Radio Advertising

By: Justin Collier

Offline Marketing

Radio, another wide-reach medium of advertising, tends to be most similar to network television in regards to cost per impression, expansiveness, and focus on prospective clientele. Although the often ‘knee-jerk’ reaction to radio is pitting an ad’s lack of visual context against that of TV (or even print media), people tend to forget that cost is a function of market demand. By comparison, the cost per impression may be 25-50% that of TV. Few would disagree that conveying a message both audibly & visually leads to stronger consumer retention and recollection, but frequency theory tells us that with enough ads, we can recreate the same level of awareness.

Cost

If, then, few would disagree that TV advertising produces stronger ad retention (no doubt correlated with a higher conversion rate), then certainly it would make sense that advertisers are willing to pay a higher CPM for it than, say, print or radio. In my experience, a :15-:30 second radio spot might run only .4¢-1.2¢ per impression. On average, this is a bit lower than other mainstream forms of advertising. How much lower exactly? By comparison:

A solid network TV ad might run 1.5¢-2.5¢/impression and a cable TV ad as high as 3.5¢
Running an ad in your local paper might cost roughly .8¢-1.8¢/impression
and even a 2 page spread in your local ‘community magazine’ can run 2.5¢ per print

Frequency

Lower CPM simply means greater frequency (or, when necessary, greater reach) of an ad over the same ad budget as compared to relatively higher CPM campaigns like TV. What does this mean? It means we can run the ad more times. Why is this not necessarily good or bad? Because radio listening tend to need be exposed at a higher frequency to a radio ad than to a comparable (more expensive) TV ad. Although I’ve seen the magical 3’s pop up in conversations about the optimal frequency for print and TV ad, a popular consensus among radio advertisers says that 7 has a nice ring to it. Clearly the goal here is to make lasting, positive impressions on consumers up to the point of diminishing returns. Although repetition is paramount, oversaturating a radio listener is wasteful.

The Same Ad Nauseum

Like in the many other examples I’ve brought up in regards to media advertising, this is simply a numbers game. A game of math. And of probability. A game where we look at the

Cost of an impression
Conversion rate (%) of those impressions
Revenue generate per conversion
Variable cost of a conversion (gross profit)
Our willingness to provide goods or services at that gross profit

Certainly, overhead factors into that ‘willingness’. And certainly ‘willingness’ isn’t the final say in whether to proceed with an advertising campaign. Equally likely is there a form of advertising

With a lower total cost per conversion.
That generates higher revenue per conversion (a source that generates more qualified leads, for example)
Converts [tooltip text=”Sales that do not overlap with current promotional efforts, and drive in consumers that, without question, would not have converted otherwise”]“found business”[/tooltip].

A good example of found business might be a retailer with a ‘brick and mortar store’ who starts to both advertises online and starts shipping outside his/her city or state. For all intensive purposes, these consumers would have never otherwise made their way into the store and ultimately bought something. The key note to take away here is that in many cases our willingness to provide goods or services may be less for found business than would otherwise be for ‘regular’ business.

When Radio Doesn’t Work

The excerpt also appears in Network TV Advertising, but highlights a universal flaw with most media advertising outlets.

Before I continue, this is a problem for most all forms of media advertising outside of SEM (Search Engine Marketing). It’s that an advertiser overpays when 1) People are involved and, therefore, need to get paid, and 2) Advertisers outside a given market are bidding for the same, scarce advertising space.

Overhead

1) People are expensive. American’s in particular. Want to run an ad in your local newspaper? Your rep need to get paid first–he/she’s on commission. Their “creative” needs to get paid second–artists aren’t cheap, you know? Then two or three ‘red-tape’ people in-between (the ones that actually get your ad from concept to printed paper), and then ‘The Man’ upstairs needs his cut. Automated systems are always going to be less expensive that those requiring personnel. Cost of advertising doesn’t come down exclusively to consumer-end “willingness to pay”, but also supplier-end “willingness to provide services”. For how much less is an architect willing to sell a blue-print after the sunk cost of creating that blueprint has past? For how much less would an ad-serving search engine be willing to provide ads once the costs of implementing an automated ad serving platform (like Google’s Adwords or Bing’s Adcenter) has already been incurred? Answer: “as little as to allow advertisers to bid on (scarce) ad placement”–which brings us to #2.

Scarcity

2) Advertisers outside your market are bidding for the same, scarce advertising space. How can the Amway Arena, home of the Orlando Magic, charge $120,000/season for advertising spots during home games? Because there exists only so much ad ‘inventory’ per game & per season. Coca-Cola, with their nearly infinite advertising budget & affinity for sports, is nearly always willing to take up the vacant spots if passed up. The problem here is an overabundance on the demand side of advertising. Notice that most TV ads are taken up by car dealers & that most billboards are taken up by lawyers? High margin & high-ticket item vendors and service provider gain the most from advertising. How many cars does your local Honda dealer have to sell to pay back $7k spent in advertising? By contrast, how many cupcakes does your local bakery have to sell? See the difference? Since a car dealership would never bid for the keyword “bakery” (low relevacy = high cost per conversion), all bids for that specific keyword are only made at a dollar amount that would provide the appropriate amount of conversions per click less cost per conversion. Put more simply, only bakeries are bidding for the keyword “bakery”. No outside-the-market advertiser is artificially driving up the price of that keyword on Google, Yahoo! or Bing. If, by contrast, only bakeries were allowed advertise on your local TV networks, not only would less advertisers be bidding for otherwise scarce ad inventory, but in general the advertisers’ (bakeries’) willingness to pay per impression would be lower. But what advertising model actually works like this? PPC does. Learn more.

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