To Sell In Combo Or Not? Essay, Research Paper

To Sell in Combo or Not?

It was hot–hotter than usual for the first week in September,

and Ed Jefferson was not eager to go out in the heat and sit in his

car while the air conditioning cooled it off. He put his feet up,

stared out over the tree tops from his cool office and tried to think

of all of the alternatives he had for solving his problem.

Ed had been general sales manager of KRQZ-FM and KRQO-AM for

twelve years and he had never faced a more difficult, perplexing

decision: should he sell the two stations in combo or should he keep

the two separate sales staffs structured the way they were now? It

was budget time, and Ed had to make a decision within the next few

days so he could finalize next year’s budget. It was his budget, as

the new general manager, Tyler Saunders, had told him. Ed liked

working for Tyler, who was an ex-program director, and like the

freedom and autonomy Tyler had given him for the six months Tyler had

been general manager.

Ed Jefferson picked up the KRQZ/KRQO Weekly Sales Report,

Monthly Forecast Report and Miller-Kaplan Report (these reports

appear after page five, at the end of this case). He began examining

the reports carefully, for what seemed to him to be the thirtieth

time, trying to find the right questions to ask and some hints of

what some solutions might be.

KRQZ-FM’s revenue was running five percent ahead of last year’s

and was thirteen percent over budget, year-to-date. This situation

was quite gratifying to everyone (including corporate) because the

station had experienced some ratings declines in the past year. For

the last seven years KRQZ-FM, known by everyone as The Z, had

featured the same programming–a bright, personality-oriented Adult

Contemporary (AC) format with a highly recognizable, very funny

morning team. At one time the station had been a strong number-two

to the perennial market leader, KNNN-AM, an old-line news/talk

station with a huge but older-skewing audience. However, The Z’s

audience had fallen off in the last year as several other AC stations

began to compete for its 25-54 core audience. One station, known as

The Cloud, had virtually tied The Z in the last three books in the

all-important 25-54 demo. For the last four Arbitron rating books,

The Z had ranked fourth 25-54, and in two books it was behind The

Cloud. The Z had a 4.4 12+ share in the latest Arbitron, in contrast

to an 8.1 12+ share for KNNN-AM.

However, The Z’s sales staff had very little turnover, was the

highest paid in town and its salespeople were extremely well liked

among the agencies and clients in the top-ten market in which they

were located. So in spite of the rating declines, the salespeople

had consistently made the station the number-two biller in town,

according to the Miller-Kaplan reports. The staff reported to the

KRQZ-FM local sales manager, Olivia Mitovsky, who had been in the job

for five years and had the full support, respect and admiration of

everyone in the department. The six-person sales staff and Olivia

were considered to be miracle workers–the local staff’s share of

revenue continually outperformed the station’s 12+ rating share by

over two-to-one.

This outstanding sales performance also made Ed Jefferson, the

general sales manager, a hero, too. His boss, Tyler Saunders, and

everyone at corporate headquarters knew he and Olivia were doing an

excellent job–that’s one of the reasons everyone trusted him to come

up with a solution to the problem: KRQO-AM’s billing problem.

KRQO’s format was unique in the market–an oldies, Music-Of-

Your-Life-type format that featured Frank Sinatra, Patti Page, big

bands and songs from the late ’40s and early ’50s. KRQO’s audience

was primarily 44+ and 55+. But because it had no competition in the

format, it pulled good 12+ numbers. In the latest Arbitron it had a

5.8 12+ share, but ranked tenth 25-54.

KRQO had a six-person sales staff that reported to a local sales

manager, Oscar Smithers. As well liked and respected as Olivia

Mitovsky was by The Z’s staff, Oscar Smithers was disliked by the

KRQO staff, with one exception–a young, attractive, vivacious,

aggressive, female salesperson who was perceived by the other five to

be Oscar’s favorite. The perception of favoritism (in account

assignments and new leads) had gotten to such a point that virtually

everyone on both staffs assumed that Oscar was having an affair with

the salesperson. The other five salespeople on KRQO also complained

bitterly about the paperwork that Oscar made them do: daily call

reports, detailed weekly planners, weekly projections and complete

prospect lists updated weekly.

The Z salespeople only had to do daily call reports that merely

consisted of check marks on their account lists. These checks were

entered onto account-list forms by the sales assistants and a report

was given to the salespeople and the sales managers to help them keep

track of who they were calling on and who they were missing, if

anyone. Ed or Olivia rarely mentioned these reports to the

salespeople, and never in a negative or critical way.

