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.
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