Transcript 3.08 Advertising cost

3.08 Advertising Cost
Advertising: Reach & Frequency
• Reach is the number of different people who are exposed an advertising
message at least once.
• Frequency is the number of times they are exposed to the message.
• You can determine advertising reach of a magazine by analyzing the
Circulation.
• For example a sports or an event marketer may choose to promote a
celebrity baseball game to many people in a metropolitan area through a
movable billboard.
How Are Media Costs Determined?
• A variety of different factors influence the rates charged by promotional
media. These factors include:
• Circulation (size of the audience)
• Circulation is the most significant factor affecting media costs.
• In most cases, the larger the media vehicle’s audience, the higher the cost
of advertising space or time will be.
How Are Media Costs Determined?
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Production costs
Production costs vary a lot within and across media.
Available discounts
Some discounts are available to reduce the costs of promotional media.
An important factor in determining rates for outdoor advertising is visibility.
Impact is a qualitative media factor used in the selection of promotional
media.
How Are Media Costs Determined?
• Demographic makeup of the medium’s targeted audience.
• You can typically expect to pay higher advertising rates in media vehicles that
have narrowly defined audiences than in ones that are targeted at general
audiences.
• The vehicle’s editorial climate, credibility, and prestige.
• A publication like The Wall Street Journal has greater credibility and prestige
(and typically charges more) than the National Enquirer.
Determining Costs for a Medium
• Each medium is unique, with its own terminology used to describe how its
promotional time or space can be purchased.
• The factors that influence the final cost and the kinds of discounts for which an
advertiser can negotiate also vary. Let’s consider each medium.
• A continuous media-scheduling strategy is most useful for advertising food and
other frequently purchased items.
• Since generated revenue helps organizations, it is important for professional sports
or event organizations to develop advance ticket sale plans to accomplish covering
pre-event expenses.
• Newspapers
• Newspaper circulation and audience composition are the major factors in
determining newspaper advertising rates.
• Newspaper advertising production costs tend to be very low; many papers do not
charge the advertiser for any production costs.
• Media costs can increase as a result of: Position preferences, Color requirements,
Split-runs (a printing technique that allows publishers to print different ads for the
same product in alternating copies of the publication).
• The most appropriate promotional medium for a local hardware store is the Local
Newspaper.
• Newspapers have traditionally charged less for local advertising than for space purchased by
national advertisers. Sliding-scale rates decreases the costs to a business of using newspaper
advertising.
• A business owner can save money by contracting with the local newspaper to purchase a
series of ads over a period of time. This is known as the Volume Discount.
• Newspaper space is primarily sold in standard, advertising column-inch units; types of rates
newspapers offer for these units include: Flat rates, Sliding-scale rates, Combination rates.
• The most appropriate promotional medium for a local hardware store is in fact the local
newspaper.
• A business that asks to have an advertisement presented at a specific time on the air
or in a special place in a newspaper will most likely have to pay a higher price for the
ad.
• Rate information is provided through rate cards (price lists showing rates for space
or time) made available to prospective clients.
• Businesses generally pay more for newspaper advertisements when purchasing space
at the preferred position rate.
• When an advertiser wants to reach specific target markets direct mail would be most
cost-effective.
• Magazines
Magazine rates are primarily determined by circulation and audience
composition.
Production costs for magazine advertisements can be quite high.
Magazine publishers pass production costs on to the advertisers, making the
average total cost for magazine advertising considerably higher than that for
newspaper advertising.
• Additional charges may be incurred for preferred magazine space (e.g., cover
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positions).
Nearly all magazines offer color production for an additional charge, but the
additional charge varies greatly.
Other production options which increase the rates which a magazine charges
include: Bleed” pages, Gatefolds, Spreads, Split-runs.
Magazines offer size, frequency, and dollar-volume discounts and combination rates.
A sports or an event organization can determine advertising reach of a magazine by
analyzing the circulation component of the publication.
• Television
• As a promotional medium, television offers many advantages, but costs can
be high.
