CPM. The Common Denominator in Media Buying NDSU Research Circle North Fargo, ND

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1 CPM The Common Denominator in Media Buying 1854 NDSU Research Circle North Fargo, ND

2 CPM The Common Denominator in Media Buying Back in the 1950s and 60s, media buying wasn t as complicated as it is today. Advertisers could reach everyone in their local market a few times with mass media, such as television, newspapers, and radio. There were only a few stations and publications from which to choose, and each one had a good share of audience. Then the internet came along, and search engines, content sites, blogs, and social networks forever changed the way we find information, consume content, and communicate. Though this fragmented media landscape brings more complexity to media buying, it also brings more opportunity to segment and target a consumer audience. The right mix of local advertising reaches that audience where they live, work, and play. It delivers a message through more relevant, immediate, and in-the-moment media, moving consumers through the buying stages of awareness, consideration, and action. 2

3 Why Multichannel Matters In 1955, television had $1 billion of the $5.7 billion US advertising spend. i The rest went to print media, which had about $3.2 billion of the total advertising spend. ii It wasn t too difficult to decide where to put those advertising dollars. Today that audience spends time with both online and offline media internet, video, radio, television, OOH, magazines, newspapers, social. And the same advertising messages can be delivered on a mobile device as those viewers, listeners, visitors, and readers go on about their business. Advertisers can no longer simply choose between a television campaign or a series of inserts in the only daily newspaper available within a 50-mile radius of a certain zip code. Reaching today s consumer audience requires a media mix built around reach, frequency, and relevancy factors specific to a target audience and their media consumption habits. Adding local online and search advertising to the media mix increases the reach and frequency of a campaign, making those online and offline ad impressions and the resulting behavior, action, and sentiment more measurable. Online advertising is expected to show the most growth in 2011 among small to midsized businesses (SMBs), with 84% of survey respondents planning to buy online/digital advertising, and 53% growing that area of their marketing spend. iii But traditional media still have a considerable audience. No longer does any single media channel continue to lose audience to another; rather, we re just spending more time with more media channels. Share of Time Spent per Day with Major Media by US Adults, % of Total 40 % 2010 Over the past three years, the amount of time US adults spend with each media channel has leveled off and become somewhat consistent. Television continues to dominate with 40% of time spent per day. But the internet and radio aren t far behind, with 23.5% and 14.5% of time spent, respectively, by the end of iv 40 % 21.5 % 16 % % % % 4 % For many local business-to-consumer advertisers, traditional media channels such as television, 41 % 22.5 % 15 % % 5.1 % 7% 3.4 % 23.5 % 14.5 % 7.5 % 4.5 % 7 % 3 % TV and Video Internet Radio Mobile Newspapers Magazines Other 3

4 radio, and print are high-impact, delivering results that balance campaign goals and target audience with the unique properties of each media channel. Traditional media comes with some mystical calculations like ratings, shares, GRPs, and TRPs, and CPP, measuring target audience reach and overall cost. This can be just as effectively measured and evaluated in traditional media channels, such as radio and television, as in online advertising using the media measurement CPM. A consistent measurement across online and offline media channels helps businesses and their agencies determine the best vehicles to use in an advertising plan, and report ROI of the campaign post-sales. The common measurement for audience and cost, across media channels, is CPM (Cost per Thousand people reached). Its formula is simple: cost/audience x 1,000=CPM Before looking at CPM calculations for different media channels, let s review what we measure in a media buy, why it matters, and what nuances exist for the different types of advertising media. What Media Buyers Measure A variety of concepts and formulas are used in the planning and buying process for different advertising media. These calculations and figures are signals that point to the best media buy based on budget, audience, and goals. At its most basic level, all this media math points to three key concepts in advertising and marketing: Audience Delivery Cost AUDIENCE Thanks to advances in media and technology, it s easier than ever to reach a target audience with Half the money I spend on advertising is wasted; the trouble is I don t know which half. ~ John Wanamaker relevant advertising content (think niche cable programming, local websites and blogs, community magazines). It s why a fragmented advertising marketplace presents more of an opportunity than a challenge, if managed efficiently. Successful advertising campaigns reach the right audience at the right time, with the right 4

