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Dave Ramsey on the Future of Radio’s Business Model

As the demands of radio’s business change – as advertisers look beyond ratings to effectiveness – how should broadcasters adapt?

That’s the question I put to Dave Ramsey, host of the nationally syndicated Dave Ramsey Show, which is heard on more than 500 radio stations throughout the US and Canada. Dave’s also an author, television host, and speaker.

Listen to our full conversation – it’s a must-hear if you’re on radio’s business side:

Alternate version:

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And here’s an edited transcript:

Dave, on a conference call with your affiliates recently you noted that the nature of business, both for your company and for your broadcast affiliates, is transitioning from more transactional business to relational business. We know what “transactional” means but what do you mean by “relational?”

What it amounts to is that the marketplace has tightened up with the economy slowing down and people are scared, they’re paralyzed, or at least they’re very, very careful. The only way that they are able and willing to emotionally invest in something like radio advertising, as an example, is they have to have a high level of trust.

Radio is no longer a commodity that you can just sell on volume based on points and numbers and ratings and so forth. You now have to go in and sit down with the business owner and explain to them that when they put in X dollars, they’re going to get a return on investment of Y and this is why our radio format and our reach is going to work for you.

And then you have to babysit them and hold their hands and actually cause them to do business with you in a way that they are happy they did – meaning advertising that works and is “free” because it makes you more than it costs you.

It’s our job in the radio business, and it’s our job in any business any time we do business with a customer, for them to come away with having had that experience.

You’re arguing for something that’s a lot deeper than simple ROI. There’s this myth that advertising dollars will be either accountable (like Google Adwords) or transactional (as enabled by Arbitron), but you’re saying it’s more than that.

Right. There are some institutional buyers (and there always will be) who have more dollars than brains; but when it gets right down to it everyone is looking for ROI, whether it’s branding or whether it’s direct response or whatever it is in the advertising world.

I run a small business and so I’m looking for ROI. I mean if I’m buying ads in Talkers Magazine or Inside Radio and we don’t see response for that – if no one ever mentions that they saw that ad – then we’re doing something wrong.

But guess what? That vendor allowed us to do that and it’s going to cost them a client because we’re going to choose not to put those dollars where we don’t get a response.

What do you say to the broadcaster who says “Well I understand how Google can provide ROI but how do I, a radio station – where the message goes out into the ether – how can I provide that kind of accountability and that kind of relational response from advertisers?

I mean just try putting your customer shoes on and walking around in them a little bit. If you’re a guy that owns a heating and air business and you’re going to buy advertising on a talk radio station you need your phone to ring, you need to sell some heating and air units, you need to sell some service plans, there needs to be a response to this. If I’m in the radio business my job is to make that small business guy successful. I’ve got to make him win.

That jewelry store, they’ve got to be selling some engagement rings. My job is to visit their store and actually put some effort into the copy points and try to think like their customer thinks, understand what the demographics of their customers are, not just sell them an ad and then wonder why it didn’t work and then go sell somebody else an ad and then wonder why it didn’t work, either. That’s so transactional and it’s such short-term thinking.

The fun thing about doing sales right is you don’t have to do them over and over.

Some broadcasters will say that may be true for direct business, but for agency business all they seem to care about are “spots and dots.”

Well they do, but at the end of the day their customer doesn’t, and so even if they are thinking that way you’ve got to pierce through that and build relationships with the agency, with the people that are involved, and really dig in and actually care about the success of the ads. If you don’t you’re going to be really be struggling.

Agency money is completely transactional, it’s fickle. It’s as fickle as it is transactional, and it’s going to move with the wind. You get one bad book because somebody’s PPM beeper was placed on the wrong three people and all of a sudden, you lose your entire cash flow.

This movement of dollars from transactional to relational – the problem is that the pool of transactional dollars available is literally shrinking, right?

It is, and Seth Godin’s really got his finger on this as good as anybody teaching marketing right now. He keeps discussing tribal marketing and how you have a constituency and a following to a brand or to a station or to a format and to understand that and to exercise the NTR and the relational sales that could come out of that – it’s the only way to sustain going forward.