On the other hand, Oscar used his reports to beat up on people:

“Why didn’t you call on this person?” “Why couldn’t you close this

prospect?” He’d look at the weekly planners and then demand that

salespeople take him out on calls, which he’d invariably take over

the presentation and push hard, very hard, to close. There were no

strokes (except for praise for his favorite). The salespeople had

the feeling that no matter what they did, it was wrong. Four out of

the six KRQO salespeople were actively looking for other jobs (and

spending more time doing so than making sales calls). Three

salespeople had even gone to Ed and Tyler to complain about the way

they were being treated, which took a certain amount of courage,

because Oscar had recently fired a popular salesperson and threatened

to fire more people if they didn’t learn “to do things his way.”

Oscar continually told his sales staff they were behind budget.

He posted numbers weekly that showed how much business each

salesperson wrote that week and compared that amount to their budgets

that he had set and to the station’s budget. Everyone was behind his

or her budget and the station was falling further and further behind

its budget every week. Even though Oscar yelled at the salespeople

at twice-a-week meetings (which often lasted an hour-and-a-half)

about missing budgets, at the same time he would complain bitterly

about how unfair the budgets were. The KRQO salespeople were griping

about the unrealistic budgets, too, because they got paid a bonus

based on making their monthly budgets. They weren’t making any bonus

money, and The Z people were getting substantial bonus checks every

month (a one-percent retroactive commission bonus based on each

salesperson’s previous months’s billing). Furthermore, the KRQO

salespeople complained that the commission system was unfair. They

were paid eight percent on agency business and a sixteen percent

commission on new, direct business (had to be both); The Z

salespeople were paid six percent on agency business and sixteen

percent on new, direct business. However, The Z billed three times

what KRQO billed and The Z’s rates were two-and-a-half times greater

than KRQO’s, so the KRQO people were making less than The Z people,

and often had to work harder because of the station’s difficult-to-

sell demos.

About the budgets and commission differential, Oscar and the

salespeople were right. They were unfair, and Ed Jefferson knew it.

This fact was a major part of his dilemma.

The reason the budgets were unfair was because until the

previous year, The Z and KRQO had been sold in combination. Until

two years ago, KRQO had small ratings and couldn’t support a separate

sales effort. The eight-person sales staff would sell a schedule on

The Z and then throw in KRQO for an additional ten percent. Thus, if

a salesperson got a $4,000 order for The Z, he or she would say,

“Give me another $400 and I’ll match the schedule on KRQO.” Billing

on the two stations was divided accordingly, ninety percent for The Z

and ten percent for KRQO. However, when KRQO got a new program

director who changed the music and the promotion for the station, the

station’s numbers began to grow–from a 1.8 to a 2.6 to a 4.5 Ed

Jefferson and the previous general manager began to realize that they

could get more for KRQO than an additional ten percent on top of The

Z’s rates. They knew that they were underselling KRQO substantially.

The reason the commissions were out of balance was because the

commission rates had been based on the stations’ budgets, which had

seemed reasonable at the time.

Ed and the previous general manager decided the solution to the

problem was to hire a local sales manager for KRQO who had some

expertise in direct, retail selling and to split the staff. They

felt that pursuing direct, retail business was the best strategy,

because the KRQO couldn’t compete effectively at the agencies for 25-

54 business, and with most of KRQO’s numbers being 44+, the

salespeople couldn’t sell very much on a combo with The Z. They also

decided to have one salesperson from each staff call on agencies and

clients, and when a buy was up, to have the two salespeople work

together and make a joint sales presentation to get both stations on

the buy. They offered a twenty-percent discount on both station’s

rates if a buyer would by an equal schedule on both stations.

Ed hired Oscar, who had a good track record of increasing

direct, retail business at a station in another top-ten market, and

Ed split the sales staff. Ed actually hired Oscar the week after

Tyler Saunders joined the station as general manager. Ed gave Oscar

three of his better, more experienced salespeople–the ones that he

felt were more adept at direct selling.

When Ed made out the budgets for the two stations, he worked

painfully through a number of scenarios. He looked at billing

figures going back several years for the combo. He looked at rates

for each station and the number of combo buys that they had gotten.

He looked at the current ratings for the two stations. Finally, he

came up with a sixty-forty revenue split, based on his estimate of

what the two stations could bill–about sixty percent of the total

would come from The Z, and about forty percent would come from KRQO.

When he and Tyler, who had just been on the job for two weeks, made

their budget presentation to corporate, the top brass agreed that the

budget projections for the two stations were reasonable, and the

numbers were locked in. Now, nine months later, Ed knew the numbers

were out of whack. The Z was sailing along way ahead of budget and

ahead of last year. KRQO was impossibly behind budget and

expectations. The system of making cooperative presentations was not

working well. Oscar was so highly competitive with Olivia that he’d

insist that the KRQO people go after an unrealistically high share of

the budget. In fact, there was virtual warfare between the two

staffs, much to Ed’s dismay. But was it Oscar’s fault or the fault

of poor budgeting?

In either case, “What do I do now?” Ed thought as he looked out

at the setting September sun.

