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The Time Is Right to Question CPPs

July 30, 2020

Cost per point (CPP) often dictates radio’s transactional business and even some non-transactional business. Unfortunately, some advertisers (and buyers) use CPP as their primary decision of where to place their advertising. To them, the cheaper it is, the better the value.

While this has always been a short-sighted decision, it is even less wise now. COVID-19 has led Nielsen Audio to report lower rating points for most radio stations, especially in the larger markets. While this is a temporary setback, our industry is over-dependent on CPP for pricing. There are several reasons for this …

A CPP HAS NEVER BOUGHT ANYTHING: By relying on CPP, an advertiser is treating consumers like a commodity, where there is no difference between them. Consumers are not a commodity. They all have different buying habits, lifestyles, and preferences. None of this is reflected in CPP.

CPP is based on AQH rating: Why is our advertising dependent on AQH ratings? Historically, it was because television, which commanded the bulk of advertising dollars, relied on CPP. Therefore radio had to follow suit. As digital advertising has grown, gross impressions have become more common. Right now, we are standing alone in the CPP world.

Rounding makes CPP near useless: This is especially true in a PPM world. One can look at a standard ranker and see a half dozen (or more) stations with a 0.4 rating. However, there is a good chance that none of them really have a 0.4. Their AQH rating could range between a 0.35 and a 0.44, a 26% difference. But both round to 0.4 and are therefore considered the same.

So what is the solution? Yes, radio, like every other commerce activity, needs a pricing model so advertisers can compare different values. The solution is to start the discussion.

One option is to build and compare radio station packages on net reach cross-referenced with the appropriate qualitative category. This would tell the advertiser the cost of reaching targeted potential consumers. PPM has shown that radio is superb in reaching consumers, and individual radio stations are great at targeting. Combining the two can show an advertiser the real value of their radio schedule.

At the very least, our industry should start the discussion on how to properly price so that advertisers can get real noticeable value out of their radio ad campaigns. CPP’s time has come and gone.

I would like to hear from you to keep this discussion moving forward. Please comment below or reach out to us directly here.

-Charlie Sislen, Partner