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Practical Measures to Increase Transit Advertising Revenues (2009)

Chapter: Chapter 1 - Background

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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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Suggested Citation:"Chapter 1 - Background." National Academies of Sciences, Engineering, and Medicine. 2009. Practical Measures to Increase Transit Advertising Revenues. Washington, DC: The National Academies Press. doi: 10.17226/14269.
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9Problem Statement Transit advertising is a small but important contributor to the operating budgets of public transit agencies across the United States. Thanks in part to advertising revenue, which typically represents less than 5% of a transit agency’s operat- ing funds (1), public transit agencies are able to keep fares within reach of the populations they serve, thus meeting the most fundamental aspect of their missions. The best available estimate is that transit media generated sales of $801 million in 2007 (2). It is fair to say that roughly 50% to 60% of the sales revenue made its way into the hands of public transit agencies. The rest was kept by the advertis- ing sales contractors that actually generated the sales, in the majority of cases. Transit media sales have been fairly stag- nant since they dropped over 30% from their height in 2003 (see Figure 1). Substantial growth of transit advertising appears feasible in the context of the U.S. advertising industry overall. While growth in the industry is slow, forecasted at only 2% for 2008 (3), the size of the industry is enormous. Although there is no definitive source, a solid estimate for 2007 expenditures on media (not including advertising production) in the United States is $230 billion (4). With such a large “pie,” it indeed seems reasonable for transit agencies to obtain a larger piece. Adding to this optimistic view is the growth of out-of-home advertising. Advertisers are looking for alternatives to tradi- tional media—television, radio, print—because the impact of these media today is widely regarded as diminished. Myriad technology-driven cultural trends are pointed to as culprits: • More and more, people are getting their information and entertainment on their computers, not on televisions or radios or in magazines. • With the advent of the many new channels that compose cable television, the mass audiences that the major national networks used to be able to deliver no longer exist. • Advertisement-skipping technology (e.g., TiVo) makes it even less attractive to advertise on television. On the whole, advertisers report less satisfaction with the performance of traditional media (5). Not only are tradi- tional media becoming less effective, but also the popularity of out-of-home media is rising because they are seen as becoming more effective. One observer commented: “The world of outdoor media, so often the unloved child of adver- tising, has suddenly become the exciting cousin” (6). This perception is certainly related to the belief, often quoted, that people are spending more time outside of the home (7). Whereas all advertising sales grew at a compound rate of roughly 4% between 1997 and 2007, advertising sales for out- of-home media grew roughly 6% over the same period (2). As the outdoor advertising community likes to point out, out- of-home media’s advertising growth rate is second only to that of Internet advertising. This study was motivated by the belief of the America Public Transportation Association (APTA) that public transit agen- cies could be—and probably have a need to be—benefiting more from their advertising assets. Transit is currently just 0.4% of all media spending in the United States. APTA has set an objective of capturing 1% of U.S. media dollars; in other words, growing transit advertising from an $800 million business to a $2 billion business—two-and-a-half times its current size. To state the obvious, this is an extremely aggressive growth target. In this light, one can appreciate that the essential ques- tion of this study is not “What can be done to stimulate higher sales for transit advertising?” Rather, the essential question is “What can be done to generate a quantum leap in demand for transit advertising?” Addressing this question was the focus of the research conducted for this study. As context, this chapter offers explanations of the media landscape, transit advertising’s position within this landscape, and advertisers’ changing attitudes toward media. C H A P T E R 1 Background

10 Scope of the Study An obvious candidate for a leading obstacle to transit adver- tising growth is the presumed poor image of transit advertis- ing. It is common to hear people in the industry express the belief that advertisers perceive transit advertising to be unexcit- ing, dirty, and for downscale audiences. Clearly, not only did the image and perceptions of the ultimate purchaser of transit advertising need to be understood, but also the extent to which these perceptions constituted a barrier to greater demand. The fix for image issues would typically include more strate- gic communication to media decision makers of the benefits of transit advertising. In addition to understanding the image issues that needed to be addressed, however, the research team also needed to explore the mechanics of media selection. Specifically, the research team needed to understand where the leverage lies in decisions of media selection: is it with the adver- tisers or with the media planners who serve the advertisers? The research team also needed to understand the competitive set within which the media decision maker places transit media. This need informs the question: Does transit media’s selling message need to make it more compelling than billboards, all out-of-home media, or every type of media available? With the extent of growth desired, the search for obsta- cles to growth needed to be as comprehensive as possible. Therefore, the research team looked beyond positioning and communications issues at such factors as: • The product: Are media planners and advertisers satisfied with how the product performs? • Pricing: Could price and production costs be a barrier to greater usage? • Sales: Are the approaches to selling transit media currently used by advertising sales contractors effective? • Management: Are public transit agencies, in managing contracts with advertising sales organizations, doing every- thing they could do to support growth in advertising sales? In short, the research team knew that the marketing of tran- sit advertising needed to be addressed, from positioning to communications, promotion, pricing, and product design and innovation. But, as with all businesses, other functional areas needed to be assessed for possible obstacles to growth, as well. So, in the research, the team touched on sales, con- tracting for sales and maintenance operations, and transit agency management of contracts. Thus, the research team was able to achieve what it believes to be a comprehensive assessment of the obstacles to—as well as opportunities for— significant transit advertising growth. Research Objectives The overall research objective was to identify major obsta- cles to the growth of transit advertising sales and to provide direction for how to address the issues. The intent was to develop strategy recommendations for each of the three par- ties in position to influence how transit advertising is offered to the marketplace. These three parties are the advertising sales contractors, the public transit industry association and, of course, the transit agencies, themselves. On the purchasing side of the equation, there are two par- ties: advertisers, the ultimate purchasers of media, and media planners, the advisors to advertisers. Clearly understanding each party’s perceptions of transit advertising was important. Source: Outdoor Advertising Association of America (2). $574 $821 $889 $883 $994 $1,046 $1,109 $756 $816 $801 $0 $200 $400 $600 $800 $1,000 $1,200 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Transit ($ Millions) Percent Change vs. Prior Year Figure 1. Transit media sales, 1997–2007.

