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Calculating Media Costs - Briefing How Are Media Costs Determined? A variety of different factors influence the rates charged by promotional media. These factors include: Circulation (size of the audience) o Circulation is the most significant factor affecting media costs. o In most cases, the larger the media vehicle’s audience, the higher the cost of advertising space or time will be. Production costs o Production costs vary a lot within and across media. o High-quality television and magazine advertisements can cost a great deal to produce. o On the other hand, local radio and newspaper advertisements are relatively inexpensive to produce. Preferred space positions o Airing an advertisement at a specific time or running it on a particular page generally costs more. Available discounts o Some discounts are available to reduce the costs of promotional media. o Discounts are often offered on the basis of size, frequency, or dollar volume. Demographic makeup of the medium’s targeted audience o You can typically expect to pay higher advertising rates in media vehicles that have narrowly defined audiences than in ones that are targeted at general audiences. The vehicle’s editorial climate, credibility, and prestige o A publication like The Wall Street Journal has greater credibility and prestige (and typically charges more) than the National Enquirer. Reproduction quality o Magazines with excellent reproduction quality, such as The New Yorker, can command higher rates than publications with lowerquality reproduction. Calculating Media Costs - Briefing Determining Costs for a Medium Each medium is unique, with its own terminology used to describe how its promotional time or space can be purchased. The factors that influence the final cost and the kinds of discounts for which an advertiser can negotiate also vary. Let’s consider each medium: Newspapers o Newspaper circulation and audience composition are the major factors in determining newspaper advertising rates. o Newspaper advertising production costs tend to be very low; many papers do not charge the advertiser for any production costs. o Media costs can increase as a result of: Position preferences Color requirements Split-runs (a printing technique that allows publishers to print different ads for the same product in alternating copies of the publication) o Newspapers have traditionally charged less for local advertising than for space purchased by national advertisers. o Rate information is provided through rate cards (price lists showing rates for space or time) made available to prospective clients. o Newspaper space is primarily sold in standard, advertising columninch units; types of rates newspapers offer for these units include: Flat rates Sliding-scale rates Combination rates Magazines o Magazine rates are primarily determined by circulation and audience composition. o Production costs for magazine advertisements can be quite high. o Magazine publishers pass production costs on to the advertisers, making the average total cost for magazine advertising considerably higher than that for newspaper advertising. o Additional charges may be incurred for preferred magazine space (e.g., cover positions). o Nearly all magazines offer color production for an additional charge, but the additional charge varies greatly. o Other production options which increase the rates which a magazine charges include: “Bleed” pages Gatefolds Spreads Split-runs o Magazines offer size, frequency, and dollar-volume discounts and combination rates. Calculating Media Costs - Briefing Determining Costs for a Medium (cont’d) Television o As a promotional medium, television offers many advantages, but costs can be high. o A larger audience and higher audience ratings mean higher rates for space, or in the case of television, time. o Time availability is a significant factor in determining the cost of television time; demand for time during peak winter seasons is high, and time availability is low, causing rates to increase. o To obtain lower rates, advertisers can purchase run of schedule (ROS) time; ROS rates are lower because the ad is run at the station’s convenience rather than in a specific time slot. o Commercial length influences media costs in two ways: Longer commercials require that more time be purchased. Longer commercials also cost more to produce. o Television rates are set according to “gross rating points” (GRPs). One gross rating point indicates that one percent of the audience (reach) has the opportunity to be exposed to a message one time (frequency). GRPs are determined by multiplying reach by frequency. GRPs are usually computed on a four-week basis, with 240 GRPs used as a standard for measurement. o Local television stations set their own rates and discounts which are known to change frequently. Radio o Radio promotion costs are determined in large part by audience size and composition, time availability, and commercial lengths. o Production costs, though generally far less than for television, can still vary widely. o Commercial radio time is divided into dayparts (e.g., morning drive time, evening drive time, daytime, etc.). o Radio stations, on the average, offer the largest discounts of any media vehicles. o Radio stations offer less costly, run-of-schedule (ROS) air time which allows the radio programmer to run the ad whenever it fits into the schedule. o Most stations try to sell time in weekly package plans referred to as total audience plans (TAPs) Calculating Media Costs - Briefing Determining Costs for a Medium (cont’d) Internet o Internet advertising is extremely popular, trailing only newspapers and television in terms of money spent. o One method used to determine online advertising cost is cost-perthousand, also known as cost-per-mile (CPM). Advertisers pay a certain amount for each lot of one thousand “impressions” of their ads that will appear on the publisher’s web site. o Another popular way to calculate the cost of Internet advertising is cost-per-click (CPC). Advertisers pay a certain amount for each “click” that they receive from the publisher or search portal. o In general, Internet advertising costs vary based on the: Creative type (e.g., text-only, image-only, multimedia, etc.) Size (e.g., banner, leaderboard, skyscraper, etc.) Placement Delivery o E-mail advertising is often quite cost-effective due to low distribution costs and potentially high reach. Out-of-home media o Out-of-home media consist of outdoor and transit media. o Outdoor advertising rates are mainly determined by audience size, which is determined by the ad’s visibility, its location, and the population of the area in which it is situated. o Outdoor advertising cost is also influenced by the size of the space, length of time for which the space is purchased, sign illumination, and any production costs. o Outdoor ad space comes in the form of: Painted bulletins Poster panels (billboards) Spectaculars Transit advertisements Direct mail o Costs for direct mail differ from costs of other media because they are a product of some entirely different factors, including: Postage and delivery rates Production costs Mailing list costs Labor costs o Total costs for direct mail can vary significantly and at times be quite high. Calculating Media Costs - Briefing Calculating Media Costs Formulas Used to Calculate Relative Cost Media costs can be viewed in several ways. Most businesspeople want to know absolute as well as relative media costs to satisfy their need for information. Absolute cost o Answers the question, “What is the total expenditure for an ad or series of ads?” o Is equal to the cost of production incurred by the advertiser, if any, plus the cost for time or space purchased The cost of promotional media time or space can be easily determined by consulting rate cards, Standard Rate and Data Service (SRDS) directories, etc. Relative cost o Is based on cost per thousand (CPM) [commonly used by print and Internet media] or cost per rating point (CPRP) [used by broadcast and outdoor media] o Is used to determine to which one media vehicle is more efficient/cost effective than another o Involves completing the following steps: Gather rate information and audience size estimates. “Plug in” to appropriate formulas and calculate. Interpret and compare costs across media vehicle options. Cost per thousand (CPM) = (Cost of the ad × 1,000) ÷ Target audience Cost per GRP = Budget ÷ Number of GRPs