Question: I’m considering investing a large sum of my small company’s advertising budget in Pandora (P) radio. They claim to provide a 1.8 percent to 2 percent click-through rate out of 200,000-plus radio listeners, but I’m very nervous. How do I evaluate the return on investment of this and other advertising options?
Answer: Small business owners with limited budgets should never commit large chunks of their ad money to new channels while simply crossing their fingers and hoping that their messages stick. If these ads don’t achieve the results you need, you may face a long, dry spell without new customers before you can afford additional advertising. So you’re right to be nervous and perhaps to put more thought into this opportunity.
Pandora is an Internet radio company that offers free content and paid subscriptions. Paying subscribers do not get ads; free subscribers listen to music and ads, similar to what they’d hear on traditional radio stations. The ads are hybrids of audio and print because listeners hear the content and see displays on their computer or device—if they are looking at the screen while the ad plays.
In terms of the click-through rate you cite, Pandora’s director of corporate communications, Mollie Starr, says the company doesn’t reveal them publicly, though she notes they’re shared with clients as part of campaign reporting. “That said, it’s certainly possible for a campaign to have a click-through rate in that range, and we’ve seen some great successes in the past,” she writes in an e-mail.
Evaluate where such an ad buy would fit into an integrated advertising and marketing campaign that successfully reaches your target customers with the most tailored message you can devise. “It’s important to consider your goals, your target audience, and what sort of targeting criteria you want to put on the campaign,” says Court Cunningham, chief executive of Yodle, an online lead-generation firm based in New York.
For instance, is your goal for this campaign direct response or branding? If you’re looking primarily for brand awareness, radio or television commercials can be good options, says J.T. Hroncich, managing director and principal of Capitol Media Solutions, an advertising agency based in Atlanta. If you’re more interested in driving traffic and orders to your website, digital advertising may be a better option. “What does ROI mean for you: feet in the door? Qualified sales leads? Phone calls or visits to your website?” Hroncich asks.
Answer those kinds of questions first, then plan a strategic, trial-and-error campaign that gives you lots of flexibility. “Never sink your entire advertising budget into one medium. Put your toe in the water and try out a few and see which offer the best results,” Hroncich says. “Digital is great for testing campaigns because you can view your results pretty quickly and, if something is not working, you can make changes to the campaign during the campaign. You don’t have that kind of flexibility in TV, radio, outdoor, and some print.”
Rob Valerio, president of Central Planning Organization, a Los Angeles-based Internet marketing and consumer research company, says established companies commonly devote no more than 10 percent of their advertising budgets to test new avenues. “The other common practice now with small company marketing is to divide their advertising budgets into five areas with equal spending. The current best results for small businesses are e-mail marketing, pay-per-click, content marketing, direct mail, and social media, for certain products and services,” he says.
Don’t take any company’s response rates as gospel, especially those in new media where the advertiser and user experiences are still evolving, says Stephen M. Rapier, a marketing faculty member at Pepperdine University’s Graziadio School of Business and Management. “My suggestion would be to assume, unless you are a significant brand, that your performance will be around 50 percent of the average. If that’s OK with you, dedicate a specific, time-bound budget for a test run and develop a set of performance metrics, such as clicks, cost-per-click, click-through rate, or impressions that you feel you must meet to achieve a reasonable ROI,” he says.
Be prepared to monitor the response to your ad on a daily basis and tweak it as needed to see if performance improves. “Measure the results of your test against your performance metrics to gauge the viability of a full campaign. If it yields the performance you estimated, then scale and repeat for a more extensive campaign,” Rapier says.
Pandora tends to reach consumers in the 18-to-49 age bracket with disposable income, says Valerio: “Car companies, politicians, and food brands seem to do well with Pandora. My impression is that it works best with branding exercises, and less with click-to-purchase.”