(By Alec Drake) The holy grail of inventory and yield management is to reach sellout at preferred prices when demand is extinguished. This pursuit of maximum revenues is a core responsibility for sales managers selling their OTA inventory. When demand is not there to drive inventory pressure and revenue, we should intensify our focus on unsold inventory (Spoilage).
What Contributes to Spoilage?
Three key elements can depress demand, create spoilage and result in lost revenue.
- The Pricing Is Too High: Pricing decisions that are too optimistic or based on budgets instead of actual demand will tend to be high. Neglect in responding to lower demand patterns or vanity rates without data to support them can keep prices too high. Any of these factors can create spoilage and lost revenue opportunities.
- Sales Demand and Attention: The path of least resistance can take proposals down a path of serving up more prime inventory with its natural demand and higher ratings to satisfy agency metrics or a prospect’s initial focus. Some sales teams package low-demand inventory if it lowers an average rate or adds bulk (frequency). A caution flag on packaging should be raised when no-charge units are aggressively bundled to make the sale.
- Sold Inventory as a Prime Metric: Sellout levels tend to be the go-to metric for sales managers. Proactively tracking what is not sold will improve the fringe inventory’s utility. In other words, track your spoilage and sellout levels for yield opportunities. Managers who support and position sellers to leverage low-demand areas and build a narrative for the value to buyers will get closer to budgets (see Alternative Prime below).
The Alternative Prime Example
One way, as a sales manager, I promoted less demanded inventory was to manage perception. Internally and in the market, building respect and value for all inventory areas is essential to maximize revenues.
For example, in a meeting once 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) versus overnights (Midnight to 6 am). The auto dealer said, as expected, 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.
Using the existing advertising schedule, we took one ad running at $300 in AM Drive and used the dollars to buy thirty ads overnight. The frequency and creative message crafted for this daypart stimulated new customers and auto sales. Customers surveyed by the dealer mentioned hearing the overnight ads when asked, which validated the strategy.
The benefit to the station was one more ad in AM Drive to sell without adding units to drive revenue. The dealer continued to use overnights and was pleased to have an exclusive daypart until the competition caught on to the strategy. After one year, our station generated tens of thousands of dollars in what was once a revenue desert.
The Takeaway: 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 left behind can help reach or exceed budgets. In my example of “Alternative Prime,” the station ignited a fresh look at overnights by the sellers and advertisers alike.
Alec Drake, President of Drake Media Group, writes on revenue management and sales improvement strategies. You will find more of his articles in the “Sales Success Library” at AlecDrake.com. Alec is the founder of The Radio Invigoration Project (T.R.I.P.) to benefit local radio sales, and you can reach him at [email protected]
