Featured Post

Jennifer Aniston is 40!

Those of you who know me or have become frequent readers of Media Realism might be more than a little surprised by my People Magazine style ...

Wednesday, September 28, 2016

Pricing Power

In 2011, the great Warren Buffett was testifying before the Federal Crisis Inquiry Commission. Asked about studying a business, he responded:
"The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10%, then you've got a terrible business." Buffett went on to say that pricing power was more important than good management.

If you look at the successes that Buffett and his vice chairman Charlie Munger have had, it was often when they bought in to franchises such as Coca-Cola, Gillette (now part of P&G), The Washington Post (decades ago), and even Wells Fargo (recent bad publicity notwithstanding).

There are many wonderful businesses with pricing power. Apple comes to mind. Would you buy another brand of laptop if Apple raised the price by $75. In most cases, I would think not. Single malt scotches, high end wines, Titleist golf balls, and Starbucks are there as well.

But what of our world, media? Does pricing power still exist? With legacy media, I would say not really. Throughout the 70's to the 90's, the major TV networks moved prices up in line with the business cycle but they always seemed to get a bit more than the rate of inflation or GDP growth. When the dot.com bust hit in early 2000, they still did fine as people became gun shy about online options and loaded more money in to network TV. After a while, people admitted they put money there because they did not know where else to allocate it. So, some networks had declining ratings and actual audience delivery but saw prices per unit rise.

Today, the game has changed. Social media is changing the media landscape so increases for traditional media are far more muted than in prior years. Many digital options are working and they can prove it.

A radio broadcaster from the Midwest told me recently that his rates are lower than they were 25 years ago. I gently reminded him that his ratings are lower now and he came back by telling me that "90% of our  local advertisers cannot read a rating book. They now have moved to digital options."  Some clever radio operators in larger cities are seeing their digital business ellipse their  traditional commercial billing significantly.

Legacy media will survive if the players evolve. Even if the property looks the same, the revenue is likely to come from what a few years back, we would be calling unconventional sources.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com



Thursday, September 15, 2016

Someone To Call You On Your Nonsense

This morning I was doing some work at my desk and the phone rang. The caller was someone with whom I had not spoken in a few years. We talked for a while about a wide range of things--the upcoming elections, the federal deficit, the American League Pennant race, media fragmentation and some personal issues. Finally, he said, “I have to ask you something.”

It appears that he had an idea for his media property that he had raised in a staff meeting with his team. To a person, everyone was very enthusiastic. After listening to his pitch and following up with a few questions, I started to laugh. “You don’t like it, do you", my friend asked. “No, I don’t.” And I ticked off a number of reasons why I thought the idea was a non-starter. He then started laughing. “Don, my wife told me to call you. There are not many people around who call me on my b.s. these days.”

My friend now runs a substantial media organization. It appears that his team members are afraid to speak honestly to him. All of us need colleagues or “go to people” who really want what is best for us. It has to be someone whom we trust. Some will trash your ideas unfairly out of jealousy or they are very limited people and fail to understand many ideas. Often, however, our ideas are just plain weak. The higher we go up the corporate leader, the greater the need for a trusted friend to blow the whistle when needed.

In one of his famous letters to shareholders, Berkshire Hathaway Chairman Warren Buffett put it this way: “If a CEO is enthused about a particularly foolish acquisition, both his internal staff and his outside advisors will come up with whatever projections are needed to justify his stance. Only in fairy tales are emperors told that they are naked.”

It also helps to have people call you out in your personal life. A long time ago, I gave my first speech at a conference. It was very well received and I barely made it to the airport to catch my plane home as many in the audience stopped me to talk. I was thrilled. When I arrived at home, my young children were all running around and eager to see what I had brought them from my trip. I told my wife of the success I had and she was pleased and supportive but also reminded me that I need to take out the trash as they were coming to get it at six the next morning. I then helped to get the younger children down when the phone rang. A person at the conference was on the line and praised my address and asked if I could speak at an upcoming meeting he had scheduled in a few months. I was overjoyed and full of myself. When I got off the phone my oldest was still up and we did our normal ritual of a couple of songs and a goodnight prayer. She was very sleepy but looked up with drooping eyelids and said, “Hey, Dad, did you take out the garbage cans?”

