If you want to sell something at a higher price, another strategy is to offer more than one size. Three sizes, in fact. Consider this theatre example in value pricing.
Years ago, theatres would offer two choices of drink sizes, large or small. As it turned out, eighty percent of the customers at the theatre always ordered the small drink. This went on for many years at every theatre across North America. Eighty percent of the people bought the small size and twenty percent bought the large size.
Then theatres introduced a third size, a supersize. Following that, twenty percent of people bought the small size, sixty percent of customers bought the regular size – which is actually the old large – and twenty percent of people bought the supersize. This was something theatre owners never anticipated. Now they had eighty percent of the people ordering the old large size or an even larger size, the supersize - all because they introduced the third choice – the supersize.
This is human nature. If you sell one size (or one campaign choice) – which most stations do – the customer has a choice between only ‘yes’ and ‘no’. And because they don’t have anything else to think about, they focus on the price. They try to get you to lower it.
Now if you have two sizes, that’s an improvement. The customers are choosing between the small and the large, so they’re more likely to buy something. There’s one problem: Most people will choose the small size.
Remember that, in the theatre’s case, 80% bought the small size. They chose the small size because most people think small, they are trying to save money or they are cautious because they aren’t sure if they are making the right decision. So they play it safe and buy the small. It is almost always eighty percent small when you offer only two sizes.
If you offer three sizes, however, the whole game changes. Customers will start by looking at the large size first, or the most expensive or most elaborate offering. They will look at it first because it is so dazzling, so beautiful, so powerful or so huge. Then they will look at the price and realize it is out of their league. So they will then look at the small size. But the small size doesn’t look so great compared with the supersize. It looks cheaper, smaller, and unappealing. So then they look at the middle size and that looks just right. It’s not too small or too large. It’s not too cheap or too expensive. And because it is called the regular, it is also the safe bet because it means that it is the one most people buy. Robert Southey, author of Goldilocks and the Three Bears must have been the world’s first consumer purchase researcher when he wrote about this effect back in 1837: Goldilocks selected the middle size with every choice she made.
Most people will buy the middle box because it is the one they think most people buy. So here’s the strategy: if you have something you want to sell most of the time, position it in the middle, make a small version, and a supersize version, and most people will buy the one in the middle.
But what about the supersize? Why do some people buy that one? Well, that’s the bonus of using the power of three. Most people will buy the regular middle box, but some people will go for the super-size. And the irony is, you weren’t even expecting to sell the supersize. You simply created it to get more people to buy the middle one. By adding the more profitable supersize option, you can also charge more for the regular size.
Suppose you were going to charge five dollars for your regular size. Now you can charge ten dollars - because the supersize costs fifty dollars. The ten-dollar size will look reasonably priced compared with the fifty dollar supersize. So you can make more money. As well, no one will ever say you charge too much because you aren’t actually charging too much. You are just giving them a choice. The customer has to decide if they are the kind of person who drives a Volkswagen, a BMW, or a Maybach. They decide what kind of person they are – or want to become.
The power of three will work in every business so you can use this strategy to help your clients or to package your presentations to the client. It will work with watches, travel packages, fast food, consulting services, diapers, and private jets or radio campaigns. The principles are universal. You just have to spend the time developing the three boxes. The strategy works because you are giving your customers and prospects a choice. That’s what marketing is all about – choice. Let the customers make up their own minds.
As well, it’s important to remember that the number three is critical. Otherwise you might be tempted to give people four choices. Yes, they get more choice. But too many choices can be overwhelming. They might not be able to make up their mind (more about this in my next article). As well, with four boxes there is no middle. With four boxes, you can’t choose the one in the middle, so it’s harder to make the easy, safe choice. With four boxes, people tend to get confused. And if they get confused, they might not buy anything at all.
Here’s an example of what a radio station might do to propose 3 solutions:
1. Determine the least expensive, EFFECTIVE campaign for your client (say a 13 week radio only campaign)
2. Develop a campaign that will really work for your client that you feel is the way you would spend your own money if you really wanted the campaign to be successful (say a 26 week campaign with a supporting internet strategy)
3. Develop a full blown campaign (say 52 weeks, including radio buys, internet strategies and other media coordination) that will blow your client way with its magnificence.
