Marketing: Living Up and Down the Dial
Radio has been very good to the Vermont Teddy Bear Company. By advertising its stuffed animals on stations nationwide, the business has grown from $5 million to $39 million in sales. "We do some stuff in other media, but 95% of our advertising has been with radio," says Gerry Howatt, the company's media-buying manager. "We started doing a lot of it in 1991, and the company took off." Today, Howatt oversees a staff of five and a budget of $9.1 million a year -- a rich 23% of total revenue. "We're in 140 major markets, and I know all their radio stations and which ones work for us," Howatt says.
Sure, the Shelburne, Vt., company's focus on radio is extreme, but it is not alone. Spending on radio ads is expected to grow 6% to 8% in 2003. And while a lot of that growth is likely to come from campaigns for beer and new movies, smaller businesses are flocking to the airwaves, too. "By my experience, we've seen dramatically more local businesses this past year," says Jeff Delvaux, who manages six stations in Duluth, Minn., for Midwest Communications.
"Radio is good for generating excitement, although it's lousy for giving details," says Peter Kern, owner of a media-buying firm.
In an era of permission e-mail and even cell-phone marketing campaigns, why are companies taking to the airwaves? Because radio is just so dependable -- it can be bought overnight, it can be relatively cheap to get into, and it's a medium where the basics run deep. Here are 10 tips to work it:
Be smart when setting a budget. The cost of buying radio time varies regionally and is based on factors such as the time of day and the size of the market. Delvaux advises service companies to set aside 6% to 8% of gross sales for radio ads. And he counsels retailers to take 12% of projected gross sales, subtract the cost of rent, and voila: the result should be their ad budget. This formula, which Delvaux credits to ad guru Roy Williams, generally works for retail companies that sell at a 100% markup. Delvaux likes the plan because it takes into account the value of foot traffic. If you're paying a premium for rent, you shouldn't have to spend as much on advertising; but if you're off the beaten track, you'll have to advertise more to get noticed. (For more on budgets, see bellow.)
Hold production costs to zero. Radio stations will happily produce most ads for free and even pass them over to competing stations as a favor to their clients. "With MP3s it's easy to e-mail them, and it costs the radio station next to nothing," Delvaux says.
Keep the script simple. "Radio is good for generating excitement, although it's lousy for giving details," say Peter Kern, who, with his wife, Pamela, runs Kern Media, a media-buying company in New Gloucester, Maine. Radio spots can be effective even if they're not especially clever -- the slightly insulting ads you've heard a thousand times (think guy screaming about car sales) really do work. Use radio to tout discounted merchandise or the launch of a new service. Save details for newspapers or direct mail.
Avoid the rush hour and long commercial breaks. Kern advises his clients to buy time in the morning and at midday, when the rates are cheaper and stations have more listeners, rather than at 5 p.m., the time that many advertisers request. He also suggests picking radio stations that limit the number of ad spots they run to 14 an hour. Ideal is a station that runs from three to four spot breaks an hour, with four to five commercials per break. Stay away from those stations that carry 8 to 10 spots per break because your ad will just get lost on them.
Saturate the airways. "The biggest mistake businesses make is not buying a lot [of radio ads] in a continuous period of time," says Kern. "You should be buying more frequently over two weeks instead of spread out over a month, and buying 30 spots on two stations instead of 18 spots on three." A rough rule of thumb, he says, is that listeners need to hear your ad a minimum of three times a week "before you start to break through the clutter." This is particularly true if your company is relatively unknown. "Burger King doesn't have to tell you who they are," says Kern. "But most businesses need to convey where they're located, what they do, and what the special is."
Follow the numbers. Dan Paisner, president of the 10-location car-wash chain ScrubaDub Auto Wash Centers Inc., looks carefully at station demographics, ratings, and ad costs. He then calculates his cost-per-ratings point, which helps him figure out where he needs to advertise to most efficiently reach men and women ages 25 to 54 without duplication. "It's like any dollar invested in your business," says Paisner, whose company is based in Natick, Mass."You want the greatest return from it."
