The Fundamentals of Direct Response Radio Advertising

Direct response radio advertising, at its core, works in the same way regardless of what type of business you are in. Whether you own a direct-to-consumer model business, a retail business, a web business, or some combination thereof, direct response radio advertising can help you grow. And grow profitably. The fundamentals of direct response radio, then, must start with a discussion of how radio advertising works within the context of a basic business model. The purpose of this article is to convey the fundamentals of direct response radio advertising that apply across businesses.

First, Two Important Concepts

Throw out all you think you know about advertising, radio advertising, and especially direct response advertising. It’s best to begin with a clean slate, a blank whiteboard so-to-speak. There are two important concepts I want to introduce before moving forward.

Concept One: Radio as A Highway From Your Business to Your Potential Customers

Think of radio advertising as a 5,000 lane highway from your business to groups (station audiences) of your potential customers. The many lanes on this highway are the many different radio stations and radio networks that are available for you air your radio advertisement. It is on these “lanes” that you send your message to your customers.

The lanes are clustered in such a way that they reach groups collections of customers who have similar tastes and demographic profiles. Therefore, some of these lanes lead to groups that have a high concentration of people who match your target customer profile. As a result, advertising on those lanes (stations) is more profitable than others with a lower concentration of your target customer profile. These groupings are the radio formats, which are used in radio advertising to enhance the efficiency of, or return on, advertising efforts. For more about radio formats, see our summary at http://www.strategicmediainc.com/radio-advertising.php.

Concept Two: Radio Advertising is a Profit-Driver, Not a Cost Center

At this juncture, the one thing many business people can’t seem to put out of their mind is the one of “how much does it cost” to advertise on radio. We’ve written extensively about this question because it is one of the most common that we get. The problem is that embedded in this question is the presupposition that radio advertising is a cost. The concept that one needs to fully grasp is that radio advertising is not a cost center. That is, it does not stand alone without any relation to revenue or profit. It is detrimental to think of direct response radio advertising as a cost because that leads to managing as though it’s a cost, which means minimizing or eliminating it. Contrast this with managing it like it’s an investment, and maximizing the return you realize on it.

Direct response radio advertising – by its very definition – is a profit-driver. If it’s not driving a profit, it would not exist – or at the very least it would not be called direct response radio advertising but instead “brand” or “awareness” advertising. Profitability is a fundamental aspect of direct response radio advertising.

On To the Fundamentals

Now that we’ve cleared our minds and allowed for two basic concepts about how to think about radio advertising, let’s move on to the meat of the fundamentals of direct response radio advertising.

The Basic Formula

We’ll begin with the basic formula involved in all direct response advertising:

You buy placement in radio media to air your radio ad, which gets your message broadcast to a certain number of people. This results in a cost per person reached with your message. In advertising this is known as CPM, or cost per thousand impressions of your ad.
Some percentage of those people will respond (call, visit your web site, visit your store), giving you a response rate.
Of those who respond (otherwise known as leads), a percentage will be converted into customers (orders), and by that conversion rate generate profit and revenue.
From this formula, you will derive your media “CPO”, or “cost per order”, which is found by dividing media spend by the number of orders achieved with that spend (media spend in the numerator/number of orders in the denominator). This is the amount it costs you in radio advertising to acquire one new customer, which is why it is also called “cost per acquisition” (“CPA”).

The important question at this point is this: Is the lifetime value (“LTV”) of each of your customers, on average, greater than this CPO? This fundamental question applies whether your business is a direct response advertising business (which includes radio advertising, print advertising, DRTV, catalog, or internet) or a traditional retailer. Every business pays to acquire a customer, and every business has a certain propensity to retain that customer over a period of time in a relationship consisting of subsequent purchases and therefore profit streams. Regardless of whether your business uses direct response radio to acquire new customers, or it uses one of the other approaches to customer acquisition, your success will be fundamentally based on whether your business model facilitates a strongly positive lifetime value. If it does not, there is little that radio advertising, or any other form of advertising, can do to change this.

If your LTV is not greater that your CPO, your business isn’t profitable and you’ll want to stop advertising so you can make the changes to both the advertising and the business model that will result in profitability. Even if LTV is greater than CPO, you will want to increase that amount to maximize your profitability. To do this, you’ll need to increase LTV and/or decrease CPO. This process is called business (or campaign) profitability optimization, and it is absolutely essential to the long term success of any direct responses radio advertising effort.

