• by Graham Young , January 20, 2011

A convalescing economy is good news for cable executives in 2011, but it also introduces advertising pricing and placement complications that could limit revenue growth. An uptick in demand won't necessarily translate into increased profitability unless media companies know how to balance inventory and customer demand.

Increasingly, network executives find the only way to maximize profit is to establish pricing and revenue management best practices. Pricing and Revenue Management has long been practiced in the travel and hospitality industries to maximize the profit from a given seat or room, based on destination or travel time. Applied to the media industry, pricing and revenue management can help set prices, allocate inventory for television programming, and improve overall CPM while meeting advertiser needs.

The broadcast networks JDA Software has worked over the past 20 years have been using such solutions to make inventory more valuable and sales more efficient in delivering what the advertiser seeks. Moreover, media companies are able to diminish price erosion by delaying or eliminating the need for discounting caused by a surplus of inventory. These networks are currently seeing revenue gains from 4% to 8%.

But PRM isn't simply a matter of technology. Network executives must also adjust attitudes, behaviors and practices to improve their revenue potential. Here are some recommendations for pricing and revenue management success:

Champion Cultural Change

One of the biggest barriers to success is a culture failing to recognize that analytics can contribute to the sales process. In the media business, much of the proposal preparation process remains manual. Sales management has yet to fully take advantage of advances in forecasting and optimization that have worked successfully for other industries. The media sales business will always rely on strong relationships. But the traditional model needs to be complemented by pricing decisions based on analytics. Executives who can break down cultural resistance will benefit from increased profit margins and market share.

Eliminate Bias

Any process involving manual selection introduces human bias. Account executives prefer to pitch the shows with which they are most comfortable, even when more efficient or appropriate inventory may better suit customer demand. A data-driven pricing and placement proposal strategy powered by advanced pricing and revenue management is just the ticket for retaining inventory that most closely meets demand, rather than cherry-picking popular shows.

Educate Your Staff

Innovative solutions offer account executives a tremendous amount of power to quickly develop proposals, often cutting prep time from several hours down to just a few minutes. The resulting time can be more productively devoted to building relationships and offering customers a wider array of proposal options. But that isn't possible unless the staff understands how to maximize the potential of their tools. Training is crucial for a cultural shift.

Anticipate Demand

It's easy to review historical sales and conclude that better pricing could have increased revenues. Pricing and revenue management solutions allow television executives to simulate demand for the upcoming season's schedule, anticipate sellout levels even before the requests for inventory are received, and adjust pricing as required. This process ensures that every unit of inventory is sold at the optimal price. 

Consider Your Organization

If your business does not have a revenue management group, consider bringing in pricing and inventory experts to work in tandem with the sales team. The most effective organizations usually have one group advocating in favor of the advertiser, while another group draws its advocacy from analytics -- monitoring inventory flow and developing a responsive set of pricing guidelines based on market conditions and demographics.

The state of the economy has made media buyers even more cautious, even as they are being presented with a dizzying array of new options. The impact of each advertising dollar now means more to every stakeholder in the industry. Pricing and revenue management affords network executives a surgical precision in inventory balancing unavailable before the introduction of these solutions.