11 A preliminary set of 20 telephone interviews with media plan- ners confirmed the initial hypotheses that (1) the majority of advertisers use media planning services and (2) media planners act as gatekeepers to advertisers in the selection of media and therefore have most of the leverage when it comes to selecting which media to purchase. Therefore, with the approval of the project panel, the research team decided to focus the main quantitative study on media planners, rather than on advertisers. The sample of 153 media planners comprised general media planners and out-of-home media specialists. General media planners with predominantly national advertisers as clients as well as those with predominantly regional and local advertisers as clients were surveyed. The hypothesis was that significant differences would exist between each pairing in purchasing behavior, levels of familiarity and usage of transit media, and attitudes and perceptions of transit media. The sample included all geographic areas and media planning houses of all sizes. During and after the media planner quantitative study, the research team interviewed a random sample of advertisers for their experiences with and opinions of transit advertising. The research team also conducted telephone interviews with 15 advertising sales contractors. Here, it was important to understand their views of transit media, especially if they sell other types of media as well. Also, as the actual sellers of the medium, in the large majority of instances, it was important to hear their thoughts on obstacles to sales growth. Included in the interviews were high-level representatives of most of the major media sellers, who, through recent consolidations, are responsible for the majority of the transit ad sales conducted through contractors. Finally, the research team also conducted a survey of tran- sit agency marketing executives. It was important to hear from the transit agencies themselves on ideas for, and obstacles to, increasing advertising sales. Literature Review Though the public’s perceptions of public transit are widely studied, there are no existing studies of advertisers’ perceptions of transit advertising. However, various studies, including previous TCRP studies, have touched upon aspects of transit advertising and are worth summarizing here. TCRP Synthesis of Transit Practice 51: Transit Advertising Sales Agreements (1) reports on the level of revenue generated through advertising by a sampling of public transit authorities, as well as the variables that affect this level. TCRP Synthesis of Transit Practice 32: Transit Advertising Revenue: Traditional and New Sources and Structures (8) was the 1998 precursor to TCRP Synthesis 51 and reported essentially similar data. TCRP Report 63: Enhancing the Visibility and Image of Transit in the United States and Canada reports on the image of transit among the public, not the image of transit advertising among purchasers of advertising. It was therefore not pertinent to the current study. Beyond TCRP, a 2005 survey by the Traffic Audit Bureau for Media Measurement Inc. (TAB) reported findings on national advertisers’ use and perceptions of out-of-home media, in gen- eral (10). A 2005 study in the Journal of Media Economics, enti- tled “Local Advertising Decision Makers’ Perceptions of Media Effectiveness and Substitutability,” reported on local advertis- ers’ perceptions of the effectiveness of various local media for- mats (14). A 2002 Arbitron study reported findings on the importance to advertisers of audience measurement systems (9). And finally, a study commissioned by Starbucks evaluated the effectiveness of out-of-home media in achieving the coffee company’s communications objectives (12). Advertising Revenue Generated by Transit Agencies TCRP Synthesis 51 (1) reported that, in 2002, the actual amount of dollars coming into transit agencies from the sale of advertising ranged from $50,000 for the smallest agencies (e.g., Ben Franklin Transit in Richmond, WA) to $150,000 to $300,000 for mid-range agencies (e.g., Fresno Area Express) to anywhere from $3.5 million to $20 million for large tran- sit agencies in top 20 media markets (1, p. 19). Furthermore, advertising revenue typically represents an extremely small portion of transit agency total revenue. Based on its survey of 53 transit agencies representing a cross section in terms of size, location and whether the agency was a bus-only, rail- only or a bus-and-rail system, the study reported that adver- tising revenue constitutes between 0.1% and 3.2% of transit agency revenue (1, p. 19). TCRP Synthesis 51 (1) also reported that advertising rev- enues received by transit agencies grew between 1999 and 2002. As Figure 2 shows, over that period, more than 25% of the agencies surveyed achieved advertising revenue growth of more than 60%. TCRP Synthesis 51 explains that the most rapid growth was experienced by the largest transit agencies, driven largely by competition for the contracts at a time when media sales forecasts were extremely optimistic. Also fueling the growth in advertising revenue, according to the study, was increasing ridership. At the time of the study (2004), public transportation ridership had increased 30% since 1995, nearly doubling the growth rate of the population over the same period (1, p. 19). TCRP Synthesis 51 states that the key determinants of an agency’s revenue from advertising are the transit agency’s size, which in turn determines the amount of advertising inventory available, and the rates the agency is able to charge for its adver- tising inventory. Rates, in turn, are dependent on the popula- tion of the market, the placement of the ad, and the size of

12 the ad. The study found that, among bus exterior advertis- ing options, bus wraps could command a significantly high premium. For example, full bus wraps were priced four times higher than the package of two kings, a tail and a headlight in some larger markets. In some medium to smaller markets, bus wraps sold at prices five to ten times the price of a king (1, p.18). As alluded to above, another factor in determining overall advertising revenue levels can be the timing of negotiation of the advertising sales contract. Because of the apparent adver- tising boom in the late 1990s, many transit agencies negotiat- ing their contracts at that time benefited from the industry’s optimism in the form of greatly inflated minimum annual guaranteed revenue levels. Among the 13 largest transit agen- cies that participated in the TCRP Synthesis 51 study, the three reporting above average revenue levels attribute this result to having negotiated their ad sales contracts during a general economic boom time and to having had big players compet- ing for their contracts (1, p. 23). Among the 13 medium to small agencies that responded to the study survey (all bus-only systems), above average revenue per- formance was attributed to two factors. One factor was negotiat- ing