Buy up during soft markets. ScrubaDub buys time almost entirely in the first quarter of the year, when radio ad rates are their cheapest -- and cars happen to be their dirtiest. Similarly, Vermont Teddy Bear moves quickly when stations offer discounts. When rates dipped last fall, for example, the company locked in spots that will run from January through June of this year.
After Don Imus threw Gerry Howatt out of his office, he apologized on-air. "We ended up with a 35-minute infomercial" on our company, Howatt recalls.
Talk to your customers. Proflowers, an Internet florist business based in San Diego, provides passwords in its ads. The company -- which has $70 million in annual sales, according to Steve Bellach, chief marketing officer -- prompts customers to enter their passwords when they visit Proflowers.com. "The passwords allow us to track down to the detail the performance of each channel," says Bellach. Vermont Teddy Bear also asks telephone customers which radio ad they remember, and then calculates $X sales for $Y investment. Based on the data, the company buys additional time on stations that draw the best response. "Say we got $500 in sales from a $100 ad," says media buyer Howatt. "The next time we'd run two ads and see if we got $1,000." If the company ran a third ad and made only $1,200, its interest in the station would level off. "It's trial and error," Howatt says.
Shop for baritones online. If you want professional audio talent, Kern recommends ProComm Studio Services ( procommss.com), based in Fletcher, N.C., which works with audio talent nationwide. "They're great on the customer end," he says. "Very affordable." You call an 800 number for an estimate for the job, and then direct your recording session over the phone. Clients whose work is posted on the site include the cheese company Cabot Creamery, car dealerships, banks, and restaurants.
Expect the unexpected when dealing with radio personalities. Vermont Teddy Bear buys lots of "live reads" -- premium-priced ads that are delivered and embellished upon on-air by radio personalities. A few years ago, Howatt was ushered in to meet Don Imus as a thank-you for buying live reads on his show. But Imus, who apparently had just had an argument over the phone, was in no mood: He threw the teddy bear media buyer out of his office a minute into the meeting. Then something amazing happened. The next day Imus apologized on the air for the outburst -- and apologized, and apologized. "We ended up with a 35-minute infomercial on Vermont Teddy Bear," Howatt laughs. Ah, the magic of radio.
Fine-Tuning Your Ad Budget
Each of the six Minnesota radio stations Jeff Delvaux manages for Midwest Communications works with 100 to 200 customers a month, and "the No. 1 problem we see with small business is that they don't allocate their resources," he says. Here's how he walks customers with retail businesses through a budgeting plan. (Service companies can generally follow the same rules, although they may not have sales in the same way that retailers do.)
1. DETERMINE AN OVERALL ADVERTISING BUDGET. Using the sales minus rent equation (see main story), for a company with $1 million in gross sales, 12% would be $120,000. If your rent is $70,000 a year, then your ad budget should be $50,000.
2. ASSIGN 50% OF YOUR BUDGET OVER 12 MONTHS. Break down spending month by month according to the national sales averages for your industry or your own operating history. In other words, if your industry does 10% of its business in April, budget 10% of your money for April. Using our example, 50% of the total budget is $25,000, so the April budget would be $2,500.
3. ASSIGN 25% OF YOUR BUDGET TO REGULAR SALES. In this example, that would be $12,500 annually, or $3,125 for a sale every quarter, which is typical for retail companies.
4. ASSIGN 15% OF YOUR BUDGET TO SPECIAL OPPORTUNITIES. This is another trouble spot for businesses -- they get a great idea but don't have the cash to execute it. "This is also the money you can spend if you get to the middle of the month and sales are slow and you need a little push," says Delvaux. At $7,500 for the year, or $625 a month, this money can be spent, accrued to the next month, or put to the bottom line.
5. ASSIGN 10% OF YOUR BUDGET TO A SLUSH FUND. "Hold this money for October, November, December," says Delvaux of the final $5,000 in this sample budget. "If you're on track to meet your goals, then keep it in your pocket. If not, spend it."
Divide and Conquer
Breaking down a sample annual advertising budget.
General advertising: 50%
Regular sales: 25%
Special opportunities: 15%
Slush fund: 10%
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