How AM/FM Radio Can Help Brands Meet Their ROI Objectives.

While media mix modeling (MMM), which associates sales over time with media, can be extremely helpful when it comes to showing AM/FM radio’s contribution to an advertiser’s return on investment, let the buyer beware, media consultant John Fix suggests in his latest guest column for Westwood One.

“Using planned media weight is problematic,” Fix says. “It creates a ‘smoothing effect,’ which makes it difficult to correlate AM/FM radio ads with sales. The upshot? Audio gets little credit for sales.”

Citing examples using MMM, Fix shows how looking at one response curve showing how ROI and sales changes along with investment level will not tell the whole story.

“Audio media publishers report advertisers say, ‘We did an MMM and audio/radio/podcasts don’t work,’ which usually signifies the end of the investment,” Fix says. “In other words, ‘We did an MMM for a media channel using the data that we had for the average weekly impressions and the ROI that was below our ROI goal.’”

The problem, Fix says? “As-run data of actual deliveries have significant variation. A weekly target of 50 gross rating points might produce as many as 80-100 weekly GRPs and as low as 20-40 GRPs. The MMM result likely represents the ROI at the average of 50 GRPs. This singular number does not tell the whole story.”

Research from Nielsen, combining all recent U.S. consumer packaged goods brand MMM studies, however, shows a relationship between weekly radio GRPs and percent of maximum sales response, where, at very high levels of weekly GRPs, the maximum sales response approaches 100%. “Light spend generates low sales,” Fix says. “As spend grows, so do sales.” Likewise, he says, “Very light levels of media weight produce very little ROI, which makes sense. As weight increases, so does ROI. At a certain point, ROI starts to decline gradually.”

A comparison between AM/FM radio and TV, focused on how GRPs impact reach on a monthly basis, shows, as Fix points out, “at every weight level, AM/FM radio outreaches TV. Because reach builds as a curve and frequency is assumed to influence consumers, there is an expectation that sales will correspond.”

As a result, Fix says, “The MMM, used in this way, does show the ROI for the campaign, but it also would inform the advertiser that a different level of investment would have yielded a more desirable response. For AM/FM radio, which tends to be a ‘new’ investment for many advertisers just getting back into AM/FM radio, underinvestment is a more likely scenario.

While AM/FM radio is shown to deliver impressive ROI across products and services, Fix notes that “the price of the advertiser’s product or service impacts the ROI. CPG and food items have ROIs in the low single digits [while] retailers with large baskets of purchases and service businesses with large average purchases have bigger ROIs.”

For advertising buys including radio, Fix says, “MMMs can be used to optimize within the AM/FM radio campaign to achieve the best performance. This allows AM/FM radio to become a set of tools to help a brand meet its media objective of reach and performance.”