advertising sales contracts during an economic boom. The other factor was selling advertising in house (1, p. 24). TCRP Synthesis 51 also offers ideas for how transit agencies can increase their revenue from advertising. In Chapter Three, “Market for Transit Advertising,” the study notes the following: Of potentially great future significance is improved audience measurement and validation, because the value of outdoor advertising has been held back by the absence of detailed data on audience demographics.” (1, p.15) TCRP Synthesis 51 found that the most common transit advertising occurs on buses, both interior and exterior; trains, both interior and exterior; and train stations and platforms. Although 95% of bus services offer exterior bus advertising, only 23% sell bus wraps. Among the 77% of rail services that sell car interiors and 69% that do rail platforms, only 23% sell car wraps and only 23% sell digital displays. The study sug- gests that transit agencies could increase the value of their advertising assets by creating new inventory (1, p. 10). It found as well that a minority of public transit authorities (less than 20%) sell advertising space on fare cards, tickets, trans- fers, schedules, maps, paratransit vehicles, and structures that are part of the right-of-way (1, p. 10). Something that can reduce potential advertising rev- enue, the study notes, is the use of non-standard ad sizes. When ad sizes deviate from the most common (bus kings, queens, etc.), advertisers are less likely to purchase that ad space because it necessitates additional production expen- diture (1, p. 5). The 1998 study (8) was essentially a survey of advertising practices from across the country and overseas. Though advertising revenue was not the main focus of this study, it did report that revenue from advertising constituted from 0.1% to more than 6% of operating budgets, with the majority of transit agencies around 0.5% (8, p. 21). It also reported that 58% of the bus services responding to the sur- vey indicated that they sell whole bus wraps (8, p. 14). The survey was answered by 26 U.S. transit agencies of varying sizes and locations. Advertisers’ Needs with Respect to Out-of-Home Advertising In early 2002, Arbitron, the media measurement company, interviewed 300 advertisers in an Outdoor Industry Needs Study (9). The study found the following: Source: TCRP Synthesis 51 (1) Pc t. of T ra n sit A ge nc ie s 30% 25% 20% 15% 10% 5% 0% 1-19%No change/ decline 20-39% Change in Adv. Revenue, 1999-2002 40-59% 60%+ Figure 2. Growth of transit agency advertising revenue, 1999–2002.

13 An audience ratings profile of outdoor media consumers is needed. Agencies and advertisers urgently requested age, sex, and gender information for those exposed to outdoor advertising, as well as information on roads traveled in the past week and data on the shopping and buying habits of consumers reached by out- door media. (9) At the time, the only audience measurement available was counts of vehicular traffic. Though audited by a third party, the TAB, most media planners and advertisers still found the data too flimsy for planning and evaluation purposes. This study marked the beginning of the multi-year collaboration among Arbitron, the TAB and the Outdoor Advertising Asso- ciation of America (OAAA) to institute an “eyes-on” mea- surement system—one that measures the number of people actually viewing the billboard—that will debut in fall 2008. Use of Out-of-Home Advertising The TAB—a not-for-profit agency founded by national advertisers, advertising agencies and out-of-home media companies—conducted a survey in 2005 of members of the Association of National Advertisers (ANA) (10). The TAB is out-of-home media’s “verification authority” and, as such, is the keeper of the only existing methodology for calculating the audience impact of out-of-home media. The aim of the 2005 survey was to understand national advertisers’ use of out-of-home media: frequency of use, amount of spending, barriers to increasing spending, and more. The survey yielded 75 responses, which, the report on the survey acknowledges, is too small a sample to be truly repre- sentative of national advertisers. Among its 75 respondents, the survey found that one-third either does not use out-of- home media or uses it only rarely. Sixty-six percent of respon- dents reported that out-of-home media is less than 5% of their total media budgets. Thirty-five percent said they expected next year’s out-of-home budget to increase, and 59% said they expected it to stay the same (10, p. 3). When asked how often they use transit media, nine respon- dents (12%) said “regularly,” 45 (60%) said “occasionally,” and 21 (28%) said “never” (10, p. 4). These responses are shown with the responses for other out-of-home media in Table 1. Respondents were able to define the categories of media how- ever they saw fit. As a result, some categories may be over reported. Over-reporting would most likely occur in the “Alter- native OOH [out of home]” and “Transit” categories. The survey went on to ask respondents about the reasons they have for using out-of-home advertising and the barriers that limit their usage. These questions were open-ended— i.e., respondents were required to write in their answers rather than select options from a pre-established list. Accord- ing to the survey report, there were seven top reasons given by respondents for using out-of-home media: • Tactical—surprise and delight our audience • Geographic and demographic targeting • Build local presence—community • Take advantage of receptivity at events • Mass reach • Proximity to retailers/malls/point of purchase • New product launches (10, p. 5) The report concludes that there are eight “main challenges advertisers want addressed by the out-of-home industry”: • Accountability/measurement • Metrics for including in return-on-investment (ROI) evaluation • Proof of performance • Audience research • Production costs relative to space costs • Costs—some formats/national campaigns • Availabilities and locations • Lack of cross media currency comparability—OOH is cur- rently dealt with as a separate line from other media Several of the barriers are related to the ability to measure and assess the value of out-of-home media with methods com- parable to those in use by traditional media forms (10, p. 6). Effectiveness of Out-of-Home Advertising Billboard Effectiveness There are two field studies that examined the impact of out-of-home advertising. The Mentos Study. A recent study sponsored by OAAA and Posterscope, a leading out-of-home media agency, mea- sured the effectiveness of an out-of-home campaign for the Frequency “Regularly” “Occasionally” “Never”OOH Media No. % No. % No. % Billboards 28 38 41 54 6 8 Alternative OOH (including in-store) 19 25 46 62 10 13 Transit 9 12 45 60 21 28 Street Furniture 7 9 43 58 25 33 Cinema 3 4 34 46 38 50 Source: TAB (10) Table 1. Frequency of 75 national advertisers’ usage of out-of-home media.

