Marketing midterm

Chapter 9

Using Radio

Chapter Objectives

After reading this chapter you will understand:

1. The role of radio as a selective medium

1. Radio’s strength as a secondary medium

1. Radio’s ability to reach audiences at a low cost

1. Attempts to overcome radio’s lack of a visual dimension

1. Different roles of AM and FM radio

1. The rating systems used in radio

Chapter Overview

With a host of formats and numerous stations, even in the smallest towns, radio provides advertisers with options to reach very narrowly defined niche prospects. Radio is also among the most popular media with high levels of listenership throughout the day. Radio offers the opportunity for advertisers to reach some audiences, such as teenagers, working women, and light television viewers that are sometimes hard to reach with other media.

Lecture Outline

1. Introduction

A. The pros of using radio include:

1) Radio is a primary medium for targeting narrow audience segments, many of whom are not heavy users of other media.

2) Radio is a mobile medium going with listeners into the marketplace and giving advertisers proximity to the sale.

3) Radio, with its relatively low production costs and immediacy, can react quickly to changing market conditions.

4) Radio has a personal relationship with its audience unmatched by other media. This affinity with listeners carries over to the credibility it offers many of the products advertised on radio.

5) Radio, with its low cost and targeted formats, is an excellent supplemental medium for secondary building blocks to increase reach and frequency to specific target markets.

B. The cons of using radio include:

1) Without a visual component, radio often lacks the impact of other media. Also, many listeners use radio as “background” rather than paying full attention.

2) The small audiences of most radio stations require numerous buys to achieve acceptable reach and frequency.

3) Adequate audience research is not always available, especially among many small market stations.

C. From 1926 to the mid-1950s radio was the most prestigious of the national media. Several factors, however, led to a decline in popularity with advertisers.

1) After the advent of coast-to-coast television broadcasts and the advent of instant hits such as I Love Lucy and The $64,000 Question in the early 1950s, radio’s popularity as a national medium quickly declined.

D. Despite it minor position on the national scene, its appeal as a “local” medium grew, generating impressive reach and producing over $18 billion in revenues.

1) Radio demonstrates impressive reach.

2) 94 percent of adults and 93 percent of teenagers are reached by radio.

3) Radio’s targeted program formats create intimate, one-to-one relationships with prospects.

4) Radio offers creative effects at lower production costs than any other media.

*****NOTES: Use Exhibit 9.1 Here*****

2. The Contemporary Radio Industry

A. Radio is having to adapt to a new competitive environment and different economic structure.

1) Only a few years ago the FCC limited the ownership of FM and AM stations.

2) The rules changed in 1996 with the Telecommunications Act of 1996, allowing corporations or individuals to control as much as 35 percent of the national market.

3) The radio industry changed from one of numerous small groups to one of a few huge conglomerates.

1. Some conglomerates have as many as 1,200 stations.

1. Some radio stations are owned by large media companies, which also own television stations and newspapers.

4) Radio more efficiently reaches niche markets.

B. Radio and new technology.

1) Some observers think that the radio platform of the next decade will be as an Internet business, with computers and satellites rather than the radio dial.

1. Web sites have become the new business model for radio, and Internet radio listening is beginning to grow.

1. HD Radio and satellite radio also pose challenges for traditional broadcast radio.

4) Though predicting the future for radio will be difficult, trends include:

a. The size of the audience listening to radio stations over the Internet is growing rapidly; 40 percent in June 2005 said they had listened. More listeners to Internet radio are becoming habitual listeners.

1. Over 20 percent of Americans age 12 and older said they listened to radio stations online in the past month.

2. About 6 percent said they listened to radio stations over the Internet in the past week.

0. Young audiences are more likely to prefer to listen to the radio via the Internet.

*****NOTES: Use Exhibit 9.2 Here*****

3. Features and Advantages of Radio

A. Radio is an ideal medium for the segmented marketing of the twenty-first century.

1) In many respects, radio was the forerunner of localized marketing.

