The Digital World – Radio advertising?

Alok Sane: 216177624

With the rise of new digital platforms one would think radio advertising would soon be a thing of the past. However, a recent study conducted by Nielsen Catalina Solutions (NCS) found that there was a direct link between radio advertising and retail sales proving that radio advertising is still effective (Nielsen.com, 2016).

Importance of Metrics

In order to evaluate the effectiveness of a marketing strategy or platform, an organisation must first determine which marketing metrics it will be using.  Some of the metrics used by NCS would have been retail sales, and revenue.

By definition a metrics refer to a wide range of tools that managers can use to evaluate performance (Investopedia, 2007). It also allows managers to quantify, compare and interpret the marketing performance and effectiveness. The importance of marketing evaluation is tied back to the fact that the return on investment of marketing can be quite unpredictable, and solid metrics and give you an advantage in overcoming some of this unpredictability (Forbes.com, 2016).

Financial Metrics

In most instances, financial metrics are the most important. After all, finance need to approve funding for marketing initiates, and they will only do so if it is justified. According to (Lehmann, 1999), “research should be linked not to awareness or attitude, but to measures that are relevant to the chief financial officer”.

There are 3 key financial metrics:

  1. Profit Contribution
  2. Profit Margin
  3. Return on Investment (ROI)

According to the Nielsen Catalina Solutions (NCS) study into radio advertising, advertisers on average gained a return of $6 for every $1 spent on radio advertising in the retail sectors.  However, the ROI across the categories varied significantly.

sales-increases-by-category

Figure 1 – Sales Increases by Category

 

The US recorded a radio advertising revenue of $17.4 Billion in the year to March.  Radio advertising has the broadest reach among all media.  If companies are spending such an exorbitant amount of radio advertising, evaluating the marketing performance based on just the financial metrics would be short sighted and may not capture the long term benefits of the investment which only appear after repeat purchases or longer customer lifetimes (Wyner, 2008).  According to (Farris et al., 2014), a survey which aimed to determine which metrics marketing managers and executives thought were most useful, found that most financial metrics were rated very high which wasn’t a surprise, but behavioural metrics such as repeat customers (customer retention) and customer lifetime value were also ranked high. This highlights that metrics need to be used in conjunction with each other to perform a comprehensive evaluation.

Types of Metrics

There are many marketing metrics that can be used including:

  • Behavioural Metrics
  • Memory Metrics
  • Physical Availability Metrics
  • Marketing Activity Metrics
  • Customer Profile Metrics
  • Financial Metrics

However, metrics should be carefully chosen to suit the product or service being marketed, the target market and the desired outcome.

Evaluation using Metrics

As it can be difficult to identify the effectiveness of marketing, (Mintz and Currim, 2013) explained that researchers have responded in 3 ways.

  1. Defined metrics for different marketing mix activities such as advertising, price promotion, pricing, product management etc
  2. Linked marketing mix efforts to financial metrics which are defined as metrics which are monetarily based.
  3. They found that metric based information influences firm profits and shareholder value.

It is obviously beneficial from a management and investment standpoint to use metrics to evaluate the performance of marketing. That being said, there are also some risks associated with using metrics. One risk is that if the methodology is applied incorrectly, or the criteria for judging success are poorly measured (Wyner, 2008). As a result, any defined metrics need to be clearly measurable and non-ambiguous.

The emphasis placed on financial metrics in marketing activities can stifle marketing creativity and innovation.  In order to prevent this, it is recommended that the idea generators first determine who they are accountable to and how the accountability process should be designed, furthermore financial analysts should analyse and nuture good ideas and help them achieve business growth (Wyner, 2008).

Platforms & Alignment

In today’s digital world there are a multitude of platforms and services that an organisation can leverage to execute their marketing strategy. However, it is important to align evaluation metrics correctly with the execution strategy. For instance, Radio may be used to advertise professional tradesman tools with an aim to reach tradesman across Australia as they regularly listen to the radio while performing their duties. An appropriate metric in the short run may be “an increase in sales”, a long run metric may be “increased market share”, both of which are behavioural metrics.  If one were to use a metric such as “increased website traffic” for this use case, it would be unreasonable as this metric is better suited to web and social marketing.

Organisations are work to satisfy their stakeholders and generate increased year on year revenue and profit. As a result, although there are various metrics that can be used to evaluate marketing performance, in the long run the financial metrics are most relied on.

 

References

Farris, P., Bendle, N., Pfeifer, P. and Reibestein, D. (2014). Marketing Metrics. 2nd ed. Upper Saddle River, New Jersey: Pearson Education Inc.

Forbes.com. (2016). Forbes Welcome. [online] Available at: http://www.forbes.com/sites/jaysondemers/2014/08/15/10-online-marketing-metrics-you-need-to-be-measuring/#171b1cf6355f [Accessed 1 Oct. 2016].

Investopedia. (2007). Metrics. [online] Available at: http://www.investopedia.com/terms/m/metrics.asp [Accessed 1 Oct. 2016].

Lehmann, D. (1999). Fundamental Issues and Directions for Marketing. Journal of Marketing, 63, pp.14-18.

Mintz, O. and Currim, I. (2013). What Drives Managerial Use of Marketing and Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?. Journal of Marketing, 77(2), pp.17-40.

Nielsen.com. (2016). For Advertisers, Radio is Worth Listening To. [online] Available at: http://www.nielsen.com/us/en/insights/news/2014/for-advertisers-radio-is-worth-listening-to.html [Accessed 1 Oct. 2016].

Wyner, G. (2008). Do Financial Metrics Stifle Marketing Creativity?. Marketing Management, November/December 2008.

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