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September 27, 2006

Understanding Direct Response Radio Advertising

It's easy sometimes to get into the nuances of our radio advertising practice and skip over some of the fundamentals. It's true that diving into the data and the insights is not only interesting but also important for uncovering strategic advantages, it's also necessary to make sure we orient ourselves to the bigger picture from time to time. For example, we could ask "what is radio advertising all about, anyway?" The best way I've seen it described is as follows:

Deliver the right message to the right people at the right place at the right time for the right cost, then assess the effectiveness of that effort by comparing the revenue generated to the costs associated with that revenue. If revenue exceeds cost for the campaign, it is profitable and business is... really good.

But this statement really describes all advertising, not just radio advertising or direct response advertising. To refine our thinking a little further, we'd suggest looking at direct response advertising-driven businesses as having two relatively distinct pieces - customer acquisition and customer retention.

The customer acquisition part is what most people think of. It's the "front-end" or first-sale transaction. The second part of a direct response advertising-driven business is the customer retention piece. This is the "back-end" that includes the customer transactions subsequent to the first sale. Together, customer acquisition and customer retention make up the "lifetime value" of a customer, and this line of thinking allows you to understand your business at the level necessary to fine tune all of the moving pieces to optimize profitability.

Posted by Jeff Small & Brett Astor at 06:36 PM | Permalink