2) Radio can use words, voice, music, and effects to establish a one-to-one connection with prospects that uniquely grab their attention.

3) Radio uses the most powerful form of communication—the human voice.

4) Radio can generate an emotional response.

5) Production costs are a fraction of that of other broadcast media.

B. According to the Radio Marketing Bureau, radio has the following unique advantages:

1. Radio targets. Its great strength is its advertising ability to reach selective audiences.

( *****NOTES: Use Exhibit 9.3 Here***** )

2) Radio reaches a majority of the population several hours per day.

*****NOTES: Use Exhibits 9.4 Here*****

3) Radio advertising influences consumers closest to the time of purchase. No other medium is present like radio just prior to prospects making purchase decisions.

4) Radio reaches light users of other media. Radio fills in the gaps in newspaper and magazine coverage of prime audiences.

5) Radio works well with other media. Radio increases frequency and reach by reaching non-users or light users of other media.

1. Much of radio listening takes place on an out-of-home basis.

( *****NOTES: Use Exhibit 9.5 Here***** )

7) Radio delivers consistent listening patterns. Unlike other media, radio does not experience seasonal audience drop-off.

8) Radio delivers its messages at a very low CPM level.

9) Radio provides advertisers with both immediacy and flexibility. Radio can react quickly to changing market conditions.

C. The simplicity of radio can be a major advantage in making tactical marketing decisions.

1) Even the smallest marketers can afford radio’s cost.

( *****NOTES: Use Chapter Objective #3 Here***** )

4. Limitations and Challenges of Radio

A. Four of the major problems facing advertisers who use radio are:

1) The sheer number of stations creates a very fragmented environment, especially for those advertisers needing to reach a general audience.

2) Clutter.

1. The medium’s lack of a visual element.

4) Increased use of MP3 players and digital radio.

B. Audience fragmentation.

1) The great strength of reaching a narrowly defined audience can also be a weakness when considered as over-fragmentation.

a. It is often difficult to reach a brand’s core prospects.

b. For those products with broad appeal, audience fragmentation has made it difficult to gain effective reach and frequency without buying several radio stations or networks.

c. Radio remains about the most effective means for advertisers to target their market.

d. Reach is facilitated by the great number of radio stations, numbering 10,600 in 2005.

*****NOTES: Use Exhibit 9.6 Here*****

C. Clutter.

1) Clutter is a major concern of advertisers.

2) The great number of commercials makes it less likely that listeners will recall any particular advertising message.

3) The number of radio commercials is significantly greater than television commercials.

a. With deregulation, the amount of time devoted to commercials has steadily increased.

1. Some stations run over 30 percent advertising during prime periods.

1. Increased clutter seems to impact young audiences the most.

D. Lack of a visual element.

1) A fundamental problem for advertisers when considering radio is its lack of a visual component.

a. Lack of visualization works against brand recognition.

b. With self-service retailing and competitive brand promotions, package identification is crucial.

2) Radio uses creative techniques to substitute the ear for the eye.

a. Radio creates a mental picture for the listener with sound effects, jingles, short and choppy copy, and vivid descriptions.

b. In recent years, radio has transferred television commercials to its own medium, allowing listeners to form their own advertising images by recall of previously viewed TV commercials.

E. Increased use of MP3 players

1. 85 percent of 12- to 24-year-olds would choose their MP3 player over broadcast radio as their preferred music source.

5. Technical Aspects of Radio

A. The signal.

1) The signal in radio is comprised of the electrical impulses that are broadcast.

2) A “good” signal means that a certain station can be heard clearly within its given territory.

B. Frequency.

1) Frequency (used as a technical term) means the number of radio waves that pass a given point in a given period of time.

2) The frequencies for AM are measured in kilohertz and FM frequencies are measured in megahertz.

C. Amplitude.

0. Describes the height of the electromagnetic waves, whose range resembles the difference between an ocean wave and a ripple in a pond.

