In this week’s Programming To Win, Jacobs Media’s Mike Stern applies some lessons from investor Warren Buffett to the radio world. Stern finds that three of Buffett’s key principles about “pricing” can easily be related to programming your radio station.
Mike Stern
By Mike Stern
Warren Buffett must be a smart guy. Anyone who can get a bidder to pay over $2 million just to have lunch with and hear him dispense financial advice must be worth listening to. Unfortunately, I don’t ever recall hearing the Oracle of Omaha address the radio business and how to be more successful.
That’s why I was intrigued when the Nielsen Newswire (a site well worth watching for consumer and industry insights) posted a column about Buffett’s thoughts on The Power of Pricing. Buffett may not be an investor in radio, but his philosophies about the simple supply and demand relationship are worth considering.
When Buffett evaluates a business, he places more emphasis on the company’s ability to raise prices than anything else. Determining pricing power, he says, is the “single-most important decision in evaluating a business.”
Now if you’re programming a radio station and you’re wondering what any of this has to do with music scheduling, event promotion, and finding the next hit, think again. Radio’s time honored “law” that great ratings lead to great sales has been battered a lot over the past several years. Today, PDs have to put their sales hats on, develop more empathy for those souls in the cubicles, and help market their stations.
So the price that your station charges for allowing advertisers to “borrow” your audience for 30 or 60 seconds is a critical factor in the resources you can use to build your brand. Raising your rates goes to the heart of the matter. And that concept is backed by numerous studies that have shown that being able to increase what you charge by even one percent has a greater impact on the bottom line than bringing down costs or increasing sales by the same margin. With that in mind, the article offers three principles for increasing pricing power, all of which apply to running a radio station.
Overcome being a commodity: Commodities have no pricing power. They are open to the whims of the market. To avoid this, your product has to differentiate itself. Don’t settle for just being a vehicle that delivers advertiser messages between songs. Build a strong brand with unique selling points that engender passion from the audience. That will lead to pricing power.
Price to distinct consumers: In recent years insurance companies have had to specialize. Instead of just offering all kinds of insurance, they have had to identify key benefits that are valuable to specific consumers. That focus leads to the ability to increase prices. Stations should consider a similar model. That means having a clear understanding of who you are programming to and not trying to appeal to everyone. Being the Boomer station or the music station that specializes in Millennials or well-educated professions can lead to a station’s sales team being able to charge a premium when advertisers want to reach your listeners.
Understand consumer values: When you have identified your target audience, consider what they value most and how to cost-effectively deliver it. The equation “Value = benefit/price” is how Buffett defines it. If you can determine what your audience cares about and deliver it for a reasonable price, you create value. For radio, that means tapping into both rational product values, like delivering those intangible emotional benefits that we continue to identify in our Techsurveys. We’ve seen resonance for stations that keep listeners company while they work or elevate their moods. These are very different kinds of emotional benefits that are common to only certain stations or formats. The data from Techsurvey10 outline reasons people listen to AM/FM radio and it’s a mixture of both:
As noted, these results vary widely by format, so it’s important to know what your audience wants and to deliver it. The more you do, the more your station will ultimately be able to charge.
Entercom’s KNDD/Seattle is in the process of testing this model – on the air and in the sales cubicles. In the Alternative world, the audience who is listening to less broadcast radio has made it clear about why this is happening. A zoom into Generation Y – the audience The End is targeting shows the culprits that create speed bumps to FM radio listening:
A look at the very bottom shows that repetitive music, the presence of Pandora, and commercials conspire to create a user experience that leaves a lot to be desired. KNDD’s effort to cut the spot load in half, limiting every break to two minutes (or less) directly attacks this problem.
This is in sharp contrast to so many operations where there truly isn’t a hard and fast limit to the number of minutes and/or units a station may run, especially as a month, a quarter, or a year comes to a close.
A key result that will determine whether the KNDD experiment is ultimately successful will be dependent on the marketing effectiveness of the station’s sales staff. Will they be able to move the needle, change minds, and as Buffett points out, overcome commoditization? Will they be able to communicate the improved advertising environment to local, regional, and national brands? And will KNDD listeners end up hearing more commercials on the station, thus increasing the chances they will respond to some of these ads?
Those are all compelling questions, but the process starts with Buffett’s point of view that it begins with a station’s pricing power. Your station’s ability to stand out from the crowd and generate passion will determine its ability to improve its ability to raise rates. Once you have it not only will the station be in a strong position but who knows, maybe Warren Buffett will notice and want to invest in radio.
Mike Stern is a veteran radio programmer with more than 10 years of experience in markets such as Chicago, Detroit, Denver and Las Vegas. He recently opened Talent Mechanic, a coaching service for talent who want to improve their on-air performance and build their personality platform. For more information visit his Website www.talentmechanic.com or the Talent Mechanic blog; Free Estimates at http://talentmechanic.wordpress.com/
