The Mysteries of Supply and Demand

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Most people intuitively understand the concept of supply and demand. When you have an abundance of something (bananas, I-Pods, gasoline) and demand is low, prices decrease. When those same products are short in supply and demand is high, prices tend to increase. Despite the best efforts of man and government to the contrary, the supply and demand concept still prevails.

And it is especially relevant for Radio.

A check of your inventory reveals you have a limited number of slots for advertisements. Unlike the newspaper that can add pages when demand for space is high (and remove them when it’s not), your stations can’t add or remove hours from the day. And while some stations with live formats will cram in extra ads when the demand for spots is heavy, listeners have supply and demand working for them, as well. When the supply of ads increases, demand for your air sound decreases, and listeners migrate elsewhere.

Achieving a balance of supply and demand in your ad sales is a crucial factor in maintaining profitability. When I was a newbie sales rep at my first station, the general manager made up the ad rates once or twice a week. Later, when I was managing a group of stations, I realized there had to be a better way than “trusting my gut” to price our air time.

The answer, of course, was yield management.

Surprising to me, even after our group of stations experienced a dramatic revenue increase using true supply and demand pricing, managers of other markets in our company were reluctant to take the plunge. Old habits die hard. Even managers — especially managers — can be reluctant to trade their known, comfortable methods to embrace an unknown idea that might disrupt the “normal” flow of business.

In the case of our stations, we had hit a revenue plateau that required a new solution because the old way was no longer working. If your stations are struggling in this difficult economy that apparently won’t be reviving soon, and you haven’t yet embraced yield management, now would be an excellent time to break free of what’s no longer working.

Once you start enjoying the benefits, you’ll find it a mystery why you waited so long.