14 mint candy Mentos. During May–June 2007, the Mentos brand ran an outdoor campaign in select Cincinnati metro counties comprising “bus wraps, billboards, posters, gas station dis- plays, mall kiosks and street teams.” The campaign endured for four weeks at a 75 showing, i.e., the ad had an opportunity to be seen by 75% of the target audience (11). Measuring consumer awareness of the brand and its adver- tising both pre- and post-campaign, the researchers found that unaided brand awareness increased 62%, and total brand awareness (unaided plus aided) remained constant because the pre-campaign awareness level was already very high (93%). The percentage of respondents that recalled seeing the Mentos ads used in the out-of-home campaign was 32% (11, p. 5), a relatively high recall level, generally speaking. The researchers concluded that “The Mentos campaign was successful in its ability to move awareness for all key measures other than total brand awareness, which is to be expected, given Mentos’ high familiarity in the pre Wave” (11, p. 2). The Starbucks Study. The second field study was con- ducted on the Starbucks brand and reported in June 2003 at the Advertising Research Foundation’s Out-of-Home Conference in Los Angeles. Starbucks is famous for eschewing television advertising of any kind in favor of local communications approaches. The 2003 research measured the number of new purchasers generated for each 1 cent spent on advertising for a variety of advertising types. The media varied—TV, magazine, radio, billboards—as did the advertising used in each medium. The results showed that, of 24 ads across the media, three of the top five ads were billboards. Again, the measurement was the number of additional purchases generated per 1 cent of advertising by those having noticed the ad. The study con- cludes that billboards can be comparable to traditional media in terms of producing desired consumer behavior. The study also highlights billboards’ cost effectiveness in reaching the target audience: it reports that, among the four media, bill- boards accounted for 27% of the ads recognized and only 18% of the advertising expenditures (12). No other medium showed close to this leverage. Finally, the research also explored complementarities among media. Among respondents not reached by Starbuck’s traditional media (TV, radio and print), billboards reached the greatest number of consumers. The study draws a conclu- sion about overlapping media: since overlap tends to be great- est among traditional media types, adding out-of-home to a mix of traditional media will make the greatest contribution in terms of consumer impact (12). Transit Advertising Effectiveness Transit TV. The research team located one report on the effectiveness of transit TV advertising. Carroll Media Ser- vices, Inc, a company providing auditing services on behalf of out-of-home advertisers, conducted this study in early 2007 to assess the effectiveness of TV advertising on Metropoli- tan Atlanta Rapid Transit Authority (MARTA) buses. Three hundred randomly selected riders were asked to recall four different specific commercials on an unaided and aided basis. The recall rates were very high, at an average of 59%, with a 35% recall rate for unaided recall. These results compare very favorably to traditional media such as broadcast TV, which has an unaided recall rate of 13% (13, p. 10). Both transit TV and billboards have more than double the recall rates of any other advertising medium (13, p. 26). Please note that the research team for TCRP B-33 did not independently verify these research findings or the comparative data presented, and that Carroll Media Services appears to be a provider of local media, not a market research company. Perceptions of Local Advertisers. A 2005 study pub- lished in the Journal of Media Economics also sheds light on the perceived effectiveness of transit advertising (14). Four Uni- versity of Georgia researchers surveyed 130 advertising deci- sion makers located in six northern Georgia counties, all of whom advertised in the nearest large city, Athens. This study is relevant to the topic at hand because the vast majority of the 6000+ transit systems in the United States (8, p. 8) depend pri- marily on local advertisers to purchase their advertising space. Also, of the 13 transit agencies from medium to small media markets in TCRP Synthesis 51, nine (69%) reported that 90% or more of their advertising revenue comes from local adver- tisers (1, p. 13). The media available in the Georgia study included broadcast TV, cable TV, radio, two daily and one weekly newspaper, one city magazine, three coupon books, three outdoor compa- nies, and three transit companies, including Athens Tran- sit, offering 17 bus routes. Respondents were asked to rank order 14 types of media based on “advertising-delivery effec- tiveness.” The study concluded that “no medium dominated the local decision makers’ effectiveness ratings” (14). However, two media received the most top rankings: daily newspapers (34%) and radio (27%). Transit was one of two media (along with preprinted inserts) not selected by any respondent as most effective. Aside from top rankings, no further data were pro- vided on the rankings. For example, the frequency with which a medium was selected to be within the top five most effective might lend a different hue to the results. Media Industry Overview The “New Media Environment” Much has been, and is still being, written about the water- shed changes in the U.S. media landscape and what they mean for advertisers. Essentially, the advent of cable televi- sion, the Internet, and digital technology, all within the past 20 or so years, has been the driver of the media landscape’s

15 significant transformation. Whereas 20 years ago, advertisers could count on reaching a large portion of their target audi- ences via broadcast television, radio and print media, today advertisers need to think about reaching a multitude of more tightly defined target audience sub-segments with a portfolio of media options. Cable’s and satellite’s introductions of multi-channel capabilities opened up the possibility of tailoring a channel to more specific target audiences than broadcast television and radio ever dreamed of reaching. And in doing so, they were able to meet the needs of advertisers, who want to reach specific target audiences with the greatest efficiency possible. Home improvement retailers can now advertise on the home improvement channel, where do-it-yourself enthusiasts remain transfixed for the evening; products tar- geted to Latino audiences can now advertise on Spanish language radio and television, with the confidence that their intended targets are in the audience. While not the death knell for broadcast vehicles, cable and satellite have cer- tainly taken a toll. Also taking a huge toll on traditional broadcast vehicles is the Internet as a source of both information and entertain- ment. Seen from this perspective, consumers’ laptop comput- ers, as well as any other hooked-up personal device, are in direct competition with television. What observers of the major network companies have long seen is the direct threat posed by the Internet and its ability to provide news, entertain- ment and—something television doesn’t provide—endless up-to-date sources of information to consumers wherever they are at the moment they desire it. Consumers are paying atten- tion to more