Make sure the last option is over the budget they told you. Always include an option that is over budget.
Tuesday, August 31, 2010
Monday, August 23, 2010
“New Media” Is Not the Problem
Radio is still hanging in
As reported in December 2009 Radio Inc., an updated report from Bridge Ratings, which has been tracking how consumers use multiple media since 1998, shows that neither satellite radio nor Internet streaming appears to be having a lasting effect on radio's cume or on loyalty among listeners.
Bridge looked at time spent with terrestrial radio, satellite radio, Internet radio, MP3 players, and HD Radio and reports that "terrestrial radio continues to dominate overall market penetration for the number of people listening for five minutes or longer in a typical week despite the number of options available." Radio reaches 92.3 percent of Americans in an average week, compared to 40 percent for MP3 players including iPods.
In a chart comparing radio's 12+ cumulative audience and its "favoriteness" rating, Bridge combined the numbers for cume and favoriteness to create an index between weekly tune-in of five minutes or more and listeners' preference for radio.
"By 2005," says Bridge, "the cumulative impact of all this new media had severely impacted consumers' preferences and though the weekly cume audience for AM/FM radio maintained fairly steady numbers, the relationship between radio's weekly listeners and their loyalty sagged. With a combination of consumer fatigue and the 'oh wow' factor associated with much of the new media's newness, this relationship has improved."
A better plan
So it seems radio is still alive but suffering from becoming over commoditized. We are drenched in ‘me too’ formats. We recognize the signs of trouble in our industry. We know that neither the new media nor the economy is hurting us as much as we like to use them to rationalize our lack of our rightful prosperity. Lest you think that all is doom and gloom, however, you’d be wrong. The future is bright for those brave enough to innovate, rethink old clichés and have the courage, wisdom and discipline to enter this next era of boundless opportunity for radio broadcasting.
My next posts will provide insight on how to grow your station' revenues dramatically. They will proffer a wide variety of ways to fill our radio station’s “pipeline” of new and more valuable clients. As a result radio will grow both revenues and profits by:
As reported in December 2009 Radio Inc., an updated report from Bridge Ratings, which has been tracking how consumers use multiple media since 1998, shows that neither satellite radio nor Internet streaming appears to be having a lasting effect on radio's cume or on loyalty among listeners.
Bridge looked at time spent with terrestrial radio, satellite radio, Internet radio, MP3 players, and HD Radio and reports that "terrestrial radio continues to dominate overall market penetration for the number of people listening for five minutes or longer in a typical week despite the number of options available." Radio reaches 92.3 percent of Americans in an average week, compared to 40 percent for MP3 players including iPods.
In a chart comparing radio's 12+ cumulative audience and its "favoriteness" rating, Bridge combined the numbers for cume and favoriteness to create an index between weekly tune-in of five minutes or more and listeners' preference for radio.
"By 2005," says Bridge, "the cumulative impact of all this new media had severely impacted consumers' preferences and though the weekly cume audience for AM/FM radio maintained fairly steady numbers, the relationship between radio's weekly listeners and their loyalty sagged. With a combination of consumer fatigue and the 'oh wow' factor associated with much of the new media's newness, this relationship has improved."
A better plan
So it seems radio is still alive but suffering from becoming over commoditized. We are drenched in ‘me too’ formats. We recognize the signs of trouble in our industry. We know that neither the new media nor the economy is hurting us as much as we like to use them to rationalize our lack of our rightful prosperity. Lest you think that all is doom and gloom, however, you’d be wrong. The future is bright for those brave enough to innovate, rethink old clichés and have the courage, wisdom and discipline to enter this next era of boundless opportunity for radio broadcasting.
My next posts will provide insight on how to grow your station' revenues dramatically. They will proffer a wide variety of ways to fill our radio station’s “pipeline” of new and more valuable clients. As a result radio will grow both revenues and profits by:
- Getting much better results for current clients.
