A Better Way to Buy Radio Advertising

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You just got off the phone after another grueling session with a media buyer who says your Radio station isn’t efficient enough to get on the buy, your station isn’t meeting the target Cost Per Point, you need more added value. You feel pretty lousy. Have you ever wondered how they treat the other people they buy from?

Can you imagine what would happen if a media buyer tried to buy the other things they need in their life using the same techniques they use to buy Radio?

It sounds pretty silly doesn’t it. Why do they treat the media as if lowering the price were an option? The cold hard truth is that the Radio Industry has allowed them to do so.

But there is a better way.

A Radio station has hard costs just like other vendors do. A Radio station simply cannot lower the price below what it takes to operate just because a media buyer asks for it?

Just like a restaurant, a hair stylist or a video store, a Radio station has hard costs to pay in order to go on-the-air and stay in business. The Radio station must pay the staff, the rent, the electric bill and all of the same hard costs that other businesses have to pay. And a Radio station is entitled to make a profit just like anyone else.

Of course, the Radio station must make every effort to provide a quality product at a competitive price within the market place in order to be successful. The natural market forces of the Free Enterprise System do play a role in the Radio station’s business plan. So does good selling. That’s how you can get out of the rut of commodity pricing.

Part of the problem is that Radio itself has allowed a commodity like pricing model to emerge, many people call it selling “spots and dots”. This pricing model has traditionally been centered around the Gross Rating Point (GRP). The trouble with this system of buying Radio advertising is obvious, Gross Rating Points don’t buy products and services, people buy products and services. In an effort to get the advertiser the best value for the money, the media buyers strive to achieve the lowest Cost Per Gross Rating Point (CPP) possible.

The entire process of buying Radio advertising using Gross Rating Points is fundamentally flawed because the math involved masks the true personality of any given Radio station. It completely ignores the core strengths of Radio to inform, entertain and to inspire the audience. Using Gross Rating Points to buy Radio ignore Radio’s innate ability to emotionally engage with the consumer.

The Gross Rating Points of a given advertising schedule are calculated by multiplying the Radio station’s Average Quarter Hour Rating by the number of commercials in the schedule. The Average Quarter Hour Rating is the Average Quarter Hour Persons estimate expressed as a percentage of the population being measured. It is that Average Quarter Hour Persons estimate that is the culprit in this misguided method of buying Radio advertising. The Average Quarter Hour Persons estimate is the specific mathematical calculation that masks the personality of the Radio station and begins the whole commodity driven pricing model.

Radio audience services measure primarily two things, how many people listen to a given Radio station and for how long. A Radio station with a very large audience that listens for short periods of time could have the exact same Average Quarter Hour Persons estimate as a Radio station with a smaller audience but one that listens for longer periods of time.  This is critical information an advertiser needs to know when planning to advertise on a Radio station but the Average Quarter Hour Persons estimate hides this critical data in the very beginning of the traditional media buying process. It will never be considered. The two very different types of Radio stations in our example require a different buying strategy in order to be effective on each one but the media buyer relying on the Gross Rating Point system will most likely make a ineffective media buy on both stations used in this example. This type of media buying doesn’t tell the advertiser how many people will hear the commercial nor will it tell them how many times they audience will hear it. Those are the very crucial elements of an effective media buy.

But there is a better way. One that can accurately predict how many people will hear the commercial and how many times they will hear it. Better yet, it will help the advertiser know exactly what is the optimum number of commercials to run on any given Radio station. It’s called the Optimum Effective Schedule.

The Optimum Effective Schedule was developed by Pierre Bouvard and Steve Marx. They developed the Optimum Effective Schedule after reviewing years of research going back to the 1960s. They used research developed by Westinghouse Broadcasting in the 1960s, Katz Radio & Katz TV in the 1980s, Coleman Research Study from 1987 and hundreds of real world tests. They found that by using a much simpler formula, an advertiser could actually estimate the optimum number of commercials for a given Radio station. The schedule would take the advertiser’s reach and frequency on the target Radio station right up to the optimum level. Any more advertising would produce a diminishing return of reach and frequency. A smaller schedule would leave valuable listeners untouched by the message.

The Optimum Effective Schedule takes into account the very different personalities of the two different Radio stations we used as an example earlier in the story. The Optimum Effective Schedule presents the advertiser with a way to customize a different schedule for both stations to effectively reach the optimum audience on both.

First, you must calculate a Radio station’s Turnover Ratio. You divide the Radio station’s CUME by the Average Quarter Hour Persons estimate.

CUME Persons 45,000 divided by AQH Persons 8,000 equals 5.625 as the Turnover Ratio.

Now multiply 5.625 by the Optimum Effective Schedule factor of 3.29 to get 18.50 commercials or nineteen commercials per week. 3.29 is the OES Factor for a Diary market. See below for guidance in a PPM markete.

The other Optimum Effective Schedule factor to use is .46 of the Radio station’s CUME Audience or in this case 20,700 people.

Using the Optimum Effective Schedule of nineteen commercials during the week, history shows that approximately 46% of the Radio station’s CUME Audience, 20,700 people will hear the advertiser’s commercial at least three or more times. Not an average of three times, that means some heard it only once while others heard it many times, but a minimum of three exposures to the commercial. That is a monumental difference when it comes to the effectiveness of advertising.

Any more than nineteen commercials would see a diminishing return on audience reach and frequency. Any less than nineteen commercials would leave many customers on the table for the competition.

So what should the OES factor be now that radio is measured by PPM in the largest markets?

According to Al Tupek Chief Statistical Officer at Aribitron, if the diary-based OES factor of 3.29 gives you effective schedules using diary ratings, then you can adjust the OES factor by taking into consideration the higher turnover in PPM.

If a schedule was optimum in a diary world, then that same schedule should be effective in a PPM world.  Since the diary turnover for a station is, on average, 40% (1/2 x .8) of the PPM turnover, the OES factor for PPM is 1.32 (40% of 3.29).  This represents the multiplier for PPM Turnover that results in the same spot load as for 3.29 x diary-based Turnover (the ‘effectiveness’ of the spots does not change just because we utilize a different collection vehicle).

The PPM OES factor of 1.32 assumes the Katz analysis of reach curves in the 1980s and the empirical results, including the NAB/Coleman Research Study, identified the point at which a schedule is optimum for an advertiser.

When Arbitron examined the point at which half of the total reach of the schedule will be reached 3 or more times, then the PPM OES factor is approximately 2.4.  According to Marx & Bouvard (1993), p. 59, “the OES is located roughly at the point where the Effective Reach is half the Total Reach.  So there is some disparity with this goal for OES and the straight conversion to PPM based on turnover.

One way to rationalize the two different OES Factors this is to consider the PPM OES factor of 1.32 as the point at which the return rate is optimal.  Using 2.4 instead may continue to increase the net return.

Optimum Effective Scheduling has been around for years. It is a well proven, highly effective way to buy advertising. It customizes the schedule for each Radio station involved. And most importantly, it takes advantage of the way people listen to the Radio, on the emotional level.

Spike SanteeA Better Way to Buy Radio Advertising

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