screens than just their home television screen, and advertisers are taking this into account when they allocate their advertising budgets. Not surprisingly, Internet advertising, including display (“banner”) ads, search engine marketing and email marketing, is the fastest growing sector of the media market in the United States and the world (15). The previous paragraph essentially describes the advent of so-called digital advertising onto the media landscape, and this is, without question, the most significant change to have come about. The other major change to the media landscape, most would agree, is the resurgence of out-of-home advertis- ing. Though not a “revolution” in the sense of digital media’s entrance, it is still a major development, and of course pertinent to this project. The word “resurgence” is commonly applied because bill- boards, the original outdoor advertising medium, are con- sidered the oldest form of advertising known. The advent of digital billboards, though still roughly only 8% of the total U.S. billboard market, is generating a lot of excitement in the advertising world (16). More importantly, the appearance of innumerable new forms of out-of-home advertising media— taxi tops, telephone booths, movie theaters, grocery check- out lanes, coffee cup holders and pizza boxes, to name but a few—has put outdoor media, now known more generally as out-of-home, once again on the media map. Demand for Media Although there is no definitive source on the size of the U.S. media market, a solid estimate is roughly $230 billion (4). This reflects declines in the market of 0.7% for 2007 and roughly 3% for 2008. This comes on top of a 2006 growth rate of roughly 4%, which was described at the time as a slump. Universal McCann, a source of widely respected media and advertising industry forecasts, attributes the slowdown to “economic performance and less-than-highly optimistic busi- ness expectations as contributing to the cautiousness and tight controls on most forms of communication spending” (17). Also offered as a reason for the slowdown, however, is the behaviors of advertisers, themselves: “Big business has been cutting every expense they can as they focus on improved pro- ductivity, profit growth and the buildup of cash. [New forms of media] have violently impacted many established media as the appeal grows for marketing tactics that are closely tied to an immediate consumer transaction” (17). In other words, advertisers are shifting spending to whatever they identify as having the ability not to make a consumer feel good about the brand (as traditional advertising is intended to do), but to make that consumer head straight for the nearest point of sale for that advertiser’s products or services. Additional discus- sion of trends among advertisers appears in “Marketing and Advertiser Trends,” later in this chapter. According to Universal McCann data, despite an overall slump, several sectors in the media market grew in 2007. Top- ping the list is Internet spending, increasing by roughly 16%. Out-of-home is the second fastest growing media sector with expenditures increasing by roughly 7% in 2007 (1). Major Trends in the Media Industry Decoupling of Advertising Services from Media Services Up to the 1990s, it was fairly standard for advertisers to hire one advertising agency to handle all of their communications needs. Within the advertising agency were creative services, the art directors and copy writers who created advertising; media planners, who developed media plans; media buyers, who specialized in getting the best media placement and prices for clients; production specialists, like directors of television commercials; and account people, who managed all of the efforts and served as the primary contact with the advertiser. Since that time, advertising has taken on many more forms than television commercials and print ads. Advertisers now hire a cadre of agencies, each specializing in an area of advertising

recognized as full-fledged areas of knowledge and expertise unto themselves. Thus, the global advertising agencies are either creating an out-of-home advertising division or actually spinning off an out-of-home advertising company. Smaller general agencies are sometimes appointing an out-of-home specialist. Also on the rise are independent out-of-home media planning and buying agencies. Among these are some that are gaining large and prestigious national advertisers as clients. How this looks in terms of where the decisions about media are happening is as follows. Some advertisers ask their general advertising agency to prepare an out-of-home media plan as part of their overall media plan. The account executive at the agency then delegates media planning to the head of media, who delegates responsibility for the out-of-home portion of the media plan to their out-of-home department, subsidiary or sister company. If there is no out-of-home media organi- zation, just a general media planning organization, that media planning team is likely to have an out-of-home specialist among them. Other advertisers go directly to their out-of- home advertising agency. The emergence of out-of-home as an area of specialization is nothing but positive for transit media and its growth poten- tial. It means that more media planners are motivated to spend more time getting to know out-of-home media in inti- mate detail. This presents a great opening for transit media to tell its story to its best advantage. The Outdoor/Out-of-Home Media Market Despite the anemic growth of U.S. media overall over the last couple of years, outdoor advertising performed well. Figure 3 shows that, in 2006, total outdoor advertising rose roughly 8% to $6.8 billion, and in 2007, it grew another 7% to $7.3 billion (2). However, because of a very weak fourth quarter, outdoor advertising sales dropped 4% in 2008 (18). Segments of the Out-of-Home Market OAAA organizes out-of-home media into four segments. The largest segment is billboards, accounting for 66% of all out-of-home media dollars, up from 64% in 2006. Transit media—including buses, subway and rail, airports, truck sides, taxi displays and wrapped vehicles—represented 11% of all out-of-home media in 2007, down from 12% in 2006. Street furniture—including bus shelters, convenience stores, shop- ping malls and kiosks—was 7% in 2007, and alternative out-of- home—including arena and stadium advertising, interior place-based, airborne, marine, resorts and leisure, and exterior placed-based digital media—represented 16% in 2007. As Figure 4 shows the billboard segment accounted for roughly $4.8 billion in revenue, transit media for $800 mil- lion in revenue, street furniture for $510 million in revenue 16 development. Thus, interactive advertising agencies and direct marketing agencies now coexist with the so-called “traditional” advertising agencies. Once this breakup happened, advertisers no longer saw efficiency in having their advertising agency also handle their media planning and buying. Thus, media planning and buying has now become a standalone specialty, as well. In attempts to retain their business, the traditional adver- tising agencies have turned themselves into global advertising agency holding companies that comprise the full spectrum of communications services. Omnicom, WPP Group, Interpub- lic Group (IPG), Publicis, Havas and Dentsu are the six largest global advertising holding companies today. In addition to