MMi media audits answer three primary questions:
- Did I get what I paid for?
- Did I pay a fair price?
- Were my buys and finances managed appropriately?
For us to answer these questions, our client’s media agency must first submit data to us including buy and invoice files and planning input documents (flowcharts, authorizations, etc.) for 100% of the buys under audit. We work closely with these agencies throughout the course of the audit process. Based on our broad purview, we invest time educating our agency counterparts on how to improve processes in areas such as audience estimating, cost benchmarking and buy stewardship.
As you can imagine, pricing tends to be a hot topic for most our clients. Advertisers want assurance that their agency is negotiating effectively and securing the lowest possible rates (given the unique circumstances of each client). To provide our agency counterparts with insights into the Spot TV ad negotiation process, I decided to interview two sales managers from top 25 markets (1 former, 1 current).
Q: What is a TV station’s process for establishing rates?
Stations will look at historical rates for clients first, and then figure out where they need to price. Rate-cards are published as a guide for first-time advertisers, while for on-going clients sellers will look at past rates and consider assumed demand for inventory, timing and special events.
The primary role and motivating factor for a Salesperson and a Sales Manager are quite different. Your average Spot TV ad sales rep doesn’t care if you run 1,000 spots at $1 per unit or just 1 spot at $1,000; he or she just wants you to spend money, because he or she is compensated based on the amount of spend. Conversely, this same scenario would have significant ramifications for the sales manager, as arguably their most important job is inventory management. The sales manager’s goal is to sell out for the next day one minute before the log closes. He or she is managing for yield. It’s a more nuanced role: manipulating supply and demand so that the maximum amount of available inventory gets sold at the highest price per spot.
Q: In addition to historical data, buyers also rely on Spot Quotations and Data (SQAD) to estimate costs. Do stations also use SQAD for pricing?
I’ve never heard of a station using SQAD as a pricing reference.
Q: Are station rates always expressed per spot (vs. per thousand or per TRP)? Or is the cost per TRP (CPP) measure more of a buyer consideration?
Station rate cards are expressed on a per spot basis. CPP is a buyer consideration when negotiating with a station for rates. Typically, a buyer will have a market daypart CPP goal and they might tell a station that their goal is a $100 CPP for EN. The buyer’s ratings estimates may put the station at $120, and hence the station will either need to come down on its spot rates if supply/demand allows – or it may not get bought (or may lose out on share).
Q: Where do the estimated/guaranteed ratings assigned to a schedule come from? Buyer (agency)? Do stations universally accept buyer ratings estimates, or is there ever any negotiation?
Buyers normally assign the ratings. Since everything is negotiable, a station might disagree and try to get the buyer to give a schedule or an individual spot a higher rating. If the market CPP goal is $100 and the buyer is giving me a 2.0 rating, the buyer is going to want that spot at $200. If I can get a 2.5 rating for the same spot, then I can sell it to that buyer for $250. Some of this is supply and demand, though. If I can sell the spot for $500 to 20 other buyers, then I don’t care what you estimate it at.
Q: Do stations expect to be held to estimated ratings (by station, by market, to 90%, by quarter, etc.)? Are these deal points explicitly addressed ahead of time, or generally not?
The salesperson should get from the buyer the posting expectation prior to the buy being placed. Stations should not typically balk at those post guidelines. Some might, but normally that doesn’t happen (or the station risks losing share). Sometimes, you get a sneaky buyer who will say a station “did not post,” and when the station asks for a copy of the post they find that all the assigned ratings the buyer gave for the buy were inflated. The buyer obviously was having trouble getting their buy to come in at the market CPP, inflated the ratings to make it work and then went for the UD on the back end. Sometimes the station will look the other way and give them the UD, and sometimes not. If the station accepted (or instigated) the inflated ratings in the first place, then yes they have to live with them.
Q: Let’s talk about the importance of lead time. Does a longer lead-time benefit the advertiser?
Yes, particularly when known events are going to affect inventory. Some examples of events that increase demand for inventory include the last two weeks of the month (lots of car dealer activity), political election windows (45 days leading up to primary elections and 60 days prior to general elections) and Fall new program premieres.
Early commitments to purchase inventory are considered Base business; these deals are priced at a discount. Late buyers tend to pay more, unless sales management has totally miscalled the market – forcing them to sell at lower rates due to anticipated demand not materializing. Advertisers who commit to annual buys or even quarterly buys almost always enjoy better rates. Stations tend to be share driven. If a station lowers their rates, they gain market share, but then they run the risk of overselling and having to preempt advertisers. Again, it becomes all about managing yield.
Q: So, if the market is “soft” and an advertiser comes in with a buy with short lead time, will that advertiser potentially pay lower rates for their Spot TV ad schedule than a client who locked in a schedule earlier?
That doesn’t normally happen, but it is possible, particularly if sales management miscalled market demand.
Q: In your experience, do TV sales reps do a good job of communicating changing market-place conditions to their agency clients?
No, they do a horrible job. Of course, they discuss the obvious high-demand periods which include political windows and major sporting events like the Olympics and the Superbowl. The agency is best served asking the reps for feedback on market conditions rather than relying on sales reps to be proactive. Smart agency buyers recognize sales reps as one of several available resources for market intelligence.
Q: What are some things that may be negotiable that Buyers may not realize?
A few things come to mind.
- Anything and everything is negotiable, including pre-emptibility.
- Buyers should consider tiered rates (multiple rates in same flight) when supply is variable to avoid preemptions. For example, since inventory is typically more in demand the last two weeks of the month, a higher rate in these weeks is often necessary for spots to clear. This is a little more work, and pricing may not look as “good”, but it beats seeing two weeks of your client’s schedule preempted.
- Stations can post schedules, but typically they put the onus on the agency. They may not come running over to say “We owe you under-delivery (UD) weight”. When presented with the facts, though, stations will provide the buyer with a package to compensate for UD. Buyers should require stations make good on UD weight within an established period and that it be comparable (dayparts, etc.) to the schedule which under-delivered. Full recovery by the end of the next active quarter is reasonable and fair.
Q: What are some things that agencies should be able to get from their stations that they may not know about?
Almost all stations will give their buyers some sort of added value which can take many forms. The easiest is just free inventory – bonus spots. Billboards (:05 mentions) and promotions are also options; however, promotions are more difficult to execute and are typically tied to a specific dollar commitment to the station. Online inventory and event tickets are also fair game. Agencies should have an added value expectation in mind from the outset, based on the size of the buy.
Bottom-line, stations want to create and keep good will. It never hurts to ask for something! Salespeople don’t want to say no, but sometimes must. If their answer is “Sorry, but no can-do” then they’ll blame their Sales Manager to preserve a positive relationship with their Buyers. Get to know your salespeople and their sales managers; good relationships never hurt.
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