Doing The Math: Your Advertising Audience and Cost

By Carlos Castellon

A well-conceived media strategy is the key.  What is the right media mix?  What specific media offer access to the target market? When should advertisements air, and how often?

Congratulations! You’ve managed to grow your business and it has gotten to a point where you need to tell more potential customers that you exist. You need to tell others about what you can do for them. You need increased reach and capabilities.  The work has now gone from planning and research, to actually reaching out to your selected customer target groups.  One of the most effective tools at your disposal is the media campaign. The media is the bridge, which serves as the channel of communications carrying your message to the audience.    

ADVERTISING IS NOT WHAT IT USED TO BE

Advertising agencies started out with no designated functions.  In the beginning, there were no copywriters, no account managers, no creative directors, and no media planners.  To be advertising man then meant that you were simply a broker of ad space.  Over the years advertising became increasingly complex, eventually including media planning and buying among its functions.  From traditional mass media vehicles (such as print, radio and TV), marketers now have a variety of new media options available.  Marketers have to target their advertising budget carefully to reach the right audience at the right time.  A well-conceived media strategy is the key.  What is the right media mix?  What specific media offer access to the target market? When should advertisements air, and how often? Marketers should keep these key questions in mind to ensure that the advertisement reaches the right audience at the right time. In trying to come up with the answers to those three questions, what follows are the balancing acts to make the most effective use of the marketing budget. 

 THE AUDIENCE
Media strategy explains the “how” of a media campaign. But before you begin, it is important to know the receiver of your campaign. All strategy starts with the audience . . . your customer. The person who purchases the products has direct bearing on overall advertising strategy.  The cost of delivering an advertising message is cost constraint, so it is important that you should avoid creating media strategy that has the possibility of speaking to no one or reaching no one.   Audience measurement is an important because it enables advertisers and media executives to estimate how many people are viewing or listening to their programs or commercials. This measurement provides estimates of audience size, composition, and media cost. Audience size has several possible measures:

  •  Circulation: The number of physical units carrying the advertising
  •   Audience:  The number of people exposed on the media vehicle (if the vehicle has pass on readership, then the audience is larger than the circulation)
  •   Effective audience:  the number of people with target audience characteristics exposed to vehicle.
  •   Effective ad-exposed audience: The number of people with target audience characteristics whoa actually saw the ad. There are different audience measurement companies such as Nielsen, which publish numerous reports, such as overnights and sweeps for advertisers, networks, and stations. Numerous other rating companies exist, some of which specialize in particular audiences or particular forms of programming. Some measures opinions about people and programs.  

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 THE MEASUREMENT
Given cost constraints, media planners try to select the media that will expose the largest target audience for the lowest possible cost.  The key notion here is the target audience. The process of measuring the target audience size against the cost of that audience is called CPM and CPR 
CPM, short for Cost Per Thousand, is ad impressions, an industry standard for measuring and selling ads. The ‘M’ is taken from the Roman numeral for “thousand.”  To calculate the CPM you need only two figures: cost of the message unit (page or 30 seconds) and the estimated target audience.  You divide the target audience’s gross impressions into the cost of the unit to determine the advertising budget needed to expose 1,000 members of the target. 

                                Cost of message unit
CPM    =  ——————————-   x 1,000
Gross Impressions

  This allows a media planner to compare media based on two variables: audience and cost. CPM is used as a comparative device. The lowest cost per thousand medium is the most efficient, all other variables being equal. Oftentimes the media with the lowest cost per thousand are selected, but not always. CPM may be computed for a printed page or broadcast time.  

 How to Calculate CPM
Magazine: for an issue of a fashion magazine has 600,000 readers who could be considered a target audience.  The advertising unit is a full-color page and its rate is PhP 75,000.  The CPM is: 

                               Cost of page x 1000
CPM    =  ——————————-
Target audience readers
                               

                            75,000  x 1000
=  ———————-  =  PhP125
600,0000
 

Television: a noon-time variety show has 1,000,000 target viewers.  The cost of 30-second announcement during the show is PhP 35,000.                           

                         35,000  x 1000
CPM   =  ———————-  =  PhP 35
1,000,0000
 

Some planners prefer to compare media on the basis of rating points (CPR or Cost per Rating)  instead of impressions.  The calculations is parallel to CPM with one exception: the denominator is the rating percentage  rather than the total impressions.                            

                             Cost of message unit
CPR    =  ——————————-
Program or issue rating
 

The figures the companies collect can be calculated in many ways:

Shares, PUTs, HUTs, PURs.
Rating is the audience of a particular program or station at a specific period of time expressed as a percent of the audience population. The rating may represent household viewing or a specific demographic audience segment’s listening or viewing.  

Share is the audience of a particular television program or time period expressed as a percent of the population viewing TV at that particular time. Share, then, is a percent allocation of the viewing audience and differs from the rating which is a percent of the potential audience. Share is usually reported on a household basis.  

HUT (homes using television) at a particular time, is expressed as a percent of all TV homes. HUT differs from rating because it combines all viewing, rather than identifying specific program viewing.  

PUT (persons using television) at a particular time, is expressed as a percent of all persons in TV homes. PUT combines all persons viewing, rather than reporting specific program viewing. Note that PUT and PVT (persons viewing television) are interchangeable terms in common usage.  

Ignoring variances caused by rating service reporting standards and multi-set viewing, the following mathematical relationships apply after first converting rating, share, and HUT to decimals.  

 

  • HUT x Share = Rating (HH)
  • Rating (HH) / HUT = Share
  • Rating (HH) / Share = HUT 

GRPs, TRPs, Reach and Frequency
The aggregate total (the sum) of the ratings is called Gross Rating Points or GRPs. The sum of the ratings of a specific demographic segment may be called Target Audience GRPs or more simply TRPs. The term GRPs is generic and may refer to household GRPs or to specific target segment GRPs.  

Reach is the number or percent of different homes or persons exposed at least once to an advertising schedule over a specific period of time. Reach, then, excludes duplication.  

Frequency is the number of times that the average household or person is exposed to the schedule among those persons reached in the specific period of time. Because it is an average frequency, dispersion of frequency of exposure will differ between specific schedules and daypart mixes.  GRPs, reach, and frequency are mathematically related in the following ways:

 

  • GRPs = Reach X Frequency
  • Reach = GRPs / Frequency
  • Frequency = GRPs / Reach 

There is no such thing as a perfect media plan. It is an organic creation specifically targeted to the product or service, the marketing objectives and the marketing budget.  One of the most potent tools to reach consumers is a media advertising campaign. When well conceived, a media campaign enables marketers to reach thousands of consumers simultaneously with a uniform, focused message. Bear in mind that media advertising is typically only one part of a company’s marketing mix. In the most effective marketing campaigns, the media advertising campaign works in synergy with other marketing initiatives such as sales, distribution channel strategy and customer service.  It is important for the marketing mix  to deliver a unified, focused message to the consumer. 

[published in ADEDGE Magazine ] 

Source: Media Math, NTC Publishing;  The McGraw-Hill Companies. Philip Kotler (Marketing Management); Wells, Burnet, Moriarty (Advertising Principle and Practice) 
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