- Getting new and better clients.
- Earning more money from both current and new customers by pricing more effectively.
- Providing clients vastly improved customer service.
- Reorganizing your sales and marketing departments to better serve clients.
- Compensating sales departments to be more efficient and better aligned with client’s needs.
- Developing innovation to deliver better products and services.
- Growing your station’s audience in order to make your messages more effective for your clients.
The first step is to begin getting better results for your clients.
Tuesday, August 3, 2010
Commoditization – The Scourge of Radio
Lew Dickey, Chairman of the Board, President and Chief Executive Officer of Cumulus Media, told people at the last SNL Kagan Summit that radio has been...“relegated to being a price taker” in negotiations and that it needs to “de-commoditize our business” and start lifting rates. There’s a revelation.
Success always gets copied
The A/C station dominated their target segment in the market. It had a remarkable rise in fortunes over the years, employing superior strategy to take over the number one position for adults 25 to 54, the prized demographic among advertising agency media buyers. Within five years of its re-launch as an adult contemporary station, it was the fastest-growing, most profitable player in the market. Before this, the industry was generally stagnant, dominated by big players churning out profitable, predictable radio stations. The station changed all that.
They used auditorium music testing to discover their audience’s favorite songs. They pioneered the concept of call-out research to make sure their new music was correct for their audience. They also ran their business in what was then considered unconventional ways.
They tested their television advertising to ensure the message was right on strategy and communicated the right feel and product features. They worked with consultants to have on-air personalities transform their offerings to better align with the tastes of their audiences. They used psychological testing to ensure they had the right people in the right positions. To entrenched players in the industry, however, their efforts were the work of boring nut cases.
Their listeners, however, were thrilled. “We brought A/C stations to the forefront of success,” their management team gleefully proclaimed, and the advertisers agreed, gladly paying them a premium to please the lucrative adult demographic.
The station grabbed margins and market share, while airing consistently great programming. For years, the station grew at a double digit rate, becoming one of the largest players in the market. Every year, it improved its research, signal, cost-efficiencies, and service. Much larger stations were forced out of the format during that time. Pricing was not a big issue. Margins were big. Salaries were high. Life was good.
Then, sales peaked and slowly began to erode in both sales volume and impacted the bottom line.
The reason was simple: following the station’s success, everyone else did research. Everyone hired talented personalities. Everyone cut costs and reduced staffs wherever they could (and then some). Everyone’s stations were good enough to deliver audience pretty much the same. Radio became a commodity.
The market was glutted with good stations. Customers, both listeners and clients, now took it for granted. Clients could reach the very same people on other stations - so they looked for the lowest price.
As a result, the station also had to start competing on price. Because all the major players were researching, programming, and selling more efficiently, there was little room to squeeze out more costs. What’s was going on?”
Eventually everyone becomes a commodity
As Dr. Oren Hirari says in his book, Break from the Pack - How to Compete in a Copycat Economy,
”Welcome to Commodity Hell. Or more accurately, welcome to the ‘Copycat Economy’, where everyone has access to the same resources and talent,” Harari goes on: “Two principles keep companies trapped in the pack and snared in the ‘Copycat Economy’, and make up the most challenging double whammy affecting your organization’s competitiveness and very survival:
1. The inevitability of perpetual imitation.
2. The commoditization of everything.
Both blights are affecting the radio business at an accelerating pace. Past competitors find it easier to quickly imitate market leaders; new competitors find it easier to improve on them. Listeners can choose among a glut of stations who are basically offering similar audiences, formats, and services. “Buzz,” prices, margins, and customer loyalty begin to drop as clients shop around for the best deals. Some stations might be “better” than others, but not enough to matter when the others are all “good enough.” What happens then is quite predictable.
