The Opportunity Cost of Spoilage and Overselling – Part Two
Updated: Aug 20
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. Selling OTA inventory to get the best revenue performance has been overshadowed in some cases by a shifting focus to digital as the new holy grail. As demand rebuilds in markets, do not ignore the opportunity cost that comes with a lack of emphasis on Spoilage or Overselling, which also disrupt client relationships and sales productivity.
It's valuable to look at both ends of the demand spectrum and understand what can minimize Spoilage and Oversold conditions. Each contributes additional revenue and, in unison, can support reaching your budget.
The focus is on Oversell in this article, last time we examined the opportunity cost of Spoilage.
We would love to sell all the available inventory each week on our stations. The result of this aggressive effort can lead to Overselling and create organizational disruption, lost sales hours by your staff, and poor customer service. What contributes to this problem, and how can we temper Oversell situations?
Pricing Too Low: The rates can be too low if pricing adjustments are late in the sales cycles. If priced to budget over actual demand, prices can also be too low. If you lose ground on negotiations based on rates inside the building with sellers or highly price-sensitive customers, you will be caught short on dollars to reach goals. Being short of budget can push an Overselling of inventory as a strategy to close the gap.
Low and High Yield Spill: Low yield spill is the inventory and associated revenue that gets preempted without options to recapture. This spill results in bumps on the traffic log and lost productivity by sales and production staff. High yield spill is the premium-priced opportunity that gets turned away when preemptions no longer provide access to inventory.
You create customer service issues that detract from your client relationships and future revenues. In each scenario, there are lost dollars, poor time management, and fewer selling hours to develop new customers.
Advertiser Avalanche: There are times when even the best yield manager can get hit with unexpected demand that causes overselling. We know business can drop from the sky and is not predictable.
For example, insurance companies can have last-minute orders to connect with their local customers due to weather events. In these situations, take the necessary time to ensure you are not too short term in your thinking and that the disruption or opportunity cost is in balance with taking the order.
We have seen in both situations of Spoilage, and Overselling the best practice is a proactive one. Estimating actual and pending inventory pressure drives optimal pricing to curb or encourage demand.
The best yield management practice involves sales training to manage proposals using terms and conditions before they become orders. Managers should be tracking pricing to sync up with demand patterns to balance the use of available inventory.
Protecting customer relationships to retain business with less Oversell and adding new customers to reduce Spoilage gives you optimal revenue results.
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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.