Radio: The ROI Multiplier
First-ever analysis of confidential cross-agency data reveals radio’s true return on investment (ROI):
In a world first, this study evaluates radio advertising effectiveness in detail in terms of revenue return on investment (ROI) across a broad dataset. The results are based on an analysis conducted by Holmes & Cook of confidential ROI data supplied by nine econometrics agencies representing all major media agency groups, covering over 2,000 individual media campaigns across 517 separate advertising campaigns. The campaigns covered ten major sectors, and used a variety of multi- media combinations. All data were supplied direct by the agencies, and unbranded to preserve client confidentiality.
On average radio advertisers get their money back 7.7 times over, although some categories show exceptional performance, notably automotive and retailer brands, as well as impulse products. This makes radio the medium with the second-highest return on investment (TV is first), out-performing press, outdoor and online.
When the creative analysis from radioGAUGE studies is included, we see that the radio campaigns most likely to out-perform the average are those which have standout, present their message clearly and are seen to fit well with the brand. In terms of media planning, it is coverage rather than frequency which boosts radio ROI – there is a strong statistical link between these.
Perhaps most importantly, this meta-regression analysis allows us to assess the “multiplier effect” which different levels of radio spend have on overall campaign effectiveness. This reveals that brands which reallocate more of their ad budgets to radio see significantly higher returns in terms of overall campaign ROI.
Currently radio carries 6% of all advertising budgets, but this study demonstrates that if budgets were reallocated to give radio a 20% share of total spend – with no increase in overall expenditure – the total campaign ROI raises by over 8%.
For the top 100 radio advertisers, this is equivalent to recouping over £1.4bn additional return on their investment.
Radio has established itself as an effective advertising medium in the UK, and the Radiocentre holds over 600 case studies demonstrating this. Radio’s strengths mainly lie in the way it is consumed:
It seems to be this unique consumption pattern that, when underpinned with the important emotional support role radio plays in people’s lives, gives radio the “multiplier effect” which has been demonstrated many times in the Radiocentre’s major studies, notably:
Recently however there has been a dramatic change in the media effectiveness information available to advertisers. An ever increasing need to justify media investment is leading to marketing activity being analysed in far more detail than ever before, particularly in terms of identifying cause and effect. As a result, all the major agency groups now have econometrics specialists, and the effects of individual media within the media mix are being continually measured – albeit in confidence, and using slightly different modelling approaches in each agency.
To meet these objectives we needed data which would:
An initial consultation revealed a major challenge to these goals – no single econometrics agency held enough data about radio campaigns to tolerate this depth of analysis. The ground-breaking solution we developed was to pool all available radio-related ROI data held by the main agency groups to allow detailed central analysis to be conducted and underlying patterns revealed. There were two main stages to the study in order to ensure that it delivered against these requirements.
Across the 464 radio advertised brands in the study with ROI information, the average return on investment was £7.70. Put another way, this means that for every pound spent on radio, the advertiser receives £7.70 back.
Note that the ROI featured in this analysis is Revenue Return on Investment (rather than e.g. profit ROI) as this was the measure that most agencies reported.
This makes radio the second most efficient medium after TV in terms of ROI, which aligns with the findings of Thinkbox’s Payback 3 study from 2011, which evaluated profit ROI of the different media channels.
Radio return on investment is found to vary between sectors and this is illustrated in Chart B1. The top performing category is retail, with an average ROI of almost £20 for each pound spent on radio advertising.
This variation in ROI by sector is neither unexpected nor peculiar to radio. The ROI information from the IPA Databank also demonstrates differing returns from individual sectors, with variances broadly analogous across the two datasets, where comparisons can be made.
As we explore later, many factors can influence campaign ROI including type/frequency of purchase, brand maturity and position in market. Clearly these vary considerably from sector to sector and therefore influence the average ROI results accordingly.
Please note: media where there were fewer than five reported observations are not shown, and sectors where radio was the only medium with 5+ observations are also not shown.
This is the sector where radio has its highest ROI score of all at £18.90 for every advertising pound spent – nearly three times the press average of £6.50.
Radio is famously able to speak to important retail audiences around shopping occasions and at other critical times during the day e.g. mums during the school run.
Historically retailers have been very heavy spenders in the national press which like radio, is consumed mainly during the “retail day” when stores are open. However, with a higher share of media time, radio is more effective at building share of mind for retail brands.
Radio comes top in the automotive category, with an average ROI of £6.00 across 42 observed campaigns, while press and TV are in second and third places respectively, with ROI scores of £4.90 and £3.70.