0. Speed is measured by the frequency with which a succession of waves passes a given point per minute.

0. Two separate systems carry radio waves, based on amplitude and frequency.

1. Amplitude modulation (AM). Variations in sound waves by variation in its amplitude (constant frequency).

1. Frequency modulation (FM). Variations in sound wave by variations in its frequency, with amplitude constant.

1. The AM signal is generally inferior, but can carry farther than FM.

1. FM signal distances are limited, but tonal quality is very fine.

1. Reception quality is determined by atmospheric conditions and station power.

*****NOTES: Use Exhibit 9.7a & b Here*****

6. Selling Radio Commercial Time

A. Radio advertising dollars are concentrated at the local level.

1) Local dollars are still greater than network or spot advertising levels, in spite of the growth of the latter.

2) Buying radio time is difficult because of the number of station options and formats.

1. There are over 850 stations in Texas alone.

1. There are dozens of distinct formats, including over 700 Latin/Hispanic format stations.

3) Recent consolidations of ownership will probably change radio rate structure and the way time is bought.

a. The media buyer will have to deal with less stations and independent rep companies to make a buy.

4) Competition is still fierce for the local advertiser’s dollar.

0. Radio has to compete with other selective media such as newspapers, the Yellow Pages, and direct response.

0. Radio is competing with newer media such as the Internet and both broadcast and cable television, which see local advertising as major profit centers.

B. Network radio.

1) Network radio began its decline in 1948 with the introduction of television.

1. Average ratings for previously popular comedy shows, soap operas, and westerns dropped to less than 6 percent, with the last major dramas Suspense and Have Gun Will Travel ending in 1962.

3) The next decade saw programming change from an entertainment format to one of news and occasional short features.

4) Although network radio is still a minor source of advertising dollars, it has remained stable at $814 million of the $19.6 billion spent annually in radio.

5) Radio networks are basically program providers and a single radio station may belong to several networks at the same time. As a result, the networks depend on local ratings to garner national advertising support.

6) Radio networks, like ABC, provide a number of targeted networks and provide individual programs and news breaks that are broadcast throughout the day.

7) Radio networks do offer some of the same advantages as television networks.

1. As with television, an advertiser can arrange for one insertion (commercial) for multiple stations and pay just one invoice.

1. Radio networks provide economical reach.

1. Radio networks target special audience segments who often are light users of other media.

8) Radio has benefited from the use of satellite technology. Consider the following when matched with satellite links:

a. Stations are guaranteed quality programming based on the latest audience research for a particular format.

b. Radio networks bring celebrities to the medium that local stations could not afford.

c. Even the smallest stations can obtain national advertising dollars as part of a network.

d. The cost efficiencies of sharing programming with several hundred other affiliates keep both personnel and programming costs to a minimum.

C. Spot radio.

1) Like television, spot radio is local time bought by national advertisers, amounting to $3.5 billion per year.

1. Used to build added reach and frequency to selected target markets.

1. The opportunity exists for advertisers to act quickly in response to competitive challenges and hit narrowly segmented markets with little waste circulation

( *****NOTES: Use Exhibit 9.8 Here***** )

1. Spot radio serves several important functions.

1. Provides added weight in selected regions or individual markets.

1. Popular with national companies with extensive retail outlets.

1. Provides flexibility and low cost to national advertisers.

1. Purchases are made through reps just like TV.

1. The best reps serve as marketing consultants for client stations.

1. The effect of consolidation on selling relationships is yet undetermined; reorganization has become the rule.

D. AM versus FM as an advertising medium.

1. FM dominates the overall listening audience and is the clear leader in most formats.

1. AM stations tend to reach an older audience with talk, news, and specialty formats such as gospel and nostalgia.

1. Growth of FM radio audiences and advertising revenues during the last 30 years is one of the most important trends in the industry.