Improving Lifetime Value

There are a number of ways to increase the LTV of each customer. Let’s look at three of the main ways:

1. Increase price without increasing cost. One way to do this is by increasing the percentage of orders that include high-margin upsells. Retailers do this all the time. They put super high margin items right at the checkout. Direct response advertisers can learn a lot from this. Identify widely appealing, complementary items and ensure they are offered as part of the sales process.

2. Increase repeat purchase. You have paid to acquire that customer, now develop a relationship and continue to meet their needs to drive repeat purchase. If they only buy once from you, you don’t have a very viable business unless that first purchase is incredibly high margin.

3. Reduce your cost structure. Take advantage of your increased volume to negotiate better product costs, shipping costs, etc.

Improving Cost Per Order

Just as there are a number of ways to increase LTV, there are also many ways to decrease the CPO.

1. Reduce the media cost per person reached. Also known as CPM, this is a standard metric used in advertising. It reflects the cost to reach 1000 people. (remember that CPM stands for “cost per thousand” impressions of your message). This is a constant focus of any good direct response radio agency, and the element in direct response radio advertising that has received the most attention. This is why every dollar of media in direct response radio is remnant advertising. But that’s not all that should be considered when looking to reduce CPM. Leveraging database technology and using scientific testing methodology, it is possible to identify the optimum schedule to use in placing the media. Thus optimizing the media schedule can meaningfully reduce CPM.

2. Increase response rate. Again, media scheduling will play a role here. In addition, use of radio formats to effectively target the right customers is vital to optimizing response rate. But perhaps the greatest impact on response rate in direct response radio advertising is the messaging in the radio ad itself. Great direct response radio ads significantly enhance the responsiveness of the media dollars spent. Your radio agency’s ability to create radio ads that elicit response from your potential customers is a crucial element in direct response radio advertising success.

3. Increase conversion rates. Increasing the percentage of inquiries that become customers can have an enormous impact on campaign profitability. The factors that will most impact conversion rate are your sales scripting, web copy, product offers, pricing, and your guarantee or return policy. As much as any other variable, these factors need to be tested and continuously refined.

Implications and Conclusions

Now that you understand the fundamentals of direct response radio advertising, let’s look at the implications and conclusions that these fundamentals illuminate:

1. The role of database technology and analysis

By now it is clear that optimizing both lifetime value and cost per order maximizes your business profitability. But doing these things also requires capturing and analyzing an enormous quantity of data. To do this in a way that allows for distilling insights requires a robust database specifically tuned for direct response radio, along with well-refined analysis approaches. Fortunately, database technology and robust analysis are a part of the services your radio agency will provide for you.

2. The importance of ongoing testing

Any discussion of the fundamentals of direct response radio advertising (or any type of direct response advertising) would be incomplete without addressing the topic of testing. When you look at the above approaches to maximizing campaign profitability, you see the key metrics that must be impacted. But how do you actually impact them? How do you know whether offer A is better than offer B? or C? How do you know whether copy D drives a better response rate than the control? How do you know whether the sales scripting or the pricing structure could be improved by certain changes? The only way to know these things is to test. As a result, testing is a never-ending element in direct response radio advertising efforts. If you are not testing, you are slowly going out of business.

3. Success in direct response radio advertising is about more than costs

As we’ve mentioned, one of the biggest questions we get is “how much does it cost to advertise on the radio?”. Done correctly, direct response radio advertising is not a cost center, it’s a profit center. It’s a very efficient way to acquire new customers at a low CPO. To learn more on the topic of radio advertising costs and how to budget for radio advertising, see our article at http://www.strategicmediainc.com/radio-advertising-articles/.

4. Nearly any business can grow profitably with direct response radio advertising

It is difficult for me to think of businesses that cannot benefit from the kind of radio advertising that we are involved in. Direct response radio advertising is different from other forms of advertising because it is accountable for results, and the only way it can be accountable is to leverage a set of technological and human systems and processes to accurately capture, analyze and interpret results of the advertising. Once you have that in place, you have established a continuous improvement loop. Therefore, provided you have a profitable business model and a good product that delivers on a unique and relevant promise, your business can profitably acquire new customers with direct response radio advertising. That’s the ultimate promise of direct response radio: the ability to grow your business profitably at the rate you want to grow it. Once you establish profitability, you need only increase your media spend to drive higher revenues and profits.