Radio’s positive result is unsurprising given the medium’s ability to communicate with audiences in-car, deliver high share of voice for automotive brands relative to other media, and its proven effect in driving people to engage with brands online – an important goal of many automotive campaigns.
There are only two media available for comparison in the Finance & Insurance categories, as there were fewer than five ROI observations in TV, outdoor or online.
Radio comes ahead of press with an ROI of £2.30 in this, one of the most competitive advertising sectors.
Radio’s strong performance may be down to the way it reaches out beyond the in-market audience and builds emotional connection with finance brands. Radio’s ability to drive online behaviour is also important in this sector, because the internet is now the most important customer interface for finance brands.
Radio is the best performer for Leisure and Entertainment advertisers with an average ROI of £11.00 over 26 campaigns.
It may be radio’s strong call to action which is making the difference in this category, where many purchase decisions are one-off rather than habitual (e.g. tickets to events).
Travel is a sector where the advantages of using radio are clear – radio comes top in ROI terms, returning £5.70 on average for every advertising pound spent. This may be because of radio’s ability to stimulate an emotional response coupled with its strength at driving business online, where consumers access the travel brands directly.
In this sector radio’s ROI score of £1.90 comes third, behind TV and press. TV has historically always dominated the FMCG category, and this is true in this study with over half of all FMCG campaign budgets (57%) still spent on TV.
Bearing in mind radio’s strategic qualities for FMCG brands - such as reaching people around shopping occasions and ability to efficiently amplify the effects of TV campaigns – this is a somewhat surprising result.
However, as the graph to the right shows, with an ROI of £24.00 at least one FMCG advertiser has found a way for radio to match and exceed best ROI performance of any other medium (a pattern that is repeated across most sectors in this study).
Because this isn’t an issue about audience – the main shopper audience is one of commercial radio’s key constituencies, with 28 million tuning in every week – this suggests that other factors, such as media planning and creative approach, can make all the difference to radio ROI. We explore the influence of these in further detail in the next section.
As we have seen, individual brands can far exceed their sector’s average. So the next stage of the analysis looked for correlations between high ROIs and variable factors such as radio campaign laydown and creative characteristics.
Of the 229 cases where radio-generated sales uplift data (per £100K media spend) was available, 131 also included J-ET data which allowed the researchers to investigate the impact of coverage and frequency on sales.
The results were conclusive, if somewhat unexpected: in radio advertising, the impact of increased coverage on sales is far stronger than that of frequency.
In the sample, the mean average weekly coverage was 16%, with a maximum of 40%. When this data was modelled against sales uplifts from radio, the results demonstrate significantly improved returns at the higher coverage levels and support optimising weekly coverage beyond the 40% limit of our dataset.
This is news for the way agencies normally plan radio as “the frequency medium”, and suggests that coverage is the new touchstone for optimising radio effectiveness.
Having established the effect of media planning practises the next stage of the analysis looked for correlations between high ROIs and creative characteristics, sourced from radioGAUGE tests. Of the 229 cases with recorded sales uplifts, 27 also had radioGAUGE data, from which these findings have been derived.
The three factors which characterise strong sales uplift in this study are:
These indicators harmonise very clearly with historical Radiocentre analysis of effective creativity:
As demonstrated in the chart to the right, the Radio ROI Dataset indicates a relationship between improved overall campaign ROI and higher share of budget allocated to radio.
In many respects, this is not surprising. As a basic premise, redeploying media spend to more effective (higher ROI) media should mean that campaigns become more efficient.
However, as we revealed in the sector-level analysis, many other factors can influence outcomes at an overall campaign level, so we used meta-regression analysis of the 132 overall campaign ROIs to identify the most efficient patterns of media budget deployment involving radio taking all of these variables into account.
To see all the findings from this category download the full report.
The conclusions of this study are clear: radio is currently underinvested in by advertisers.
The Radio ROI Dataset highlights a distinct imbalance between ROI delivery and level of investment by medium – radio receives the lowest share of media budgets yet achieves the second highest ROI.
At a wider level, radio is demonstrated to deliver significant improvement in overall campaign ROI when used optimally. To exploit this effect fully and unlock significant gains in untapped revenue, advertisers should consider:
This study highlights how understanding radio campaign delivery is an important variable in optimising radio ROI, yet detailed data about campaign weights doesn’t always bridge the gap between buyer and econometrician.
In consultation with our partner agencies in this project, the Radiocentre and J-ET are working to develop a campaign outputs report to feed into econometric analysis which buyers will be able to share at the press of a button.
It is anticipated that this will be launched early in 2014 and incorporate information along the following lines:
If you would like to discuss these findings in more detail please contact us:
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