The days of us just barking in people’s faces until they feed the dog – those days are about done. There’s not enough money out there right now for people to be excited about doing that. When money is flowing and the economy is all white-hot, then people are a lot sloppier and they don’t care as much about relationships. They’re just throwing money around trying to see if something will work.

But right now every dollar is so precious. Again, the good news is when you do servant-type selling (where you see your client as someone you’re supposed to be serving) you’re not there to twist their arms, you’re not there to manipulate them, you’re not there to put some technique on them, I really want to find out how I can help you – my client – win. And when you start thinking that way you get clients for life.

We’ve got people advertising on the Dave Ramsey Show who have been with us for 20 years and are still advertising. It’s so much easier to collect that check and cash it every month than go find a new one all the time.

What’s the implication of this in a world where Arbitron is the standard metric? We’re all about evaluated by Arbitron to a degree, or at least we allow ourselves to be evaluated that way. What does it mean for the future of that measurement and our rather slavish devotion to it?

Our only slavish devotion to it is if we’re selling transactionally.

We don’t sell the Dave Ramsey Show on Arbitron points. We sell it on results. We sell it on relationships. I don’t have a single client advertising with me nationally (and I don’t have that many even locally) who even know what my ratings are. They don’t give a rip. All they know is that advertising on my show has changed their lives.

Now do you need to demonstrate that to them or do they simply see it by the results?

They see it by the results. None of it was based on Arbitron points.

And how did we achieve results? Because we dug into their business and we said “Hey Churchill Mortgage…Hey Zander Insurance…How does your business work? Who are your clients? What do they care about? What are their dreams? What are their fears? What are their nightmares? How can you and I get together and serve your clients using radio to do that?”

It gets really exciting when you actually give a rip.

Your platform – your business – is in radio but also in a lot of other areas, and I think it’s a great illustration of what radio really can be at a time when radio is really the union of relationships between fans and advertisers across platforms. I wonder what advice you would give to broadcasters who think much more narrowly, who think only about the audio manifestation of their brand and perhaps not about these other possibilities?

Well you’re missing out if you do that. You’re not only missing out on the monetization of the brand but you’re missing out on the stabilization and the longevity of the brand. You lose the opportunity to do business with your customer when you limit it to one medium or one process.

But the worst part is that they are going to absorb other things and they’re either going to get them from you or from somebody else, so you’ve got to be their provider. You’ve got to be their trusted resource for all things traffic, for all things weather, for all things – whether it’s an Internet app, a stream, an iHeart or, a digital footprint application, all the podcasts, nine million different ways now that we can get to the consumer and serve the consumer.

The consumer doesn’t really care how you serve them. All they know is that you serve them.

You’re saying: Pick something to be famous for and then be famous for that everywhere and in every way.

Absolutely. Own your corner of the world so big…you’re such a big gorilla that nobody could come into your corner. You’ve got all the bananas.

You spend a lot of your time every day in the audio world. From your perspective, what is it about audio that’s so compelling and effective?

For me, talk radio is one of the most intimate mediums there is. The talk radio hosts that have been inordinately successful know that audio is theater of the mind. They know that every pause, every nuance, every twist of a phrase, every use of humor, all of those things are about creating a compelling situation that pulls people back together.

I’ve done television, I do a lot of TV spots, but the thing about long form audio and talk radio is that it gives you the ability to unpack an issue in detail but in such a way that it’s compelling and it draws the consumer in.

I remember 15 years ago I was in a breakout session when I was just really starting to get a tiny bit of momentum and a guy said “Well if you’re doing radio that causes the mom with two kids in the car who has picked up her groceries, and her ice cream is in the back seat melting because she’s sitting there listening to that call, that interaction, that rant, now you’re doing talk radio that’s going to always survive.”

Dave, thank you so much for everything you do and for your time today.

Mark, it’s an honor to be with you. We love what you do, brother. Thank you for having me.

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