School of Journalism
UNIVERSITY OF MISSOURI-COLUMBIA January 6, 2003
KRQZ/KRQO'S SPLIT SALES STAFF - PART I
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. 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 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--a Power Ratio of 2.00.
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 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, named Mary Ann, 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 Mary Ann. 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, on 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, Mary Ann). 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 overall 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 month'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 new and direct);
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 12+ share.
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 55+, 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 received.
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 well-known and respected sales consultant.
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.
ASSIGNMENT
You are the consultant that has been retained by Ed Jefferson to
give him advice about how to solve the problems Ed has articulated:
1. "Do I admit I made a mistake and fire Oscar?"
2. "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."
3. "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?"
4. "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)?"
5. "How do I establish a budget for next year for each station or
both stations in combo?"
6. "What is the best compensation system, and is the one I'm using
now fair?"
7. "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)?"
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