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 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 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 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 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 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- 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 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.