“Do I admit I made a mistake and fire Oscar?”

“If I fire Oscar, do I hire another local sales manager and keep

the staffs split, or do I go back to one staff selling combo.”

“Oscar is a good closer; do I keep him and let him and a couple

of retail people report to me and have them sell only KRQO, and have

the rest of the staff sell a combo with realistic, appropriate rates

for both stations?”

“Do I fire Oscar and several salespeople, and then have a nine-

or ten-person staff sell only a realistically priced combo

(understanding that most of the remaining salespeople used to give

away KRQO for ten percent extra and don’t know how to sell its

specialized format)?”

“How do I establish a budget for next year for each station or

both stations in combo?”

“What is the best compensation system, and is the one I’m using

now fair?”

“What comes first, structuring the sales department(s)

realistically or backing into the budgets I know I’ll be facing

(corporate always wants ten percent more, regardless)?” Ed hated

backing into budgets. He remembered several years ago when the

company was under severe pressure from bankers, that he had to back

into some pretty ridiculous budgets.

As Ed looked out of the window over the setting September sun,

he decided to hire a consultant from the Marketing Communication

Group, a consulting and sales training organization he had dealt with

in the past. Ed had formed an outline in his mind of what he thought

was the optimum solution, but he felt he needed an objective,

knowledgeable outside opinion. He picked up the phone and left word

for the consultant to call him.

AUTHOR’S NOTE

While the incidents in this case are not factual, they do

represent a composite of real situations and common industry

practices. The case was prepared to use as a teaching tool.

As we discussed, Oscar is a real problem. Morale on the KRQO

staff appears to be quite low. There is a perception among both

staffs that he is unfair and shows decided favoritism to one

person–for no apparent reason (there is rampant speculation, of

course, but it is only speculation). Oscar is not an effective

manager; his people skills are poor. He is very competitive with

Olivia and The Z staff, which causes counterproductive attitudes

and feelings among everyone.

The poor morale and apparent poor performance of KRQO is in stark

contrast to the excellent morale and performance at The Z. The Z

salespeople love Tyler, love you and love Olivia–for all the

right reasons. You help them, coach them, encourage them and make

them feel like winners. I’m afraid that Oscar spends a great deal

of time making his people feel like losers–thus it’s little

wonder they are losing. It’s sort of a self-fulfilling prophesy.

I feel that you have waited too long to address the Oscar

problem. The fall buying season is coming up and you must get the

KRQO staff organized and cracking immediately in order to

maximize fourth quarter business. Of course, your motives for

waiting to move on Oscar are beneficent, which is typical of your

company’s culture; however, I would move immediately on Oscar.

Talk to him right away and tell him it isn’t working and it’s

time for a change. Give him until the end of the year to find a

job, if you can, but get him out of the station now (perhaps your

rep will give him a desk and a phone to use in New York). When

you terminate him, you and Tyler do it together and do not argue

or give him any specifics–just be general and say it’s a style

problem and be as generous as you feel you can. He will try to

argue, want to go over your heads to corporate, will demand exact

reasons, etc. Let him vent his anger, but do not be specific.

Also, tell him he can resign if he wants to (which is a nice

technicality and lets him say that he quit). On the other hand,

if he quits, he can’t get unemployment compensation. So give him

a choice. You can fire him so he’ll be eligible for unemployment,

but then you and he can tell everyone he quit. In any case, get

him out of the station at once; he can do nothing but harm.

I think your idea of taking over the KRQO sales effort is an

excellent one. Let Olivia handle The Z, she can certainly do it,

and you can organize and evaluate the KRQO staff. I think you

ought to make one or two KRQO changes right away–certainly Mary

Ann (if she doesn’t leave when Oscar does, she will be nothing

but trouble if she stays; she has a terrible, negative attitude).

Unfortunately, Harry probably needs to go too, as we all seem to

agree that he isn’t going to make it (how about putting him in

production and creative for a while to shore up direct selling–

let him do it 25 hours a week and look for work the rest of the

time. His programming and production experience will be of value,

particularly with your emphasis on new, direct business).

After letting two KRQO salespeople go, raise the KRQO commission

several percentage points (more about this later, but for now the

commission rates are inequitable–the rates on The Z are more

than twice KRQO’s but the commission rates are very close).

Divide the lists up realistically and equitably. Make some

interim decisions about account assignments. Do not have two

people go into agencies yet. Tell The Z people to pitch both

stations and give them the higher KRQO commission for KRQO

business. In this manner, everyone will be pumped to get more

KRQO business and it won’t cost the station much more money

because you’ll be saving the overhead costs on two salespeople.

Next year, split the staffs completely and put two people into

agencies competing for business, but not yet. The Z people will

love this system for the rest of the year and will really hustle

to get business for both KRQO and The Z and to make some more

money this year–they like selling both stations and the

challenge of it.