5 message. This requires media buyers to consider the demographics (age, gender), psychographics (education and income), and behavioral indicators (purchase history, lifestyle) of that audience. Understanding your target audience allows you to present a message that appeals directly to those consumers, delivered in a media channel with which they re engaged, and in a language they speak. Size. Measurements such as ratings points, impressions, and subscribers provide insight into audience size for a media outlet being considered for a campaign. Audience size provides a way to quantify how many people are reached with the advertising message, but it s an inconsequential data point if those ads aren t reaching a targeted audience. Behavior. Behavioral indicators like media consumption patterns, purchase history, and lifestyle data on home or automobile ownership within a target geography help media buyers further narrow the list of media channels and outlets considered for a campaign. These factors highlight the advertising opportunities that are a best fit based on factors such as product price point, distribution channels, and marketplace competition. Demographic, behavioral, and psychographic data, combined with instinct and experience, helps media buyers deliver the advertising message in the most effective way possible, using the vehicles most relevant to the target audience. DELIVERY Delivery can refer to both the audience that is delivered, and the way in which the advertising message is delivered to that audience. Plenty of research v has been published that explores increased brand recognition and recall among people exposed multiple times to an ad distributed in multiple media channels. Multichannel advertising presents the opportunity to use one medium to drive traffic to another for a more effective campaign. The reason this multichannel approach works is best explained through the concepts of reach and frequency. To make any advertising work well, it s important to understand the relevancy of a media channel and its content to the target audience. Reach refers to the total number of people in the audience for your advertisement. Frequency refers to the number of times an individual is exposed to your ad. Relevancy is exactly what it implies how relevant your ad is to an individual, at the time and in the context that he or she is exposed to it. Reach indicates the size of the unduplicated audience, or the number of different people in a target demographic (age, gender) exposed to the advertising message. 5

6 When considering reach, it s important to remember that an individual viewing or being exposed to an advertisement more than once does not increase its reach, but rather frequency. Frequency is how many times an individual is exposed to your ad in any medium. Frequency can be attained through repetition of ads during the campaign run dates, and/or by rotating advertisements between media channels. Effective reach and frequency varies depending on a number of factors, such as The price and type of product or service being advertised, Whether the message is passive or intrusive, The stage of the buying cycle a consumer is in when they are reached for the first time (granted, different for a restaurant advertiser and an automotive advertiser), and Whether it s a campaign to raise brand awareness or a call to action to generate direct sales. Relevancy. The target audience has choices what media channels to spend time with, what content to consume, when and how to buy their goods. Before the purchase, they can go online and research a product or service, from reading up on corporate messaging to accessing customer reviews. In this short-attention, self-service world, people won t spend time with an ad if it s not relevant to them demographically, contextually, behaviorally, temporally. COST This concept explains itself fairly well. Budget allocation is a major factor in any media plan, just as the decision to spend a portion of the marketing budget on advertising was a strategic decision. Every dollar counts, and should be accounted for. The advertiser must spend enough money to attain effective reach and frequency, allocated across media channels. However, without measuring consistently across media channels, it s difficult to analyze post-sales data to see which ads performed and bring that insight to the next media plan. Advertising may be packaged and sold using the following measurements: Radio Television Online Print OOH CPP, CPM CPP, CPM PPC, Flat Rate, CPM CPI or Flat Fee, CPM CPP, Eyes-On, CPM Did you happen to notice the common denominator for measurement across media channels? 6

7 Measurement By Media Channel TELEVISION How It s Sold: Cable and broadcast television advertising may be packaged and sold by CPP, or Cost per Point, which is a measurement of audience delivered for a specific program. Media Math: The following is a list of common terms used in television advertising, and their definitions and formulas vi. For a full list, see the Cable Advertising Bureau s Media Math resource. CPP. The cost to deliver a single ratings point. CPP = Total Schedule Cost/ GRP s % Designated Market Area (DMA). Nielsen s term for geographic viewing areas. GRP. Sum of ratings points for all programs in an advertising schedule. GRPs = Rating (%) x # Spots or GRPs = Reach (%) x Frequency Ratings. Percentage of all households or persons tuned into (but not necessarily watching) a specific channel (Average Audience Rating). Rating % = GRP s % / # Spots Share. Percentage of household audience tuned into a program. Share % = Rating % / HUT % RADIO How It s Sold: Broadcast radio advertising may be packaged and sold by CPP, measuring the audience delivered for a particular daypart. Media Math: The following is a list of common terminology used in radio advertising and a few basic calculations: AQH Rating. Number of persons listening to a station for a minimum of 5 minutes during a 15-minute time period, as a percentage of the population vii. Average Quarter Hour = AQH Persons / Population x 100 = AQH Rating (%) CPP (Cost per Rating Point) The cost of reaching an Average Quarter-Hour Persons audience that is equivalent to one percent of the population in a given demographic group. CPP = Cost per spot / rating Cume Persons. The total number of unique people who listen to a radio station for at least five consecutive minutes during a specific daypart. Daypart. The time segments into which a day is divided by Radio and Television networks and 7

