The cost of advertising on a radio station is generally proportional to the number of listeners it has. The most listened to station in a market, therefore, is usually the most expensive on which to advertise. When advertising on a budget, however, the station with the greatest quantity of listeners may not be the best value for your marketing dollars because you will pay for every person who hears your commercial...even those listeners who may never buy your product or service. In many cases, smaller, less-expensive radio stations may be more likely to reach the customers you are seeking than the larger, more expensive stations.
According to The Small Business Guide To Effective Radio Advertising it is extremely important to define a target consumers in terms of socio-economic characteristics and buying habits. For instance, an owner of an upscale furniture store might want to reach consumers who earn $100,000 per year and are planning to buy furniture in the next 6 months. In a local market, for instance, this target audience might represent only 3.7% of the total population. When choosing a radio station on which to advertise, therefore, this budget-minded furniture store would not want just the station with the most listeners, it would want a station that was composed of at least 3.7% of listeners who earned $100,000 per year and planned to buy furniture in the next 6 months. Certainly, the greater a station's audience is composed of the retailer's target audience, the greater advertising value it is.
In marketing, comparing the percentage of a target consumer in the general population to the percentage of the target consumer among a station's audience is called indexing. The formula for calculating an index is [(% of Target Consumer In Market)/(% of Target Consumer Among Station Listeners)x100]. In the furniture store example above, the index would be 100 [(3.7/3.7)*100=100]. When, as in this example, the index equals 100, that means that the instance of target consumers among a radio station's audience is exactly the same as the instance of target consumers among the general population.
So suppose a local appliance store wanted to specifically target Home Depot shoppers who were planning to make a major appliance purchase over the next 12 months. The local market might be composed of 4.4% people who fit this description. Research indicates that only 2.8% of the audience of the most listened to station in the market fits this description. That would be an index of 64. In other words, the audience of the most listened to station is 36% less likely than the general population to be Home Depot Shoppers who plan to make a major appliance purchase over the next 12 months.
On the other hand, another radio station in the same market has few listeners but 7.9% of them are Home Depot shoppers who plan to make a major appliance purchase in the next 12 months. This would compute to an index of 176. This means the station's audience is 76% more likely than the general population to be Home Depot shoppers who plan to make a major appliance purchase over the next 12 months. Additionally, the index tells us that the audience of the less listened to radio station is 112% more likely to match the target audience than the station with more listeners.
So if you were the owner of the hardware store and you working with a limited advertising budget, then which station should you choose? Clearly, the best choice is the second station even though it has a smaller audience. The reason is simple. Everyone who hears your commercial will be 112% more likely to be your target consumer than the listeners of the first radio station. No doubt, a much better return on investment.
The most reliable qualitative research available to a small business comes either from The Media Audit or GFK MRI. A reputable radio station Account Executive can provide you with research from one or both sources to determine the percentage of your market that matches your target consumer. Your AE can then demonstrate how each radio station in the market indexes against your target consumer.
Here are some other recent articles you might find helpful:
- The Radio Advertiser's Toughest Choice: Reach vs. Frequency
- Radio Advertising: 5 Common Rookie Mistakes
- Effective Radio Advertising: 10 Questions To Ask The Sales Guy