July 2008 - Channel Crossing: Radio

Radio’s ROI Edge Over TV

By Larry Gorick

What if you could squeeze more ROI from your marketing budget? You might want to at least add radio to your media mix, especially after you read what follows.

The Radio Advertising Bureau (RAB) released the results of a major study from its highly regarded Radio Ad Effectiveness Lab (RAEL) series. This was RAB’s largest study to date in which it addressed the core issue in advertising-ROI. In this study, radio’s ROI was compared to that of TV. The results showed radio’s ROI was approximately 17 percent higher than TV’s historical average. The results were based on indexing profit per ad dollar. Millward Brown and Information Resources Inc. conducted this massive project. The complete ROI study is available at www.radioadlab.org.

This “real world” study involved four national advertisers (grocery food, grocer non-food and two over-the-counter drug products-names masked at the request of the advertiser). The 24-week study was conducted in four strategically selected markets. It examined scanned product sales against four criteria: 1) no TV and no radio; 2) radio only; 3) TV only; and 4) both radio and TV.

Results of the study showed radio performed well for each product advertised. More important, radio delivered an ROI 49 percent better than TV. Based on TV’s historic performance for these same four advertisers, radio’s ROI was still an impressive 17 percent higher. The results were independently verified by the advertiser’s own historical ROI for TV. A major key summary observation: incremental radio campaigns showed a significantly better ROI for those advertisers than did their national television campaigns.

What’s more, the outcome of the test may have demonstrated an even stronger ROI advantage for radio. All of the television creative in the test had received favorable testing, while none of the radio ads were pre-tested.
So why did radio perform so well?

The campaigns for radio were strategic and well targeted demographically. The radio schedules were placed with sufficient reach and frequency to effectively produce a measured outcome. Another significant factor was cost. Radio media and production costs were less than TV.

Radio is personal and relevant. The RAEL Personal Relevance 2 study found consumers perceived radio ads as more personally relevant. In short, listeners believe that “their station” carries “their ads.” By contrast, they view TV and newspapers to be “mass” media rather than personal. Radio creates an environment in which loyal listeners expect the ads to be more interesting to them and that’s a very powerful environment for advertising.

Ad receptivity is even stronger among heavier radio listeners. Heavier radio users tend to be lighter TV viewers. Tapping into the heavier radio users opens a significant incremental consumer stream for TV-only marketers.

Another ROI edge is there are simply more DR purchases among radio listeners than TV viewers. According to ERA’s May 2006 Electronic Retailing Buyer Study, which was conducted by Ellison Research, the average number of annual DR purchases is 3.1 for radio, 1.4 for long-form TV and 1.6 for short-form TV.

In terms of the higher average ticket, the average DR radio purchase tends to be a bit higher than for TV. The average DR purchase for radio was $139, while TV was $132. This is based on an average of the ‘05 and ‘06 ERA/Ellison study.

So what’s the take home? Simply put, when used properly, radio can yield a better ROI than TV. And when used in conjunction with TV, a campaign can produce an even more favorable ROI.

Here are some of the leading characteristics of products that work best for DR radio:

  • Products that have higher price points ($100+) or are associated with a strong continuity component;

  • Features and benefits resonate with the consumer;

  • Services that provide a solution to a personal problem; and

  • Are perceived to measurably enhance one’s quality of life.

Lead-generation campaigns also work exceptionally well on radio. However, there’s a caveat: Generally, TV will yield a better ROI for products with a very low unit cost ($19.95+S&H).

The message is the conduit into the consumer’s mind. The radio commercial needs to be relevant to its audience. Radio is unique with its connection to the emotions of its listeners. It is the major reason this medium provides an environment for advertising that’s more accepting of the ads. Effective DR radio ads must have a powerful headline, relevant features/benefits and a compelling CTA. However, they need to be crafted with the intended audience in mind. It is rare that one DR radio commercial will work equally well in all formats. A significant reason why personality or host-endorsed ads are so effective is the personality understands his or her listeners and how to effectively communicate with them.

The medium has proven itself. Radio moves product. Its advertising value is no longer just speculation. But actual ad effectiveness depends on the advertising community applying sound principles in planning, creating, testing and buying radio advertising. When do we begin?

Larry Gorick is an account manager for Salem Radio Network based in Irving, Texas, and serves on ERA’s Radio Council. He can be reached at (919) 850-0831, or via e-mail at [email protected].


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