8 stations for programming. GRP. The sum of all ratings points for a schedule viii. AQH Rating x number of spots in advertising schedule = GRPs PRINT How It s Sold: Print advertising (magazines, newspapers) is typically sold by size, such as column inch, or by flat fee. Use of color vs. black & white may result in additional cost. Media Math: Here s a list of common terminology used in print advertising: Circulation. Number of copies distributed. Column Inch. One inch deep and one column across for newspapers. Readers per Copy (RPC). Average number of readers who read or looked at a publication. RPC x Circulation = average issue audience. Shelf Life. How long a reader keeps a copy of the publication. OOH How It s Sold: OOH or Out of Home (billboards, transit, cinema, alternative) is typically measured and sold using eyes-on and CPP measurements, similar to radio and television advertising. Media Math: Here s some basic terminology used in OOH advertising: Approach. Total distance from which an OOH advertisement is still readable. Coverage. Geographical boundaries, measured by percentage of a county. Daily Effective Circulation (DEC). Potential viewers within a 24-hour period. Eyes-On Impressions ix. Number of eye-contacts made with an OOH display. Showing. Total number of advertising panels in a buy. ONLINE How It s Sold: Online advertising may be packaged and sold by CPM (cost per 1,000 people 8

9 reached), PPC (paying each time the ad is clicked), or flat fee (typically for a certain ad position, such as banner or skyscraper, for a certain amount of time). Media Math: Here s some basic terminology used in online advertising: CPC. Cost per Click, or how much it costs each time an ad is clicked. CTR. Click-Through Rate, or how often a viewer clicks on an ad, expressed as a percentage of total ad views. Impressions. How many times the ad is distributed. Another common way to buy online advertising is CPM, or Cost Per Thousand impressions. CPM is the common denominator in media buying, across advertising vehicles. To calculate the CPM of a single advertisement, take the cost of an ad and divide it by the total audience, then divide that by one thousand: cost/audience x 1,000=CPM. For example, if an ad costs $2,000 and the total audience is 120,000 people, the CPM would be $16.67: 2,000/120,000 x 1,000=$ CPM: Common Denominator for Measuring Audience Delivery & Cost CPM is a media measurement that allows for comparison of audience and rates across multiple media channels. Moreover, CPM is the only measurement that allows media buyers to compare cost across geographies because other measurements, such as CPP and GRP, are based on % of a population, and each market size is different. The formula easily translates to each media channel in the local advertising mix. CPM provides a way to measure audience size and cost, and compare that data across advertising schedules and media channels. Let s say we re measuring overall impressions for an advertising campaign announcing the grand opening of a flagship sporting goods store. The ads will run on the radio and television, the 9

10 community newspaper, a website that covers local sports teams, and a search campaign geotargeted to the metro area in which the store is located. The campaign targets active, professional women and men who have the lifestyle and income to purchase the kinds of goods sold at the store. Demographically, the target audience for this retail store breaks down like this: Men and women, age Education and/or professional experience level: 3-4 years + Own home and/or auto Likely to access content on mobile device such as smartphone. The advertiser is spending a total of $35,000 for the store s grand opening campaign. That budget has been allocated across traditional and online media channels. The media buyer needs to put together a set of RFPs (Request for Proposal) for the Radio, Broadcast TV, Newspaper, and Online Display advertising. Broadcast TV Local Online (Display) Local Search Newspaper Radio The information contained in those RFPs, at minimum, should outline the campaign criteria and preferences to allow the media sales representative to respond with all the information the buyer needs to evaluate the proposal. The media outlet can provide data on audience size during the RFP process (requesting a station s ratings, for example, or subscriber numbers). Below are some general examples of the information in the advertising schedules and packages that the media outlets typically send when responding to an advertising RFP. RADIO Daypart Rate per Ad Total # of Ads Total Cost Rating Cume Persons CPP Mon-Fri 6a-7p $45 25 $1, % 195,400 $64.29 Mon-Fri 7p-12a $25 30 $ % 195,400 $41.67 Sat-Su 6a-7p $33 40 $1, % 195,400 $47.14 Sat-Su 7p-12a $20 20 Added Value 0.5% 195,400 $40.00 Total Cost $3,195 10

11 LOCAL BROADCAST OR CABLE TV Daypart Rate # of Ads Total Rating Impressions CPP Mon-Sun 6a-12a $32 43 $1, % 48,000 $160 Mon-Sun 6a-12a $24 23 $ % 656,000 $17 Mon-Sun 6a-12a $ $ % 9,000 $96 Total $2, NEWSPAPER Location Per Column Inch Rate Ad Size # of Issues Ad Total Circulation Front Page - Daily $ col x 5 4 $4, ,000 Inside - Lifestyle Section (Saturdays) $ col x 7 3 $11, ,000 Total $16,432 ONLINE/DISPLAY Location Cost / Placement Run Dates Audience Size (Mo Impressions) Homepage Leaderboard $1,200/mo 1 month 40,000 $30 Homepage News Sponsorship ( Other News section for additional exposure) CPM $850/mo 1 month 34,000 $25 Category Pages Leaderboard $950 1 month 27,000 $35 Category Pages Skyscraper $775 1 month 27,000 $29 Total Cost $3,775 LOCAL SEARCH ADVERTISING (PPC) The self-service, pay-per-click model of local search advertising makes the RFP process unnecessary for that portion of the campaign, but this advertising spend can be analyzed with the same metrics used to measure the other media channels included in the campaign. Campaign Total Impressions # of Clicks Click Rate (CTR) Avg. Cost/Click (PPC) Total Cost CPM 450,000 1,800 4% $3.00 $5,400 $12 11