The Fundamentals in Perspective

Direct response radio advertising does not stand alone in creating a business. It works in combination with your business model to acquire new customers at a low, and therefore profitable, CPO. What makes direct response radio advertising so attractive is its efficiency and flexibility, which results in comparatively low CPO’s relative to other mediums.

This article explains the fundamental elements involved in how nearly any business can use direct response radio advertising to acquire new customers and grow both profitably and rapidly. Once you understand the fundamentals of radio advertising, you’re ready to embark on the process of building a direct response radio advertising campaign. That process involves developing a radio advertising strategy, creating radio ads that drive response, and implementing a radio media plan that delivers your message to the right people for the right cost.

Interactive Advertisement

Striving to persuade others to impact on their behavior and the way of thinking is shown one of the essential needs of human being to his social living improvement .The ways of encouraging and convincing the audience, as it comes later, has had a great influence on human beings’ minds throughout the history.
The tablets found by the archeologists among the ruins of Babel, tell us about the primitive advertisements. This tablets which is belong to 3,000 B.C are about a kind of ointment and also a compliment about a person who has been skillful in sewing shoes.( MirHosseini 2004) But regulated persuasive refers to some centuries before Christian Era, when it was common among the people called sophisticated. The World War 2 ended to more comprehensive and scientific studies. Along with vast spreading of the mass media, such as newspapers, radio and television, advertising became more significant. We cannot deny advertisements` effects on our decisions and on our every day lives.

From the advertisements point of view, it is a new version to exhibit a good or service, with emphasis on specialized debate which is presented by beneficiary individuals or groups. The aim of writing this article is to answer this essential question; how advertising without its economical essence would be represented in cyber space. It is possible to put vivid distinction between the persuasive ways in internet with other media, and if the answer is yes which benefits is provided for cyber users in this distinction, owing to the fact that we live in an interactive world in which the relation between the advertisers and the customers has completely changed. I’m trying to analyze these changes with emphasis on active audience of this universal media and with stress on the role of advertisements in this space; I want to set these effective parts to find a clear view of future.

Essence of advertisement
In the terms of Tankard and Severin there is an obvious distinction between persuasion and advertisement. They refer to Roger Brown who gives a definition about nature of advertisement. Advertisements are those kinds of persuasive attempt which are made only for sender interests; and even may run to loss of the receiver. (Tankard and Severin ,1992, p299) Lasswell in 1937 defined advertisement as an affective technique in human acts, which works with manipulating audible, discoursing and drawing signs. (Tankard and Severin ,1992, p148).
Opposing to some theorists who believe advertisement contains any kind of commercial content and matter which companies utilize it for giving more information to consumer. What we focus on it is the scientific way of persuasion each commercial aim is one of its aspects. We can say, consequently, that advertising is a regular process to produce reasonable information about specific subject which is used to make an intensive effect on audiences minds’ and acts’.

Traditional methods of advertisements had been constructed on the basis of imagery. The effectiveness of advertising was limited by this very need to reach and influence the widest possible audience. The manipulation of images was necessary because advertisements should have attractiveness for the passive accumulated viewers. As much as the advertisements became more global, it was more needed (of new methods of audience attraction) to utilize modern of new methods. But the methods of satisfying and exciting viewers which had been forecasting single and lawful results in the mass audience up to this time, abolished by entrance of virtual space .For internet was an interaction and informative base media; so users traverse an active stage, to find their desired websites. Because they want to reach definite information about a company, a service or a product. Any irrelevant images or tampered information would dissuade them from continuing their way.

Apart from professional design of a website, its agents should be interacting with their costumers. They should know the costumers’ needs and should answer them in a good manner and the most important thing is assembling the information which the costumers are in search of them. In view of the fact that they would lose their audience easily with decreasing or increasing the information .A propaganda would be effective when it could use all the facilities of cyber space to be able to assemble attractiveness, giving awareness, interaction experience. Levinson considers a website as an island which the advertisement is a bridge to reach it. He believes the aim of convincing people to buy or use the products cannot persist no longer; in case that in internet we are leading the viewer to watch the advertisement an our website.(Levinson 2004)