owning several advertising agencies, each owns one or more media planning and buying agencies. To a large extent, the top tier global advertising agencies, like McCann (IPG), DDB Needham (Omnicom), and Saatchi & Saatchi (Publicis), no longer have media services in house. They have sister agencies that specialize in media [for example, Universal McCann (IPG), OMD (Omnicom), and StarCom MediaVest Group and Zenith Optimedia (Publicis)]. In contrast, many regional and local advertising agencies, even those owned by the global holding companies, have kept their original combined structure. This structure could be in recognition of a preference by the smaller advertisers that this class of advertising agency attracts. Advent of Out-of-Home Specialization Specialization within branches of the media world is the natural outcome of the explosion of new media types. Firms specializing in advertising on the Internet probably constitute the fastest growing segment in the advertising industry. But there has also been, over the past 10 years, significant growth in firms that specialize in out-of-home media and advertising. There are a few reasons for this growth. First, out-of-home is a local medium. Meaning that, although “national” out-of- home campaigns exist, each city included in that national buy is purchased at the local level because the out-of-home adver- tising inventory varies so greatly from location to location. So, while the advertiser might want subways in New York City, billboards might be the optimal medium to suit the advertis- ing objectives in Los Angeles. In addition, the number of types of advertising that are being classified as out-of-home is exploding. By some accounts, there are well over two hundred types of out-of- home media, including everything from billboards and sta- dium signage to coffee cup sleeves and pizza boxes. Finally, there are widely believed to be unique creative issues asso- ciated with delivering effective out-of-home advertising. Expertise in creative development for out-of-home vehicles is another driver of out-of-home specialization. The bottom line is that out-of-home advertising and media have become

17 Source: Outdoor Advertising Association of America (2). $4.41 $4.83 $5.24 $5.19 $5.23 $5.50 $5.83 $6.30 $6.81 $7.28 $0 $1 $2 $3 $4 $5 $6 $7 $8 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -2% 0% 2% 4% 6% 8% 10% Out-of-Home ($ Billions) Percent Change vs. Prior Year Figure 3. Out-of-home advertising revenue, 1998–2007. Source: Outdoor Advertising Association of America (2). Billboards $4,806,590,480 66% Street Furniture $509,789,899 7% Transit $801,098,413 11% Alternative $1,165,234,056 16% Figure 4. Four major segments of out-of-home advertising. and the alternative segment for $1.2 billion in revenue. Note that OAAA’s transit category includes airport advertising, truck sides and taxi displays, making this definition broader than the concerns of this study: the transit media owned by public transit authorities. Alternative out-of-home advertising is the fastest growing segment within out-of-home. The alternative segment grew about 28% in 2007 (compared to total out-of-home growth of 7%). For 2008, it was forecast to grow at a slightly slower rate of 23%. One industry observer is forecasting that alter- native media will generate 50% of total out-of-home media sales in 2012 (19). Innovation in Out-of-Home: Emergence of Digital Technology Digital and liquid crystal display (LCD) technologies are widely believed to be the most significant trends in out-of- home advertising today. The advent of these moving, intensely colored technologies is refreshing the image of older, static media, particularly billboards and subway posters. Though only a small portion of billboards and subway posters are dig- ital at this time, there is a widely held sense that digital for- mats will eventually dominate, as they already do in some major cities overseas.

number of people actually viewing the billboard. This is an improvement over television’s rating system, which measures the number of people with the opportunity to see the ad. A Wachovia Capital Markets evaluation of this new audience measurement system estimated that its introduction will result in the billboard industry’s ability to more than double its size, adding $7 billion in annual revenue (24). The Transit Media Market Transit media had been the second fastest growing segment within the out-of-home market, behind alternative. In 2006, transit advertising revenues increased 22% to $816 million, faster than out-of-home overall. However, in 2007, revenue decreased 2% to $801 million, as shown in Figure 1 (2). Again, the definition of transit media used in this analysis includes airport media, truck sides and taxi displays. Transit advertising revenue’s significant setback, since the high point on 2003, is due to the advertising bust, triggered by the Internet bust of the late 1990s. Advertising sales con- tractors locked into generous guaranteed minimum contracts in the late 1990s and proceeded to lose millions of dollars on those contracts through the early 2000s, while transit agen- cies collected their high guaranteed payments. The majority of those contracts ended in 2004. Why transit has been unable to significantly rebuild rev- enues after this correction is unclear. The purpose of this report is to illuminate some possible explanations as well as steps that may be taken to reignite transit advertising’s growth. Promotion Activities of Media Trade Organizations For several types of media, a media trade organization exists for the purpose of promoting the medium to drive growth. This section looks at a few notable examples of media trade organizations that appear to be having an impact. Interactive Advertising Bureau The Interactive Advertising Bureau (IAB) was founded in 1996 and represents the sellers of 86% of U.S. interactive adver- tising (25). For the uninitiated, interactive advertising is advertising that uses interactive media, including the Internet, interactive television and mobile phones. According to its web- site, the IAB “is dedicated to the continuing growth of the interactive advertising marketplace, of interactive’s share of total marketing spend, and of its members’ share of total mar- keting spend.” A primary motivation seems to be to “create [a] countervailing force to balance the power of other media, mar- keting and agency trade groups” (26). To achieve these objec- tives, the IAB’s primary strategies appear to be the following: 18 To advertisers, one of the biggest advantages of digital dis- plays is their ability to be instantly modified. Advertisers can change or adapt their ads overnight, if they so choose. Adver- tisers can also alter the ads during any given day to suit the time period. A fast food company can show a breakfast offering on the morning drive and a dinner offering during evening drive time. To advertisers, the abilities to more precisely target deliv- ery of their advertising to audience segments and to tailor mes- saging to particular segments are of great value. The alterability of electronic billboards holds advantages for the owners of the advertising space as well. It gives them the ability to sell one billboard to several advertisers using the same “daypart” structure that has existed in television and radio. Should one daypart—for example, the morning commute period of time—generate high demand from advertisers, it could