The Insanity Of Lowering Prices To Gain Share
We are on the eve of a record political year. You know the reasons, so I won’t repeat them here, other than to say reserve your Brinks trucks now. NBC affiliates, with the Tokyo Summer Olympics, might want to order up tractor trailers.
And yet, in the face of this coming prosperity, some stations are actually lowering ad rates on upcoming 2020 non-political buys. Why? Because otherwise smart people are acting out of fear. They want to lay in a base of regular advertising in case things go bad. They will then brag to their corporate owners about their high shares.
It’s easy to take the largest share of an advertiser’s budget. Just lower your rates to dumb levels. We have seen this movie more times than A Christmas Story. Everyone knows how it comes out.
Stations that dive for share always collapse market rates. Every station in the market, including the culprit, suffers. Would you like to know who those stations are? Just look at DMA sizes compared to revenue sizes. If revenue ranking is lower than DMA ranking, someone is killing the market by underpricing their inventory.
Not only do lower spot rates hurt the coming year, they could set up 2021 for failure.
Television is a biennial business. Without political to add pressure in 2021, ad agencies will be asking for lower rates than what they paid in 2020. That means bad pricing now will create downward pressure then. Millions of dollars will be left on the table.
The excuse for all of this is the upcoming recession. You know, the one people have predicted each of the past three years. Could we finally have a recession within the coming biennial? Of course. But the economy is looking pretty strong right now and there are good reasons to think that strength could continue into 2021:
- Automotive will have transitioned out of cars into SUVs and electric, creating the need for increased television advertising.
- A new trade deal with China will be done and ratified before the election. Neither party can afford not to. This will be a major plus for the economy.
- Clients who stay off during political years will be back.
- Strong economies always create new advertisers.
- Television remains the premium choice for advertising.
Will these things happen? I don’t know, but I do know stations will make a lot more money if they assume the best, not the worst. Maintaining integrity in ad rates always brings higher profits to the bottom line.
If you have read this far, I want to apologize for the technical nature of this column, so let me end with a non-technical term to describe lowering prices to gain share: Stupid.
Hank Price is a media consultant, author and speaker. He is the author of Leading Local Television, a handbook for general managers. He spent 30 years managing TV stations for Hearst, CBS and Gannett, including WBBM Chicago and KARE Minneapolis. He also served as senior director of Northwestern University’s Media Management Center and is currently director of leadership development for the School of Journalism and New Media at Ole Miss.