Osgoodby believes that advertisement in cyber space is like a party , until you didn’t invite others into it, nobody would come to see you. More over information you are demanded by your guests, would mean that they are more fond of your party .He also believes that advertisement methods in internet are the most attractive methods from the audience point of view.(Osgoodby, 2005) We should consider how and in which language the message is being packaged .In the other words , “we should be careful in using words because using incalculable of language can reveal advertisement in a treachery way”. (Mehdizade, 2001, pp 65-66)

Traditional advertisements have been inclined their affair to the creation of reading sense in the vast spectrum of the audience like the television extensive advertisement. But in virtual space you can base your activities on analysis of individual needs and definite needs of its viewers for reaching the product. As it was said before, in virtual space, the user is not a mass audience in front of a charming media that some global reliable websites would prohibit from more professional advertisement methods and have vast spectrum of global audience ,but if we believe in an audience as an analyst and critic individuals we should accept that he would use other opportunities which have then not always but sometimes he won’t be captured easily by direct advertisements. Of course, we should bear in mind that audience would enter to this space sometimes for fun. This audience would face to the advertisement messages with less critic view and his searching in virtual space is more for fun and satisfying his inquisitiveness. He would guide easily from one page to another page and he has no aim for this circulation. As a result he would be objected of these messages and he would be impressed by them. In a research which I have done to study the advertisements and the utilized technique in these advertisements, I have reached to an obvious image of such advertisements. The advertisement websites, which I have named them popular, had been used the least methods of scientific documentary evidence or intellectual well reasoned to code their convincing messages. In my opinion if we factorize from special form of such websites which would recognize from these contents, we would see that summarizing and more benefiting from images are inseparable from advertisements. The reason of this subject is in the hyperlink feature of virtual space. Whatever the message sender needs is to attract the attention of receiver. The audience should push the bottom of mouse on this message among other different subjects and then the message communicator would have enough time to give information to the audience and identify the existence of viewer who are considered as a message receiver.

Other points are hidden in accessibility of information. The audience can catch more information in less time about advertisement. This information could obtain from even conflicting resources. The most important distinction of advertisement in traditional media and cyber space could be defined as follows: in virtual space, the audience would always change his role from audience to producer and from producer to consumer. The possibility of using cyber space would be possible for all people. In such space, the user can show off her/his idea or product with using of convincing skills and depend on the way of presenting it could reach to success .In other word cyber space is on the contrary of the traditional media. There is no selling of idea or product; but they would sell viewing the site or advertisement. Now if we are capable to convince our superiority to the users, we would reach to success. The forms of traditional advertisement have many limitations in case of commercials form .Size and vast distributing; in a case that virtual space would assemble the possibility of showing any advertisement in various cyber pages and in a cheap expense. In other words, there is no real limit in volume and kind of advertisement presentation.( Jim Calloway and Don Murdock 1998)

How we can get more benefit from this space?
Today the world can not be imagined without advertisement .The audience and people would learn from advertisement what they should eat, how they can dress, which book they should read and how they can think about a special subject. In the age that is full of advertisement messages, there should be more attention to this science. Today the virtual space and the media channel would be discussed in our real lives as the main media in 21 century. By emphasizing vast and complex communications which are possible in this space we would understand that we have unique chance to effect on the unlimited spectrum of viewers, the chance which was not possible in dry previous media. from this point the importance of using advertisement messages would be declared .Our current era has been named the communication and advertisement age .Pratkanis believes that the messages construct our world .We are in thought of other satisfying in our social lives . There are many bulletin boards, subway and bus advertisements in streets.( Pratkenis , 1999).But whatever we are facing to as an advertisement in global media of the internet, has differences with such messages.

Effective and Successful cyber marketing means taking full advantages of the medium to offer all kind of customers an interesting, informative, interactive experience, a give and take of needs, wants, and information. Virtual space is not transient and temporary phenomenon. It is at the beginning way of its evolution. Today, the goal of much advertising is not to make the sale but to direct people to websites. It means we have to be really cautious about what we are presenting. Internet advertisement would not neither be a passing affair a phenomenon forked of the internet influences .Although today the internet advertisement is facing to problems and obstacles and we have no attention to using such an opportunity; but we should believe that in cultures, civilizations, belief, ancestors and all nations pillars which are forming identity are in confrontation with each other, prosperity is with a group which could use better form of convicting skills and methods.