I am taking a hiatus from this column until sometime next year in order to complete a book. Our editors will publish a favorite column once a month. This one is from 2001.
You are an MBA candidate at the Kelley School of Business. Your assignment is to study the following case and offer recommendations to management:
A customer placed an advertisement in a newspaper. The following morning, the advertising agency representing the customer telephoned the newspaper office and requested that the ad be immediately withdrawn.
Because all the account representatives were making sales calls out of the office, Clark, a mild-mannered reporter, took the call and explained that it was too late. The paper had already gone to press.
The voice from the advertising agency, sounding panicked, escalated his request to a demand: “The ad must be canceled because it contains statements made in violation of government regulations.” Clark apologized and said there was nothing he could do.
Within an hour, an officer of the customer called and stated he was authorized to take any action possible to prevent the ad from reaching the public. Another reporter, Lois, took the call and explained that it would cost a fortune to reprint the paper. The officer replied that the United States would fine the company a fortune if the paper were not reprinted. Lois agreed to rescue the company if she could.
Lois sent the copy boy, young Jimmy Olsen, to the printer. When Olsen determined that only half the print run had been completed, he yelled, “Stop the presses.” After alternative material was inserted in the place of the offending ad, Olsen ordered the papers reprinted.
He failed to solicit an advance quote from the printer for the extra print run. Olsen explained to Editor and Publisher Perry White, “I took the financial risk knowing also that there might be complaints from subscribers and advertisers and additional costs associated with late delivery. But gee-whiz boss, we are the Daily Planet and our customer was desperate.”
White calculated an estimate of the probable extra cost and quoted the customer $50,000, in addition to the normal cost of the ad. The customer immediately and gratefully authorized the payment. The next week, after a number of conversations between White and the printer, the actual cost to the newspaper for the extra print run was invoiced at $10,000. The discount was offered because of the relationship between the Daily Planet and the printer, and the printer’s desire to retain the business and good will of the newspaper.
Perry White called a meeting.
Perry: “What shall we charge our customer?”
Lois: “$50,000. We have a legally enforceable contract.”
Jimmy: “But our actual costs are much less than what we thought they would be when we quoted our customer.”
Lois: “But Jimmy, we weren’t sure of our costs when we quoted the customer. The bill could have been higher than $50,000. We took a risk.”
Clark: “We also took the risk of alienating our subscribers and advertisers. If the printer had been late, not even Superman could have delivered those papers on time.”
Lois: “We are entitled to make a profit, and the price was fully within the expectation of the customer.”
Perry: “We did expend an extraordinary amount of management time reacting to our customer’s crisis.”
Lois: “The customer is not a big advertiser.”
Jimmy: “I don’t care if the customer was Lex Luther. We are not in business to make windfall profits occasioned by our customers’ predicaments.”
Lois: “The customer is already grateful.”
Clark: “Perhaps there is a compromise solution.”
Perry: “Great Caesar’s Ghost! What should we do?”
What is your advice to the newspaper?
Editor’s note: This story is a parable. In real life, the advertising department, not the news department, handles all advertising decisions.
Update: This parable was constructed from an actual situation at Indianapolis Business Journal. IBJ returned 100 percent of the savings to the customer, Guidant Corp. Years later, the person at the advertising agency who had placed the offending ad called to say he had taken a new job with a company that had not advertised in IBJ. He again expressed his gratitude to the newspaper and initiated an advertising campaign with the paper on behalf of his new employer. Great Caesar’s Ghost!•
Maurer is a shareholder in IBJ Media Corp., which owns Indianapolis Business Journal. To comment on this column, send e-mail to firstname.lastname@example.org.