Yield Management: Relevant and Making a Comeback!
Updated: Aug 20
How did Yield Management get introduced to broadcast media?
Many in the broadcast industry during the late 80s and early 90s thought yield management was only about getting higher rates if they were even aware of the concept. It was misunderstood and feared by sellers who did not want to push rate increases to customers for fear of losing orders (especially agencies using a commodity metric like Cost Per Point). Sellers liked the ability to negotiate in the Sales Managers' office for a better deal.
Sales Managers resisted outside interference and felt "gut" level pricing decisions; experience in their positions and what they learned from their previous sales manager was appropriate. Some of the best sales negotiations happened inside the building instead of in front of the customer.
Then in September 1992, Shane Fox, C.O.O. of Maxagrid International Inc., in conjunction with the National Association of Broadcasters (NAB), presented the first definitive book for the industry, "Pricing and Rate Forecasting Using Broadcast Yield Management." This educational step at the fall convention pulled back the misinformation curtain and qualified why yield management was crucial to managing revenue outcomes.
Simultaneously, the national conversation on pricing for media was driven by increasing demand from advertisers, sellout disruptions, deregulation and consolidation, debt service, and the computer to manage data.
What are the goals and benefits of Yield Management?
The goal of yield management is to maximize revenue and yield. The aggregate effect from better pricing decisions means some customers are paying more and some are paying less; if you prevent early sellout of inventory in the process, you can grow your customers. Pricing is dependent on strategic predictive information gleaned from historical data and calculations derived from expected demand. In an ideal situation, you are offering the right price to the right customer at the right time.
The idea of a dynamic rate curve and proper inventory management promotes that the first rate for any inventory sold is as vital as the last rate for that same inventory. Adjustments early in the sellout range can reduce sticker shock, as might happen if you are racing to raise rates on the last few units for sale. An additional benefit is moving inventory management to the sales department from the traffic department by being proactive before orders are booked.
The benefits of yield management exist when the following characteristics are present:
There is a wide range of pricing for related products.
There are various start and end dates of engagement for each customer.
Demand fluctuates over time and by season.
You are selling upfront, and the actual demand is still undefined.
Terms and conditions and price sensitivity will segment customers.
You have highly perishable inventory, and pricing errors are costly.
What could a one-dollar price difference mean using Yield Management?
Let us start with a straightforward example using minutes as a baseline; if you get one dollar more for each minute from all your inventory, the change would not be noticed by most customers or sellers. If you are a music-based format in radio, that can represent annually 80,000 sixty-second units or $80,000 in incremental revenue. Consider the impact of including thirty-second ads, fifteen-second ads, and billboards in this calculation. The annual unit count on your station might reach 200,000 units or $200,000. This increase in price only incurs sales costs for commissions associated with the incremental order totals.
Having spent eight years as a yield management consultant, I am excited to see the subject still relevant today. The airline and hotel industry, along with movie theatres, to name a few, rely heavily on yield management to support revenue goals.
I hope that pushing the conversation forward will help radio and television broadcasters continue to recognize yield management is essential and still needed. After all, the OTA inventory available and being sold represents a major portion of revenue totals reported on media company quarterly earnings calls
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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.