1. FM programming for 30 years was confined to non-commercial and classical stations with little advertising.

4) In 1975, FM independent stations lost almost $10 million combined. Just 3 years later, these same stations had profits of slightly less than $25 million. This economic turnaround in FM radio was due to the following elements:

a. In 1972, the FCC ruled that owner of both AM and FM stations in the same market had to program different formats. This ruling opened the way for FM as a separate medium.

b. There is better sound quality with FM.

1. As the medium became more popular, the cost of FM sets declined.

1. Radio audiences turned to FM for the most popular music formats.

5) The emergence of talk radio is the only thing that may have saved AM radio from economic disaster in the past 20 years.

1. HD Radio may make it possible for AM stations to see a resurgence in listenership with its promise of high-quality sound.

E. Types of programming.

1) Radio is a medium constantly searching for targeted audiences.

2) The dominant format is music.

a. Radio audiences are very loyal to a station because of the type of music, sports, or information broadcast.

3) The most popular is the “country” format with nearly 2,000 stations.

a. The popularity had its origin in rural and small market areas.

1. To advertisers, the quality of the audience is more important than size.

5) It is extremely difficult for more than one or two stations with the same format to be successful in the same market.

a. Second and third tier stations, therefore, are constantly searching for niche formats.

6) Radio is considered a quasi-mass medium because there are only a limited number of listeners at any given time; low ratings of 1 to 3 are common.

a. Although television would consider a 1 or 2 percent increase hardly worth noting, that percent for radio might make a major difference.

7. Radio Rating Services

A. For rating measurement purposes, the lack of specific programming on most radio stations makes respondent recall much more difficult than for television.

1) Further complicating rating measurement is the fact that listening diaries or telephone surveys are impractical for radio because radio audiences frequently listen out-of-home.

B. The major source of radio ratings is Arbitron Inc., which provides audience data through its Arbitron Radio division.

1) Arbitron measures radio audiences in over 280 local markets.

a. The listener diary method is used.

b. A chosen person must be over 12-years-old and be willing to report listening habits for a 7-day period. Ratings last for a 12-week period in a specific market.

c. Arbitron collects data from more than 2.6 million diaries each year.

2) In 1998, Arbitron also began to collect the Webcast audience, measuring broadcast station Web sites.

a. One in five U.S. consumers age 12 and above have tuned to an Internet broadcast of an AM/FM station they listen to.

C. Because of the local nature of radio, station ratings are much more critical to most advertisers than those for networks.

D. The primary source of radio national network ratings is done by Radio’s All- Dimension Audience Research (RADAR), also a service of Arbitron.

1) Collected through 7-day listening diaries kept by consumers.

2) Arbitron has developed a Portable People Meter (PPM).

a. The device is worn by survey participants throughout the day and listening data is automatically sent to Arbitron for analysis.

E. The overriding problem with researching ratings is the cost.

a. The overall advertising investment does not support a research expenditure comparable to television.

8. Buying Radio

A. Radio demonstrates a number of characteristics as an advertising medium.

1) Advertising inventory is perishable, and when a spot goes unsold, revenue is permanently lost.

2) Radio is normally used as a supplement to other media. Therefore, coordination with the total advertising plan is crucial for most radio sales.

3) Every radio buy is unique. Most radio is sold in packages tailored to the advertiser.

4) A fixed rate card rarely exists. Pricing is largely based on negotiation.

B. Elements to examine prior to an advertising execution include:

1) Review product characteristics and benefits and decide whether these benefits can be effectively communicated through radio.

2) Who is the target market and can they be reached effectively with radio and, if so, what formats, what dayparts?

3) Who is our competition? How are they using radio and other media? Will radio provide a unique differentiation for our product or will we be up against strong competing messages?

4) What is our basic advertising and marketing strategy and can it be effectively carried out with radio?

C. The starting point in all advertising is the clear identification of our audience, or target market.

1) This is followed closely by comparing cost alternatives for radio outlets (CPM), in terms of how well a specific station will meet our advertising objectives.

D. Because radio is often a secondary medium, we must consider how well it complements other more primary media on our advertising schedule.

