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August 29, 2006

Radio Advertising Strategy For Direct Response Radio Advertisers

No this won't be a Porter's "five forces" analysis. We want you to stay awake through this.

This is about strategy in the world of direct response radio advertising.

Let's start with a scenario. Your direct response radio advertising campaign is in a successful roll-out mode. One of the radio stations you're advertising on is WXYZ. It's a top performing radio station, bringing in revenue well over 3 times the media spend. Suddenly that profitability ratio drops to 2 times media spend. Then 1.5. What's going on? The typical reaction is to cancel the media spend because that radio advertising is no longer generating an attractive profitability.

But wait a second. What if your ratio dropped because a new competitor just started testing their advertising on that radio station?

Think about it - you found a radio station with an audience that really likes your offering. A competitor comes in and suddenly you're splitting the demand on that station. That explains the sudden drop in your return on media - likely better than any other possibility.

You have a strategic decision to make at this point. If you stop advertising on that station, and your competitor stays, you'll have handed him (or her) a wildly profitable media outlet.

But if you stay on the station for a few weeks running at even a lower-than-break-even profitability, chances are your competitor is experiencing the same lack of profitability. And sooner or later, he'll pull the plug. Why? Because he never ran on that station when it was profitable, so he won't even know how valuable it is. You, however, do know. It would be irrational for him to continue to stay on that station if advertising there isn't profitable.

On the other hand, if you cut bait and run, he'll learn that if he sticks it out, he'll get all the best media outlets. That'll make it even more costly for you to hold onto the next cash-cow station.

Here's how to think strategically about your direct response radio media: each outlet (station, network, etc.) is a conduit to a group of people. When you find a set of extremely profitable conduits, fight for them. Be ready to endure a short term loss for long term profitability --- because most people won't.

Posted by Jeff Small & Brett Astor at 06:40 PM | Permalink