Six Reasons to Change How You Sell Lettuce
Once upon a time, not too long ago, Carl opened a lettuce shop. You see, Carl had a passion for fresh lettuce in his salads and knew that he could make a nice profit selling the green stuff to eager lettuce eaters.
So Carl opened his shop in a busy part of town and put up a big sign: "Carl's Lettuce Shop". He called his friend the farmer who said he could supply Carl with 100 heads of the freshest lettuce there was each day. Carl agreed to pay the farmer 25 cents per head, and planned to sell his lettuce for 45 cents, giving himself a nice profit.
But there was a problem.
Carl's small store did not have any refrigeration equipment. Any lettuce not sold by the close of business each day would spoil and have to be thrown out.
The first day Carl was open for business only a few customers came into the shop. Carl sold only ten heads. That night, 90 heads of lettuce went into the trash. Carl lost $20.50 in one day.
After a week, word had gotten around about how fresh Carl's lettuce was and business was booming. On the following Friday, Carl sold all 100 heads of lettuce by noon and had to turn customers away. Carl called his farmer friend and asked to increase his order to 200 heads of lettuce each day. But, alas, the farmer had other commitments and could only supply 100 heads daily as originally agreed.
Carl soon found that some days were diamonds and some days were...not diamonds. Except for a very few great days, some lettuce was always thrown out at the close of business, and Carl was losing money on the unsold heads.
Do you think Carl could benefit from some kind of yield management system?
Not Selling Lettuce? Wanna Bet?
If Carl's Lettuce Shop sounds a bit like Your Radio Stations, you're getting the point. Any commercial inventory your station fails to sell is, at the end of the day, lost revenue. The ideal solution to this situation is to control the demand on your inventory so that high-demand periods never completely sell out and low-demand period sales are increased, generating more revenue.
At one radio station with which we're very familiar, Sunday revenue was so poor that it would have been better to sign the station off for the day. While the station had lots of Sunday listeners, there was no demand from advertisers.
When a yield management system was put into place at this station, Sunday revenues rose over 1,600% in four weeks! The station's overall revenue doubled within one year, almost exclusively due to the aggressive pricing strategies driven by the yield management system.
A well-executed yield management system generates increased revenue and cash flow by: