Advertising Metrics This module covers the concepts of impressions, gross rating points, CPM, reach, frequency, and share of voice. Author: Paul Farris Marketing Metrics Reference: Chapter 9 © 2014 Paul Farris and Management by the Numbers, Inc.

2 MBTN | Management by the Numbers Impressions I MPRESSIONS Impressions are the basic unit of advertisement measurement. Each time a person has an opportunity to see an ad, an exposure, or impression is counted. More accurately, these are Opportunities to See as we don’t know if the person actually paid attention. Definition Impressions = Exposures = Opportunities to See (OTS)

G ROSS R ATING P OINTS (GRP S ) Gross Rating Points (GRPs) Definitions: Gross Rating Points (GRPs) represent the sum of Rating Points over several media vehicles (note, sometimes provided as a %). Target Rating Points (TRPs) is the same concept as GRPs but replace the total population with a specific target group. Especially important for advertisers who wish to reach a particular audience. Rating Points are used to describe the audience or “reach” of a single advertisement or program. For example, if NBC Nightly News has a rating of 20% (or 20 rating points), that means that a single advertisement will be seen by 20% of a population. When multiple ads are considered, we sum the rating (points) across all ads to determine Gross Ratings Points (GRPs). Therefore, the rating of single advertisement will never exceed 100. However, GRPs will usually exceed 100 because the advertisement (or advertising campaign) will be shown multiple times and often across different media choices. MBTN | Management by the Numbers 3

C OST P ER I MPRESSION AND CPM Cost Per Impression and CPM Definition CPM ($) = 1000 * Cost of Advertising / Impressions Generated To measure the cost efficiency of campaigns, advertisers monitor the cost per impression. Given this is likely to be an impractically small number (fraction of a cent) CPM is more often quoted. CPM is just the cost per thousand impressions or the cost per impression x Question 1: What is the CPM for an ad that generates 20,000 impressions and costs $400? MBTN | Management by the Numbers 4 Answer: CPM= 1000 * Cost of Advertising / Impressions Generated = 1000 * $400 / 20,000 = 1000 *.02 = $20

Definition Total Impressions (#) = Frequency (#) * Reach (#) R EACH AND F REQUENCY Reach and Frequency By definition then, Impressions are the product of the number of people (Reach) & how many times they see it (Frequency) If impressions are the basic unit of measurement in advertising, a company might also be interested in how those impressions are distributed across a target population. The company might want to know how many different people are actually being exposed to their advertisement (known as “reach”). They also might be interested in knowing how often (on average) someone sees their advertisement (known as “frequency”). MBTN | Management by the Numbers 5

Definitions: Reach (#) = People who have been exposed to an advertisement Effective Reach (#) = People exposed at or above a given effective frequency level (i.e. only registers if a person has seen an advertisement three times) R EACH Reach A Venn Diagram is often the best way to illustrate the Reach of an advertising campaign. Note that the qualifier “net” is often used to emphasize that individuals are not double counted when calculating reach. Therefore, Net Reach is equivalent to Reach. Reach of Advert B Caution: Only count once Reach of Advert A MBTN | Management by the Numbers 6

F REQUENCY Frequency Definitions Average Frequency = Average number of times each person who has been reached has an opportunity to see the advertisement. Frequency (#) = Total Impressions (#) / Reached Individuals (#) Effective Frequency (#) = Number of times a person needs to be exposed to an ad for it to be counted as “effective”. MBTN | Management by the Numbers 7 Insight It is important to note that frequency is defined, perhaps non-intuitively, as the average number of times each person reached was exposed to the advertisement. It is NOT the average number of exposures for everyone in a population, whether reached or not. Therefore, if reach is 10% and GRPs are 200, then average frequency is 20. For the 10% of the population who has been exposed to the ad at least once, the average frequency of exposures is 20.

F REQUENCY R ESPONSE F UNCTIONS Frequency Response Functions These are three common assumptions about responses to advertising: 1)Linear: e.g. Steady progress. As advertising spend increases, the response increases. 2) Threshold: e.g. Complete effect at a certain point or threshold. 3)Learning or S-Curve: e.g. Accelerating response followed by decelerating marginal effectiveness. MBTN | Management by the Numbers 8

E XAMPLE 9 Example MBTN | Management by the Numbers Question 2: Phil’s Phabulous Olive Oil just completed their launch advertising campaign for their new line of Phlying Phish Oils. They purchased 20 local cable TV ads which generated 25,000 impressions each. The company’s advertising agency estimated that the average frequency was 12.5 and that 20,000 people had seen it at least 3 times. What was the reach of the advertising campaign? If their target population was 100,000 people, what was the GRP for the campaign? Answer: Reach= Impressions / Average Frequency = 20 * 25,000 / 12.5 = 500,000 / 12.5 = 40,000 GRP= 500,000 / 100,000 = 500% or 500 GRP

S HARE OF V OICE Share of Voice Definition Share of Voice = Company Advertising Spending / Total Advertising Spending in the Market Definition Share of Voice = Company Impressions / Total Impressions in the Market Conceptually it may be better to use impressions to measure share of voice to take out the impact of potential cost differences to the advertiser. A company might want to compare the impact of their advertising with their competition. Share of voice is one measurement used to measure this relative difference. It does not, however, capture the overall effectiveness of the advertising campaign. MBTN | Management by the Numbers 10

E XAMPLE 11 Example MBTN | Management by the Numbers Question 3: Phil’s Phabulous Olive Oil had one other competitor who also ran a local ad, but using radio instead. The competitor’s ad campaign generated 200,000 impressions at a cost of $40 CPM. What was cost of the competitor’s ad campaign? What was Phil’s share of voice based on impressions? Answer: We know that CPM= 1000 * Cost of Advertising / Impressions, so… Cost of Advertising= CPM * Impressions / 1000 = 40 * 200,000 / 1000 = 8,000,000 / 1000 = $8,000 Share of Voice= 500,000 / (500, ,000) (Impressions)= 500,000 / 700,000 = 71.4%

F URTHER R EFERENCE 12 Further Reference MBTN | Management by the Numbers Marketing Metrics by Farris, Bendle, Pfeifer and Reibstein, 2 nd edition, chapter 9. - And - MBTN Web Metrics Module which focuses on metrics specifically for on-line environments and includes definitions and examples of hits, pageviews, visits, visitors, clickthrough rate, cost per click, cost per order, cost per customer acquired, bounce rate, abandonment rate, and cost per friend.