offer an opportunity for higher pricing of the space. A Citigroup analysis estimates that digital displays can generate from five to sixteen times the revenue of a static display (20). Another advantage of digital technology is that it enables out-of-home media to become interactive. Bluetooth technol- ogy is already enabling billboards and subway posters to send consumers—via their cell phones—digital coupons, music downloads, movie trailers and video games. In the view of one such technology provider, “For the advertiser, it really turns out-of-home into a direct-response mechanism” (21). Out-of-home advertising is moving in the experiential direc- tion as well. A Titan campaign for the London Underground celebrating the launch of the Sweeney Todd movie included free wet shaves at the Liverpool Street Station (22). Lastly, there are early uses of new technologies surfacing. Cross-Track Projection offers advertisers a high-quality digital image in a widescreen format. This technology will be in use this fall in the London Underground as well as on New York City’s Metropolitan Transit Authority underground stations (23). CBS Outdoor is illuminating both sides of London buses. One side’s images are static, while the other, longer side offers moving images. Finally, JCDecaux and Clear Channel Outdoor are offering illuminated LED frames in a variety of hues to serve as “halo lighting” for posters (22). Approaching Watershed: Introduction of an Audience Measurement System Over the past several years, the out-of-home media industry has begun to address issues of advertising accountability. The industry has already established consistent planning and buy- ing standards and adopted common post-campaign evaluation procedures. Its latest initiative, an audience measurement sys- tem comparable to television’s and radio’s, is scheduled to launch in fall 2008. This new audience measurement system, developed for the industry by the TAB along with Arbitron and OAAA, is an “eyes-on” system, meaning that it measures the

19 • Educate advertisers and advertising agencies about the benefits of interactive advertising. • Create measurement guidelines and creative standards. • Generate research studies substantiating the effectiveness of interactive advertising. • Offer thought leadership for participants in the interactive advertising marketplace. • Promote best practices among sellers of interactive advertising. • Advocate for supportive regulation/fend off detrimental regulation in Washington. The IAB’s most visible activities are the events it stages. The events serve multiple purposes: they educate advertisers and agencies—the buyers—on interactive media; they offer pro- motion opportunities to sellers of interactive media; and they generate buzz about interactive ads to both stimulate interest and elevate the media’s image. A prime example of how the IAB uses events to promote the industry follows. In September 2007, the IAB staged the MIXX (Marketing and Interactive Excellence) Conference and Exposition. It was the kickoff event to Advertising Week–New York City, and brought marketing and agency professionals together with the sellers of interactive ad space. The content of the conference served to both educate advertisers and agency professionals about interactive media and to provoke dialogue on the issues facing interactive media. Included in the two-day event was a “spectacular multi-media awards show and gala” recognizing creativity and effectiveness in interactive advertising (MIXX awards were presented). There was also an exhibition hall at which sellers of interactive advertising and related products and services could showcase their latest wares. One of IAB’s most significant functions is establishing cre- ative standards. The organization’s belief is that standardiza- tion of ad sizes makes ad space more appealing to advertising agencies for the increased workload efficiency it generates. As a result, media planners are more likely to recommend the media to advertisers (27). Establishing conventions for measurement of new media is also a key function of the IAB. Its Measurement Task Force drafts the methodology by which an advertising impression is made for a new medium, and then seeks public comment. In November 2004, the IAB issued what is now the global stan- dard for counting on-line ad impressions. The IAB obtained the endorsement of major advertising industry organizations throughout the world, gaining acceptance of its plans and establishing its central role in advancing the use of interactive media (28). The IAB’s website is highly sophisticated, serving not only as a resource for members (again, mostly sellers of interactive advertising space and related products and services), but also for advertisers wanting to learn more about interactive adver- tising. There, advertisers can download a nine-page paper called, “Interactive Advertising: At the Center of Every Pow- erful Campaign.” The stated intent of the paper is to help advertisers incorporate the multiple forms of interactive advertising into their marketing mixes. Its frequent mention of the many benefits of interactive advertising also qualifies it, in the research team’s opinion, as a sales brochure. Impor- tantly, the paper’s first paragraph expresses the core value proposition of interactive media: “By using interactive, mar- keters can target the audience that matters to their brand, allow their customers to experience the brand the way they want to and then measure the effectiveness of their market- ing dollars” (28). Clearly, the IAB includes active promoting of interactive media to be among its core functions. Other resources available on the IAB website include case studies showing effective application of interactive advertis- ing, the latest press coverage of interactive advertising, and a series of white papers offering best practices on a variety of topics specific to interactive advertising, developed by committees of IAB members. The IAB conducts studies to prove the efficacy and effi- ciency of interactive media. An example is a recently com- pleted study on the return-on-investment of advertising on Internet local, classifieds and directory sites. Proving the media’s efficacy through research, along with establishing measurement protocols and conventions, are initiatives meant to increase the perceptions of legitimacy of the media as they compete for advertising dollars against established and measurable media. Another recent and high-profile study done by the IAB is called “Marketing and Media Ecosystem, 2010.” It synthe- sizes the opinions of advertisers and agencies into a view of the marketing and media world of 2010 where, as one might expect, interactive marketing plays a very significant role. The IAB’s partners in the ongoing study are the Association of National Advertisers, the American Association of Advertising Agencies and Booz Allen Hamilton management consultants. Again, the IAB is at the center of activity of the emerging interactive media industry, allying itself with prominent part- ners, generating attention for its “product,” and delivering the measurement tools and research studies to establish inter- active media’s legitimacy. The IAB has been led since January 2007 by a former Adver- tising Age magazine editor and New York Times reporter, Ran- dall Rothenberg. In addition to explaining and promoting interactive advertising to potential buyers, Mr. Rothenberg appears tireless in his efforts to win popular support for the new types of advertising his organization represents, a strategy for keeping regulators at bay. When a well-known social network- ing website made a controversial advertising move that was immediately panned by the website’s users, Mr. Rothenberg placed an op-ed piece in The Wall Street Journal, using the