1) And consider what proportion of the advertising budget should be devoted to radio.

1. Once radio’s role is determined, the task begins of selecting the best station(s) to reach our target market in an environment best matching our products image.

F. The final, difficult step is to schedule spots.

1) Deciding the length of the spots, the selection of specific dayparts, the combination of time periods, and the use of sponsorships or events.

G. Because the planning process is difficult, radio sales personnel are often used to guide efforts and to build credibility. Obviously, there are pluses and minuses to this approach.

1) The ultimate key to successful selling is identifying with the problems of the clients.

H. In 2003 an electronic invoicing (and commercial verification) system, called RadioExchange was introduced to improve the speed and accuracy of spot radio buys.

9. Using Radio Ratings

A. Radio calculates ratings and shares in the same manner as TV (see previous chapter). The audiences and programming of radio, however, are unique and mandate that ratings be used in a way much different from the way ratings are used in TV.

B. Primary differences in ratings usage in radio versus TV include:

1) Radio advertisers are interested in broad formats rather than programs or more narrowly defined TV scatter plans.

2) Radio ratings tend to measure audience accumulation over relatively long periods of time or several dayparts instead of individual programs.

3) The audiences for individual radio stations are much smaller than TV, making radio ratings less reliable.

4) Because most radio stations reach only a small segment of the market at a given time, there is a need for much higher levels of advertising frequency in order to increase reach compared to other media. Therefore, it is extremely difficult to track accurate ratings information for national radio plans that include a large number of stations.

C. Geographical patterns of radio ratings (two different geographic boundaries) to report audiences.

1) Metro survey area (MSA) includes a city or cities whose population is specified as that of the central city together with the county or counties in which it is located.

2) Total survey area (TSA) is a geographic area that encompasses the MSA and certain counties located outside the MSA, but meets certain listening criteria.

D. Definitions of the radio audience.

1) Advertisers must understand the differences in the way audience figures are considered between radio and television.

2) Radio audiences are measured in either Average Quarter Hour AQH audiences or the cumulative or unduplicated audience (Cume) listening to a station over several quarter hours or dayparts.

E. Average quarter-hour estimates (AQHE).

1) Average quarter-hour persons. The AQH persons are the estimated number of people listening to a station for at least 5 minutes during a 15-minute period.

2) Average quarter-hour rating. Here we calculate the AQH persons as a percentage of the population being measured.

(AQH persons/population) x 100 = AQH rating

3) Average quarter-hour share. Determines what portion of the average radio audience is listening to our station.

(AQH persons to a station/AQH persons to all stations) x 100 = AQH Share

F. Cume estimates . Cume estimates are used to determine the number or percentages of different people who listen to a station during several quarter-hours or dayparts.

1) Cume persons. The number of different people who tuned to a radio station for at least 5 minutes.

2) Cume rating. The percentage of different people listening to a station during several quarter-hours or dayparts.

(Cume persons/population) x 100 = Cume rating

Example: a typical station’s audience.

Station XYYY – Friday 10 a.m.–3 p.m. Adults 12+

AQH persons = 20,000

Cume persons = 60,000

Metro survey area population = 500,000

Metro survey area AQH persons = 200,000

AQH rating = (20,000/500,000) x 100 = 4

Cume rating = (60,000/500,000) x 100 = 12

MSA AQH share = (20,000/200,000) x 100 = 10

Using the above example, the following can also be calculated:

1. Gross impressions (GI) = AQH persons x number of commercials

a. Six (6) commercials on XYYY would have purchased 120,000

impressions (20,000 AQH persons x 6 spots)

2. Gross rating points (GRP) = AQH rating x number of commercials

a. Six (6) commercials would deliver 24 GPRs (4 AQH rating x 6 spots)

NOTE: The media planner must be able to manipulate the various radio data to

develop a plan most suited to a particular client. The same budget and number of

spots used in different dayparts and across multiple stations can deliver vastly

different levels of cumes, reach, frequency, and demographics.