12 TRADITIONAL MEDIA AND CPM It s important to note that what we know about the target audience content relevance, media consumption among the target demo is even more critical than cost in evaluating these advertising opportunities. Third-party data sources x such as Scarborough Research or the ANA s Marketing Knowledge Center can also help paint a picture of the buyer toward whom these ads are directed. Again, it s important to reach the right audience through the right media channels. The only way to measure audience and cost consistently across media channels for each advertising schedule is by using CPM. Laid out in a chart, it might look something like this: Media Type Cost of Schedule Audience CPM Radio $3, ,400 $16.35 Broadcast TV $2,091 48,000 $43.65 Newspaper $16, ,000 $67.90 Local Online - Display $3,775 40,000 $12 Local Online - Search $5, ,000 $12 To convert the cost of advertising any media channel to CPM, take the cost of the advertising schedule, divide it by audience delivered, and multiply that by 1,000: cost /audience x 1,000 = CPM. Let s say a media buyer is placing an ad in a community arts magazine with a dropoff of 10,000, and all that s on the invoice is 1/2 page color ad, $250. CPM may be calculated for those print ads as follows: 250/10,000 x 1,000=$25 CPM. Some nuances in the CPM formula exist depending on the medium; for example, In online advertising, CPM is calculated based on the number of times an advertisement is displayed to a user, regardless of whether the user clicks on it, just as in radio, TV, and print, audience is counted regardless of whether someone is actually paying attention to the ad they hear or view. With print media, CPM is calculated based on the number of copies of a publication, rather than the average readership of a single copy. Cost of a print ad is often determined at a flat rate, calculated by cost per column inch, so it s important to determine the CPM if it isn t already provided with the rate information. For broadcast radio and television, advertisers should look at average viewers or listeners rather than peak numbers. 12

13 CPM: The Common Denominator The media buyer s goal is to deliver the most effective advertising campaign possible working within the budget defined for the campaign. Key considerations for the media buyer are target audience (size, demographics, psychographics), delivery (reach, frequency, and relevancy), and campaign cost. Measuring CPM by media channel, media outlet, schedule, and placement not only lets media buyers compare and identify the best advertising opportunities across media channels, but also helps them build a base of knowledge that grows with each campaign because it s built around a single concept with logical appeal the greatest common denominator that exists in a fragmented media landscape. CPM provides a central framework for thinking about the traditional and online advertising opportunities available in a local market, making it easy to plan and measure media for a multichannel campaign. Like all other advertising metrics, this one, too, should be combined with gut feel during the decisionmaking process. The media buyer s experience and intuition will always be the best source for targeting an audience. Using CPM as a common media measurement across the campaign helps media buyers balance audience, delivery, and cost more efficiently and deliberately, across media channels. 13

14 i 1950s TV Turns on America. AdAge. March 28, Accessed February 28, ii Advertising Expenditures. Newspaper Association of America. Accessed February 28, trendsandnumbers/advertising-expenditures.aspx iii 2011 Outlook: SMBs Become Everybody s New Best Friend (Executive Summary). Borrell Associates. Kip Cassino, Principle Author. March 2011, p. 5. iv Trends in Consumers Time Spent with Media, Phillips, Lisa. E. emarketer. December 28, Accessed February 28, v For examples, see Journal of Advertising Research: Memory with Recall, Exposure without Perception (Krugman, Nov/ Dec 2000; 40:6, 49-54); Effective Frequency Then and Now (Naples, Aug/Jul 1999; 37:4, 75-80); Effective Frequency: Does it Really Make Sense? (Cannon & Riordan, Mar/Apr 1994; 34:2, 19-28). See also Radio and the Internet: Powerful Complements for Advertisers, Radio Ad Effectiveness Lab February Cited in Google AdWords Tech B2C Industry Newsletter, May newsletters/q208/techb2c/page5.html vi Media Math. Cable Advertising Bureau. Accessed February 28, mathglossary/media-math.shtml vii Terms for the Trade. Arbiton Accessed March 30, viii Sample GRP formula, ibid. ix Eyes on Out-of-Home Media Measurement. CBS Outdoor. Accessed March 31, 2011 x Scarborough Research: Measures lifestyles, shopping patterns, media behaviors, and demographics of American consumers locally, regionally, and nationally. ; Association of National Advertisers (ANA) Marketing Knowledge Center BIA/Kelsey Local Media Watch Blog 14

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