The Opportunity Cost of Spoilage and Overselling – Part One
Updated: Jan 19
The holy grail of inventory and yield management is to reach sellout at preferred prices when demand is extinguished.
This pursuit of maximum revenue is a core responsibility for sales managers everywhere. In selling OTA inventory on broadcast properties, the opportunity has been knocked around by Covid and a shifting focus to digital as the new holy grail of revenue growth.
As demand rebuilds in 2022 for radio stations in all markets, we should not ignore the opportunity cost when there is a lack of focus on unsold inventory (Spoilage) or overselling capacity, which disrupts clients and sellers.
It's valuable to look at both ends of the demand spectrum and see what can minimize Spoilage and oversold conditions. Each direction has different characteristics and subsequent strategies that can contribute additional revenue and work together to reach or exceed a budget. In this post, we focus on Spoilage, and in part two, we will look at the opportunity cost of overselling.
What Creates Spoilage?
We would all love to sell the total available inventory each week. The hurdles to reaching stronger sellouts are primarily a combination of three elements that depress demand and result in lost revenue.
The Pricing Is Too High: If pricing decisions are too optimistic or based on budgets over actual demand, prices will be high. If you are subject to vanity rates in your mind without data to support them, you can be priced too high. If there is neglect in responding with price adjustments to lower demand patterns, you will also price high. All these factors can create inventory spoilage and lost revenue.
Demand Drives Sales Attention: The path of least resistance takes proposals down a path of serving up more prime inventory, which has more natural demand or higher ratings to satisfy agency metrics. Even if the price is higher based on the demand, the perceived value matches, and buyers will place orders. Managers should explore added options for sellers to smartly leverage the low-demand areas on stations and narrate their value to the buyers (see Alternative Prime below).
Poor Utilization in Proposals: At best, our sales teams do package some low-demand inventory if it lowers an average rate or adds bulk (frequency) to boost the odds for a close. The caution flag on packaging should undoubtedly be raised when no-charge units are bundled to make the sale. A more proactive view of what is not sold each week leads to better utilization of the fringe inventory. In other words, track your Spoilage as well as your sellout levels.
What Does a Proactive Strategy Look Like?
Alternative Prime: This term was one of my ways to promote less demanded inventory to sales teams. Perception internally and in the market can be managed by building respect and value for all station areas. For example, in a meeting with an auto dealer, I asked this question; "Would you rather sell a car with a $10 ad or a $300 ad?"
My comparison was tied to pricing for the morning drive (6 am to 10 am) on the station compared to overnights (Midnight to 6 am). The auto dealer answered as expected, that they would rather sell a car with a $10 ad. The anticipated response led me to a conversation about the value of the overnight audience of first responders, shift workers, and sleepless listeners who could be available to hear the message. It worked!
Using the existing advertising budget, we took one dealer ad running at $300 and used the dollars to buy thirty ads overnight. The frequency and creative message crafted for this daypart took us over the finish line for results. Customers surveyed by the dealer mentioned hearing the overnight ads when asked, which validated the strategy.
There are no magic paths to reducing Spoilage or unsold inventory on your stations. The effort is one of continuous improvement that involves sales training, tracking pricing changes based on demand patterns, managing perceptions in the market, and building a value narrative. Incremental revenues from lower-priced inventory unsold or left behind can help reach or exceed budgets. In my example of "Alternative Prime," the station involved ignited a fresh look at overnights by the sellers and advertisers alike. This new focus on Spoilage in just one daypart with a proactive strategy added $150,000 of revenue and helped the manager hit the annual budget.
Thank you for reading this article, and please pass it along to your colleagues.
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About The Author:
Alec Drake openly shares revenue management strategies and sales improvement ideas in the "Sales Success Library" at Alecdrake.com. He is a regular contributor to Radio Ink Magazine, where he leverages four decades of experience to write about sales and management. Alec is the founder of The Radio Invigoration Project (T.R.I.P.), a support initiative for local radio sales and promotion staff.
Drake Media Group, LLC retains exclusive rights to any original content in articles written by Alec Drake or published on any third-party platforms and featured in any podcast.