, for example, we see public marketing programs that define pricing offers to consumers and at the same time inform others in the industry where a competitor is adjusting the price. If you do not follow the leader, you could feed a trend to discount your products in the long term.
The Price Cutter
It would be best to avoid being a price cutter, even with a highly perishable product and, in some cases, a short-term view of making the month or quarterly sales goal. Last-minute and reactive pricing decisions can start price wars, damage customer relations, and distract your sales team. Do not confuse price cutters with lower-rated stations in a market or weaker competitors. I have always said that any station creating content with a following has to value. The value might differ across the spectrum of stations in a market and usually will be represented in pricing levels station-to-station. On the other hand, the price cutter is an opportunistic player that undercuts others to gain business. They use a last-minute heavy discount approach to drive sales and, in the process, reduce their product value and damage market dollars directed to the broader group.
There is a definite difference between being a price cutter and being someone who discounts. Take one moment and think about Wal-Mart. As the "everyday low price" position has shown, you can be successful as a discounter. Discounts can be productive in yield management if they revolve around a very controlled strategy tied to terms and conditions. A well-thought-out plan to reward long-term clients or utilize low-demanded inventory is not being a price cutter.
Managers who control pricing and rely on their collected data to support decisions need to step back from the hectic daily pace. They should evaluate the broader view and build a baseline principle to guide them on pricing fundamentals and where the boundaries may be for their position in the market.
Do you have a pricing philosophy? What is your foundation to support the day-to-day swing of pricing attached to hundreds of proposals per year? Take the lead if you can; if not, then at least follow the leader.
Do not miss "The 2022 Sales Lift-Off" coming January 13th. Loyd Ford from Rainmaker PathwayConsulting Works along with Alec Drake will co-host a panel of frontline managers to discuss a strong finish to Q1, recruiting sales staff, and a closing roundtable with actionable items to help you and your team grow revenues.
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About Alec Drake:
As President of Drake Media Group, a content creation and sales consulting company, Alec is on a mission to share his unique perspective on best practices to enhance sales performance and drive revenue. The company offers a range of consulting expertise, including sales operations, team and individual coaching, yield and revenue management strategies, event sponsorship formats, and sales marketing.
Drake Media Group, LLC retains exclusive rights to the original content in all articles written by Alec Drake, contained in any podcast appearances, or articles published on third-party platforms.