Tuesday, May 10, 2011

Cut-throat agencies hurting
community publications’ revenue

While the recession has certainly taken its own toll on community newspapers, two other forces—aggressive agencies and competitor price wars, are wreaking their own havoc.

“Let’s start negotiating,” was the first sentence of a recent email received from an agency representing a major wireless company. Not quite the way I would start the conversation but this email, only went downhill from there. It went on to explain the account which it had recently obtained was reevaluating all its media buys and was prepared to cut any that didn’t make financial sense. The account had been in this particular paper ten years.

The agency expected the paper to be aggressive and wanted the absolute best rate (lower) wrapped around a value added package of free ads in both print and web products. The agency was not prepared to sign any contract but if one was legally necessary they wanted short rate protection. 

Consider the irony, a wireless company that didn’t want a contract.

The email was sent to a publisher I consider one of the most highly-principled publishers I have ever met in 43 years in the business. He is passionate about his newspaper and his community and fiercely loyal to his local business community. 

His principles are carved in granite. If the newspaper has integrity, so must the rate card. No business should have an advantage over another and that applies to the major retailers and agencies well-known for their arm-twisting. He has never deviated from his rate card, and yes, he has lost business because of it. His sales reps know better than to ask, but they say it does make their position tidy in the market.

In the publisher’s response he pointed out the paper’s circulation penetration, its high readership and strong editorial content and how the publication and its products were different from others in the market. He sent copies of the paper because the buyer had never seen it.

“The key to successful advertising is not price or saving money, but rather a consistent and engaging program presented in an environment that readers value,” was the publisher’s closing comment in his email response. It was lost on the buyer.

The buyer’s reaction was predictable. “I work with over 100 papers in the country and I’m telling you your rates are way too high.”

Too high compared to what? Where, what kind of content, how much circulation? Are any two newspaper cost platforms alike?

I’ll respect any buyer looking out for their client, but this was nuts. At this point of the transaction it became clear this was all about price and had nothing to do with value or response. The buyer’s price objection was attitude driven. It was now a wrestling match and only he would win.

In this on-going saga, the “negotiator’s” boss who called the publisher when discussions reached a roadblock said the agency is prepared to drop nearly 100 print products from its schedule because of rate.

How do you tell the client they were in 100 wrong places paying too much the year before? Sounds like walking the plank to me.

There was another case involving a daily in New England with about 15,000 paid circulation and a saturation product with another 10,000 to non-subscribers. The agency represented two major retailers who were competitors and then took on a third competitor client in the market who had been advertising in the paper for about a year. All three accounts had contracts to run inserts 52 weeks in both products and they were all charged the same rate.

The agency said the new client was struggling and demanded a 20 percent price reduction saying it would have to cut or eliminate the schedule if they didn’t get it. The publisher responded he was unwilling to cut the rate. The paper had not had a rate increase in four years and it would not be fair to other customers.

Additionally, the publisher pointed out, it would not be in the best interest of the client to reduce the buy because the competition would be reaching 10,000 additional households in the market. The agency replied the client had a budget and if the publisher was unwilling to negotiate they had no choice but to drop the non-subscriber circulation. The publisher talked with the store manager who was opposed to the change but had no say in the decision. The publisher’s efforts to go around the agency and talk to executives at the corporate level were unsuccessful.

So that $65,000 a year account was cut to $40,000 and then a year later the store dropped out completely, claiming the paper no longer worked for them. It moved its inserts to a competing daily with 60 percent less penetration in the immediate market but much more circulation in remote areas which would seem very unlikely to benefit the store. On a cost per thousand basis it might have looked like a good deal, but it was certainly not effective circulation for the store. 

Put yourself in that publisher’s shoes. He could have given in to the demand for a discount, sacrificing about $13,000 to possibly save the $52,000. I say possibly without a lot of conviction because I think it was only a matter of time before the other two competing stores represented by that agency would have demanded the same reduced price and the publisher would have been looking at $39,000 less per year and fulfilling that business at break-even or even losing rates. In the end he lost revenue but protected his margin, and very important to him, his integrity. The two other competing stores have continued to maintain their schedule.

There are several ways to look at this. The cynics among us could say the agency was trying to recover its fee or look good by cutting the size of the advertising buy. Since there was never any direct contact with the client we can only wonder if anyone at the executive level realized the savings was the result of reduced coverage or the agency’s negotiating. Did the store feel the impact of less circulation? We can assume so, but probably not immediately because I’m guessing there was some residual value from its previous advertising.

But you have to wonder about the motive. Is this about the agency and its cost or what’s best for the client?

Remember the “old” K-Mart in 2001 that went bankrupt? Its stock was up 92 percent in August when then and soon former “turn-around” CEO Chuck Conoway decided to make immediate and drastic cuts in the marketing budget. The epitome of arrogance, cut advertising in your hottest sales months. The company then did what is very hard, almost impossible for a major retailer to do; it lost money in the fourth quarter.

Advertising is a consumer service and these were the months they needed information most. The answer was simple for analysts, Target and Wal-Mart gained market share while W-Mart was saving advertising expense. By mid-January 2002 K-Mart stock had fallen from $13.35 to $1.25. Conoway’s farewell speech included the following comments:
  • "There’s no doubt we made a mistake by cutting too much advertising too fast."
  • "Clearly we’ve learned where the threshold of pain is in advertising."
Might the expression, “Out of sight, out of mind apply?”

Next: What do you do when the competition suddenly offers prices below your costs?

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