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com


Monday, September 5, 2016

Forecasting Foibles

Back in graduate school, my classmates and I were often told how companies used sophisticated quantitative methods to forecast sales. When I started out in the world, I asked a few colleagues about it and never received a clear answer. So, I waited for an appropriate moment and began to ask key players who had to be responsible for it.

The first time occurred just before my first major client meeting at a New York advertising agency. I remember dressing with unusual care and arrived at the office a half hour earlier than normal. After pacing around a bit, I made my way to the conference room. I opened the door and froze. Sitting at the conference table was a man in his fifties. I could not turn around and leave so I walked in and introduced myself. He turned out to be the president of the client company (it is a well known company that you all have heard of and may own one of their products but it was not a Fortune 500 company at the time). He was very pleasant and put me at ease.

After a few minutes of small talk, I said, “May I ask you a question?” He replied, “Sure thing, Don. Anything.” I asked what quantitative forecasting methods that he used to predict next year’s sales. Was it helped by a regression analysis or some blending of economic forecasting? He started laughing and said, “Oh, god, did you just get your MBA?” I suppose I hung my head and said yes. “I don’t use any of that highfalutin stuff. What I do is ask my sales managers.” The meeting came off okay and after I did my two minute presentation he was far more complimentary to me than his marketing team was. As the group departed, he slapped me on the back and wished me well with my regression analyses.

Since that day, more than four decades have passed. And, I rarely missed an opportunity, when I could get a key player alone, to ask how he or she did their forecasting. To a person, they did qualitative rather than quantitative based forecasts and often at surprisingly big companies.

Here are some of the qualitative approaches taken:

Estimates of Sales Force--there is no question this group is closest to the customer and the street. I never worked much in tech but sales force input has to be vital in that arena. Looking at it objectively and seeing things close at hand as well, they can be great but perhaps biased. After a while, the sales team gets smart and learns that their estimates are often the key component on building sales quotas so they sandbag numbers so they over-deliver and obtain a lusty bonus. I have seen more than one management rep do that at ad agencies as well. One fellow placed a low number in after I had placed a four million dollar network TV order. That buy alone blew out his estimates for the whole year and this was second quarter. When I confronted him about it, he told me that they might cancel!

Outside Experts--on paper, this should bring some truly meaningful help to the forecasting table. Time and time again, I saw industry experts who “rubber stamped” the intuitive feel that the man or woman who hired them had “forecast” going in.

CEO Judgement--this is a mixed bag. A hands on CEO who is a straight shooter can do this well. He or she may have deep experience in the category and be far more analytical than the sales team. If they are too far removed from day to day, their projections could be way out of whack.

Once I asked a serious player in multi-unit retail about his forecasting. He looked me in the eye, laughed, and said 8%. It was literal--he set that as a target across the board. He cut me off as I was midway through my 210 markets with different economies speech. “I know that you are right. But, I set a high goal even for those in dying markets. For instance, I put a sharp young kid in to XXXXXXXXXXX a few years ago. We had declining sales for years and the economy keeps sputtering there. He has had gains of 1 and 2% the last two years. The guy is amazing! He still apologizes for not making my quota. I am going to move him in to a senior position here at headquarters in a few years. You need to motivate people so throw down a big challenge. Scientific? Hell no.”

Group Discussions--This one aims for a consensus. The whole team must come to a common projection and agree. It can work unless a bully is present (usually a senior manager) who dictates the final estimate. Others firms “pool” estimates and average the results of the sales team members and managers. It may have worked decades ago but  today with e-mail, texting, Skype and cheap long distance people will talk and cook something up.

So, my bottom line after decades of careful observation, is that surprisingly large firms are sloppy with sales forecasts. Also, honesty may be lacking in many cases. Once again, American businesses may prosper in spite of themselves.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog