Radio heads for the big time

The growth in radio advertising revenues over the past six years has almost gone off the dial. A leap of 155 per cent between 1991 and 1997 has lifted radio’s ad take to the 330m mark. But the industry watchers are wondering whether this rate of increase, running at about 25 per cent a year, can continue – and from where future growth will come.

After all, the first half of the decade has seen commercial radio come of age with the launch of the first national commercial radio stations and a plethora of new local broadcasters. And ad spend across all media disciplines has experienced healthy increases since 1991. Could it be that radio advertising has reached a plateau, and will settle down to more steady growth rates?

Thankfully for the industry – and for brand advertisers – the evidence suggests there is still plenty of room for radio advertising revenue to keep increasing. There are sectors which have yet to tune in to radio advertising, and the task for the industry will be to persuade them to plough more of their spend into radio and away from press and TV.

Food advertisers, for example, channel just 1.2 per cent of their ad budgets through radio. This minuscule figure is surprising, given radio’s undoubted knack of reaching housewives with children. If commercial radio could succeed in increasing this share to five per cent, radio’s revenues would swell by an additional 19.5m. In one hit, radio’s revenue would rise from 329m to 348.5m, a six per cent jump.

The cosmetics and toiletries category is another sector still largely untapped by radio: just 0.9 per cent of the sector’s 342m budget is given over to radio. A similar story can be told of the financial services sector. But this could change if the rules on “wealth warnings” – which require financial service providers to add warnings to ads about possible dangers of investment – are relaxed.

Mail order advertisers also represent an excellent opportunity. Traditionally very press-oriented, the encouraging aspect for radio is that mail order advertisers now seem more prepared to experiment with radio than in the past.

Interestingly, the entertainment sector has bucked the trend and is cutting the proportion of spend given to radio. This reallocation of marketing resources has mainly benefited outdoor media.

The ability of commercial radio to grab an ever-larger slice of the advertising cake is illustrated by the medium’s share of advertisers’ above-the-line budgets, which has now hit 4.7 per cent. This is a marked improvement in the five years since radio was dubbed “the two per cent medium”.

This new-found attraction to radio has extended across a wide range of categories. In 1991, over a fifth of the 33 advertising categories tracked on AC Nielsen-MEAL (or Register-MEAL as it then was) allocated under 0.5 per cent of their total advertising budgets to radio. In fact, three categories spent absolutely nothing on radio – DIY, housewares and agriculture.

By 1996, only tobacco advertisers set aside under 0.5 per cent of their budget for radio. This is hardly surprising since cigarette advertising is banned on radio, and only cigar and pipe-smoking commercials are allowed.

In fact, five groups of advertisers now spend over ten per cent of their ad budgets on radio, outstripping the average of 4.7 per cent. These are business-to-business products and services, household furnishings, educational, entertainment and government services.

Indeed, the business-to-business sector most favours radio, capturing 16 per cent of its traditional media spend.

Business courier companies make up a large part of this spend – with

DHL spending about 30 per cent of its budget on radio, UPS spending 19 per cent and Business Link 17 per cent.

The sector that has seen the greatest conversion to radio has been house furnishings, which allocates 15.7 per cent of ad budgets to radio compared with 1.7 per cent in 1991. Within this category, doors and window company Coldseal dominates, with nearly four-fifths of its annual advertising budget of 5.1m spent on radio.

The growth in ad revenue over the past five years, and the likely growth which is yet to come, has been aided by a number of developments giving commercial radio a credibility it has never had before.

The launch of the national stations has enabled media planners to use one station to underpin national campaigns. The launch of Classic FM in 1992 was crucial, as it was the first time a national commercial radio targeted those high-spend ing, listeners who defected from Radio 3 and Radio 4. That a station should attract such listeners has improved advertisers’ view of the medium.

The launch of Rajar, the audience measurement system, was another boost to commercial radio. As it was a joint investment with the BBC, it helped give commercial radio’s audience figures an added credibility.

The Radio Authority has encouraged a diversity of station formats, with licences granted to stations ranging from Christian channel Premier Radio to indie station Xfm. This has led to increased choice among consumers, which, in turn, has helped advertisers to pinpoint new ways of targeting audiences.

The conditions are right for radio to keep building ad revenues, if only the industry can persuade some of the least radio-friendly sectors of its benefits. They can point to food companies such as McVitie’s and Burtons Biscuits, personal care giants such as Gillette and Warner Lambert and financial services provider Swinton as examples of what advertisers in these radio-unfriendly sectors can achieve through the medium.

It is a question of persuading other companies in their sectors that radio can deliver what its competitors cannot.

What radio does offer is the capacity to intrude in listeners’ lives almost without them knowing, a powerful attraction for categories which consumers may deem to be of low interest to them. This happens because radio ad breaks usually arrive unannounced, and on the whole listeners will ride with the ads rather than make an effort to edit them out.

Listeners still hear the ads even if they think the product is of limited interest. This ability to sneak under the editing radar contrasts with television, where viewers are alerted to the arrival of ads and can evade them if they wish.

The radio industry plans to turn up the volume on this message, and to encourage some of the UK’s top advertising sectors to think about changing channels.