When clients see little difference in the availability and perceived quality of radio's services, they have a rational response: They buy what’s cheapest. When stations no longer can maintain their competitive edge, bad things start to happen over and above falling financials. Critical station intangibles like excitement, joy, and optimism begin to falter. Stations make stupid, reflexive choices, like slashing any costs possible to make this quarter’s numbers, or throwing budget, incentives, and threats at the sales and marketing people to jack up revenues—all compulsions that are meant to push them forward but actually mire them further among their competitors - because they are doing the same things. Dealing with clients becomes less a creative, collaborative, value creating process and more of an uphill battle focusing primarily on commodity discussions of price, specs, and contracts.
Such are the traps of commoditization.
Success always gets copied
The A/C station dominated their target segment in the market. It had a remarkable rise in fortunes over the years, employing superior strategy to take over the number one position for adults 25 to 54, the prized demographic among advertising agency media buyers. Within five years of its re-launch as an adult contemporary station, it was the fastest-growing, most profitable player in the market. Before this, the industry was generally stagnant, dominated by big players churning out profitable, predictable radio stations. The station changed all that.
They used auditorium music testing to discover their audience’s favorite songs. They pioneered the concept of call-out research to make sure their new music was correct for their audience. They also ran their business in what was then considered unconventional ways.
They tested their television advertising to ensure the message was right on strategy and communicated the right feel and product features. They worked with consultants to have on-air personalities transform their offerings to better align with the tastes of their audiences. They used psychological testing to ensure they had the right people in the right positions. To entrenched players in the industry, however, their efforts were the work of boring nut cases.
Their listeners, however, were thrilled. “We brought A/C stations to the forefront of success,” their management team gleefully proclaimed, and the advertisers agreed, gladly paying them a premium to please the lucrative adult demographic.
The station grabbed margins and market share, while airing consistently great programming. For years, the station grew at a double digit rate, becoming one of the largest players in the market. Every year, it improved its research, signal, cost-efficiencies, and service. Much larger stations were forced out of the format during that time. Pricing was not a big issue. Margins were big. Salaries were high. Life was good.
Then, sales peaked and slowly began to erode in both sales volume and impacted the bottom line.
The reason was simple: following the station’s success, everyone else did research. Everyone hired talented personalities. Everyone cut costs and reduced staffs wherever they could (and then some). Everyone’s stations were good enough to deliver audience pretty much the same. Radio became a commodity.
The market was glutted with good stations. Customers, both listeners and clients, now took it for granted. Clients could reach the very same people on other stations - so they looked for the lowest price.
As a result, the station also had to start competing on price. Because all the major players were researching, programming, and selling more efficiently, there was little room to squeeze out more costs. What’s was going on?”
Eventually everyone becomes a commodity
As Dr. Oren Hirari says in his book, Break from the Pack - How to Compete in a Copycat Economy,
”Welcome to Commodity Hell. Or more accurately, welcome to the ‘Copycat Economy’, where everyone has access to the same resources and talent,” Harari goes on: “Two principles keep companies trapped in the pack and snared in the ‘Copycat Economy’, and make up the most challenging double whammy affecting your organization’s competitiveness and very survival:
1. The inevitability of perpetual imitation.
2. The commoditization of everything.
Both blights are affecting the radio business at an accelerating pace. Past competitors find it easier to quickly imitate market leaders; new competitors find it easier to improve on them. Listeners can choose among a glut of stations who are basically offering similar audiences, formats, and services. “Buzz,” prices, margins, and customer loyalty begin to drop as clients shop around for the best deals. Some stations might be “better” than others, but not enough to matter when the others are all “good enough.” What happens then is quite predictable.
When clients see little difference in the availability and perceived quality of radio's services, they have a rational response: They buy what’s cheapest. When stations no longer can maintain their competitive edge, bad things start to happen over and above falling financials. Critical station intangibles like excitement, joy, and optimism begin to falter. Stations make stupid, reflexive choices, like slashing any costs possible to make this quarter’s numbers, or throwing budget, incentives, and threats at the sales and marketing people to jack up revenues—all compulsions that are meant to push them forward but actually mire them further among their competitors - because they are doing the same things. Dealing with clients becomes less a creative, collaborative, value creating process and more of an uphill battle focusing primarily on commodity discussions of price, specs, and contracts.
Such are the traps of commoditization.
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