• A larger audience and higher audience ratings mean higher rates for space, or
in the case of television, time.
• Time availability is a significant factor in determining the cost of television
time; demand for time during peak winter seasons is high, and time
availability is low, causing rates to increase.
• To obtain lower rates, advertisers can purchase run of schedule (ROS) time;
ROS rates are lower because the ad is run at the station’s convenience rather
than in a specific time slot.
• Commercial length influences media costs in two ways: Longer commercials
require that more time be purchased. Longer commercials also cost more to
produce.
• An event planner planning to promote an upcoming local charity event to
the general public should use the local television form of media.
• Television rates are set according to “gross rating points” (GRPs). One gross
rating point indicates that one percent of the audience (reach) has the
opportunity to be exposed to a message one time (frequency).
• GRPs are determined by multiplying reach by frequency. GRPs are usually
computed on a four-week basis, with 240 GRPs used as a standard for
measurement.
• Local television stations set their own rates and discounts which are known
to change frequently.
• Radio
• Radio promotion costs are determined in large part by audience size and composition, time
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availability, and commercial lengths.
Production costs, though generally far less than for television, can still vary widely.
Commercial radio time is divided into dayparts (e.g., morning drive time, evening drive time,
daytime, etc.).
Radio stations, on the average, offer the largest discounts of any media vehicles.
Radio stations offer less costly, run-of-schedule (ROS) air time which allows the radio
programmer to run the ad whenever it fits into the schedule.
The cost to a business of radio spots will vary depending on the number of listeners being
reached
• Businesses that buy broadcast advertising time often ask for information
about ratings for certain shows.
• A business owner who wants to obtain a reduced rate for a series of local
radio commercials might contract for a package form of promotion.
• Internet
• Internet advertising is extremely popular, trailing only newspapers and television in terms of
money spent.
• One method used to determine online advertising cost is cost-per-thousand, also known as
cost-per-mile (CPM).
• Advertisers pay a certain amount for each lot of one thousand “impressions” of their ads
that will appear on the publisher’s web site.
• Another popular way to calculate the cost of Internet advertising is cost-per-click (CPC).
• Advertisers pay a certain amount for each “click” that they receive from the publisher or
search portal.
• Out-of-home media
• Out-of-home media consist of outdoor and transit media. Outdoor advertising rates
are mainly determined by audience size, which is determined by the ad’s visibility, its
location, and the population of the area in which it is situated.
• Outdoor advertising cost is also influenced by the size of the space, length of time
for which the space is purchased, sign illumination, and any production costs.
• Outdoor ad space comes in the form of: Painted bulletins, Poster panels
(billboards), Spectaculars, Transit advertisements.
• Direct mail
• Costs for direct mail differ from costs of other media because they are a
product of some entirely different factors, including: Postage and delivery
rates, Production costs, Mailing list costs, Labor costs.
• Total costs for direct mail can vary significantly and at times be quite high.
• When an advertiser wants to reach specific target markets direct mail would
be most cost-effective.
Calculating Media Costs
• Media costs can be viewed in several ways. Most businesspeople want to know
absolute as well as relative media costs to satisfy their need for information.
• • Absolute cost: Answers the question, “What is the total expenditure for an ad or
series of ads?”.
• Is equal to the cost of production incurred by the advertiser, if any, plus the cost for
time or space purchased.
• The cost of promotional media time or space can be easily determined by
consulting rate cards, Standard Rate and Data Service (SRDS) directories, etc.
• Relative cost
• Is based on cost per thousand (CPM) [commonly used by print and Internet
media] or cost per rating point (CPRP) [used by broadcast and outdoor
media]
• Is used to determine to which one media vehicle is more efficient/cost
effective than another
• Involves completing the following steps: Gather rate information and
audience size estimates, “Plug in” to appropriate formulas and calculate,
Interpret and compare costs across media vehicle options.
Formulas Used to Calculate Relative Cost
• • Cost per thousand (CPM) = (Cost of the ad × 1,000) ÷ Target audience
• • Cost per GRP = Budget ÷ Number of GRPs