School of Journalism
UNIVERSITY OF MISSOURI-COLUMBIA
FRIENDS
The Price of Friendships
After nine very successful years of selling for WSBC-TV, Tom
Wyatt resigned. He had been a productive salesperson, handling
agency business as well as being excellent at new business
development. Although Tom had made a nice living and served his
station well, he suffered considerable disappointment when he was
passed over for the second time for the local sales manager's
position. The station's general sales manager (GSM), Fred
Barris, was a close personal friend of Tom's and respected Tom's
ability. Fred wanted to promote Tom, but was vetoed by WSBC-TV's
General Manager, Elliott Tumolt.
Nina French, another salesperson on the staff with
comparable qualifications, got the nod for the local sales
manager's (LSM) job. Tumolt favored her over Tom Wyatt because
of her excellent track record in sales, because Tumolt felt she
had more management potential and because of her extensive community
involvement. Tom harbored no ill-will toward the station,
Fred, Nina, or for that matter, even Elliott Tumolt. However, he
felt he had been given a message that his path to management was
blocked. Therefore, he decided to enter the advertising agency
business.
With a few of the direct accounts he had developed and an
automobile dealer he was able to take away from another small
agency, Tom opened Wyatt & Associates Advertising. Based on his
success as a media salesperson, Tom had confidence that he could
parlay his experience and media connections into a successful
agency business. Because Fred Barris was a friend and was
embarrassed that he didn't have the clout to overcome the general
manager's veto, Tom expected Fred's to help him succeed in the
new venture.
Another aspect of Tom's media background was his acquaintance
and friendship with most of the market's other media
representatives. Many of his contemporaries and competitors were
now in management at other television stations in the market.
Tom felt that these friendships would be an excellent asset in
getting leads on new business. Fred Barris, in fact, had
promised to try to direct accounts to Tom. Fred wanted Tom to
prosper, and in return he felt Tom would favor WSBC-TV with
bigger shares of his media buys.
Tom knew most of the television salespeople and managers in
town quite well. He often played golf with the local sales
manager of WCBN-TV, Mitch Mitchell, who at one time had worked
with Tom at WSBC-TV. Another golfing buddy was Arnold Parker,
who was the general sales manager of WCBA-TV. The general sales
manager at the market's only independent station was Ann Taylor.
Several years earlier, before either Tom or Ann had married, they
dated. They agreed at the time that they were not headed for a
long-term relationship, but they had a good time together and
still remained friendly. Tom, therefore, had good friends at all
the local TV stations and expected that they would all be helpful
to him in his new endeavors.
When the first blush of excitement and anticipation of being
a successful agency owner wore off, Tom came to the realization
that maybe the agency business wasn't as easy or as lucrative as
it appeared initially. He had picked up very few new accounts
and his car dealer cut his budgets due to high interest rates on
new cars and sagging business. Tom became nervous and began to
press his media friends for leads on new accounts.
Tom confided to Fred Barris that things were going slowly
and that he needed more accounts. Fred was able to direct a mid-
sized department store to Tom's agency, but Fred asked for a
favor in return. He asked Tom to keep him posted on spot prices
and rates on the other television stations. Although WSBC-TV was
a strong number one in audience share, Fred was getting
questioned on his revenue share by his general manager, Elliott
Tumolt. Tumolt was not happy with the overall growth of the
station's billing. He felt that WSBC-TV was losing revenue
share, although there were no shared revenue figures or other
hard facts to support this feeling.
Threatened by this pressure, Fred was ready to lower his
rates in order to maintain share and, in his view, keep his job.
Tom knew enough about rates and inventory control to know that a
competitive price war among the stations could work to his
agency's advantage. If he got inside information, he could make
"I can buy it for you cheaper" a part of his new business
presentation.
Tom reasoned that if Fred was so anxious for rate information,
his counterparts at the other stations would also be eager
for the same type of information. Tom then developed a plan to
share rates with Mitch Mitchell, Arnold Parker and Ann Taylor.
In order to work this information-sharing ploy to his advantage,
Tom would shave a little bit off the rates his friends told him
about. Each friend was led to believe that they were the only
station getting full information and the competitor's accurate
rates.
When each station saw the lower competitive rates, they
reacted in a negative fashion. They generally afforded Tom a
slightly better rate to keep their share. Tom in turn started to
secure new accounts with his accurate claim that he could buy
cheaper. After nine months in business, Tom had secured twelve
TV accounts and billings that would project to more than
$1,500,000 annually.
Because the stations were all relying on Tom's shared rate
information for other clients as well, the costs-per-point (CPP)
level in the market eroded nearly 15% on local buys. As a
result, none of the stations were expecting to make their annual
budgets for the year. Responding to pressure from their general
manager's and owners, each station pressed even harder for share.
During a weekend golf game, one that Tom couldn't make
because he was too busy with all of his new accounts, Mitchell
and Parker, after a discussion on the course, each realized that
they did not have an exclusive on Tom's pipeline. Since they
were both in search of firmer rates, they decided to turn Tom's
game back into their favor. Together they approached Tom with
the following proposition:
1. If Tom continued his role as rate reporter, they would
continue to give him rates below the market pricing.
2. Mitchell and Parker would cue Fred Barris in on the new
ground rules.
3. Tom himself would tell Ann about his new arrangement.
4. In the future, Tom would report only the actual rates
submitted to his agency. It would be the four sales
managers' objective to reverse the downward CPP trend by
keeping tabs on the competition through Tom.
All of the people involved bought into the clandestine plan,
and rates started to rise in the market. The biggest beneficiary
of the higher rates was Nina French WSBC-TV's local sales
manager, who knew nothing of the arrangement. WSBC-TV's local
revenues started to rise and Elliott Tumolt felt it was a result
of Nina French's good work. Tumolt viewed the situation as
confirmation of his good judgment in promoting Nina over Fred
Barris's objections. While Fred Barris was on a two-week Mexican
vacation, Nina would not accept several of Tom's low-rate orders.
Furious, Tom called Nina and said, "This is my deal. I made
the deal with Fred and the other stations for a service I
provide." Tom explained just enough for Nina to understand what
had been going on.
AUTHOR'S NOTE
This case is not based on actual facts; it does not
represent standard industry behavior or practices. The case
represents extreme circumstances and is presented only as a
teaching tool.
ASSIGNMENT
1. Assume you are Nina French. What alternatives do you have
in regard to your newly discovered information?
2. How important are revenue shares as a gauge of sales
performance? What effect does revenue share emphasis have
on pricing and sell-out levels? Which is more important and
why?
3. Assume you are Elliott Tumolt and have just been informed by
Nina French about the rate-information sharing, of which you
were unaware. What will you do?
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