of its medium to advertisers and agencies. CAB’s member organizations include virtually all of the national and regional ad-supported cable networks, system operators and inter- connects representing more than 90% of all U.S. cable sub- scribers, and suppliers to the cable advertising business (29). According to the CAB website, “advertisers and agencies can expect not only unique trend line perspectives using the indus- try’s syndicated media research data sources (Nielsen, etc.), but also can expect the CAB to take a leadership role in the under- writing of sophisticated original media/advertising research to answer the industry’s toughest ‘unanswered questions’” (29). CAB members have access to a multitude of insights, tools and services including the following: • On-site media presentations • Marketing and media research • Major planning publications such as the annual Cable TV Facts and Cable Network Profiles • Multi-cultural marketing and media updates • Instant access to important planning data through the CAB website • Marketing case studies • Updates on ad-supported cable programming. Like the OAAA, CAB also gives out awards annually in sev- eral categories, such as best creative ad. An interesting addition to this year’s awards was several categories of sales achievement such as best application of research, best internal sales incen- tive, and best diversity advertising. Along with its awards dinner, the CAB also hosts an annual convention which allows everyone in the industry the opportunity to spend time together and share ideas and issues they may have encountered throughout the year. Perhaps one of the more useful portions of the website is the link to FastTrax, which is CAB’s source of all relevant data pertaining to cable. The website instructs members to “use these charts to drive cable sales and remain on top of indus- try information” (29). Here, members have access to data including audience growth and television advertising revenue trends, among many others. The CAB website is a sophisticated and excellent reference for questions pertaining to cable television advertising. Mem- bers have access to a significant amount of data, research and case studies. Furthermore, CAB has a support staff that is readily available to provide members with information that may not be easily accessible on the website. Marketing and Advertiser Trends The job of the chief marketing officer (CMO) has changed dramatically over the past decade or so. A large part of mar- keting is identifying the most effective means for reaching a 20 incident as proof of the lack of need for external regulation of interactive media. Outdoor Advertising Association of America OAAA is a similar organization to the IAB in terms of its model. It exists to promote use of its media (historically bill- boards) and represent the industry’s interests with local and federal regulators. Like the IAB, the OAAA stages large con- ferences that serve multiple purposes, including educating and motivating prospective buyers (advertisers and media agen- cies), addressing issues facing the industry (for example, the lack of a credible audience measurement system), and creat- ing a buzz about the medium (for example, by presenting awards to the advertisers and agencies that use the medium to its best advantage). In support of its mission “To provide leadership, services, and standards to promote, protect and advance the outdoor advertising industry,” OAAA’s strategic objectives include the following: • Ensuring a positive legal and regulatory environment for outdoor advertising companies • Increasing the market share of outdoor advertising • Providing credible information about outdoor advertising • Improving the “quality, appearance, safety and effective- ness” of outdoor advertising (2) OAAA hosts an annual national convention at which it presents its OBIE awards to advertisers and agencies for cre- ative excellence in outdoor advertising. Another way in which OAAA attempts to engage advertisers is by co-sponsoring events with organizations representing advertisers. Based on on-site observations, it remains a challenge to draw advertis- ers in substantial numbers to events primarily concerning the out-of-home advertising industry. OAAA’s original focus was billboards, for obvious reasons. Now, with new forms of out-of-home advertising—indeed, with the reframing of outdoor advertising to the broader out- of-home advertising—OAAA’s membership is diversifying. All of the owners of billboard advertising space are mem- bers, as are increasingly the owners of bus shelters, taxi tops, and street furniture. Of note, however, is that none of the more than 6,000 U.S. public transit agencies is a member. Under the heading “Transit” on its membership pages, OAAA lists only names of advertising sales contractors for public transit agencies. Cabletelevision Advertising Bureau The Cabletelevision Advertising Bureau (CAB) is yet another industry group taking an active role in promoting the use

21 target audience with the brand’s motivating message. When television ruled the media kingdom, the media decisions were straight forward. For any brand that could afford it, there was no question that television was the single most efficient and effective way of reaching a mass audience. Since cable started fragmenting television audiences, the CMO’s media decision making has become exponentially more complex. When consumer behavior–altering electronics are added to the picture (i.e., laptop computers, cell phones, hand-held personal display devices), it is easy to see why media strategy experts are in high demand. If this revolution were taking place in a time of great expan- sion, then money could be spent in trial of a new medium and there would be no consequences for errors. But, marketing budgets are contracting. It is well known in the marketing world that the average tenure for CMOs is less than two years. Pressure is on to decrease marketing spending, and many com- pany cultures require that every dollar spent in marketing activities be held accountable for delivering sales. This environment is where today’s CMOs find themselves. They are being held more accountable than ever for producing business results with their marketing initiatives. This emphasis on immediate productivity of marketing spending certainly goes against the critical marketing objective of building brand equity. Nonetheless, it is reality. As a consequence of this reality, new types of marketing are emerging that give marketers ways to increase the productivity of their marketing dollars. Two in particular are direct market- ing and experiential marketing. Direct marketing includes all the ways to communicate with consumers by name (and to obtain those names). Such ways include email, hard mail, direct response television, reply cards in magazines and tele- marketing. Experiential marketing is the concept of having consumers not only hear or see your advertising, but truly experience your brand’s essence. This is done by creating an event or a venue in which consumers become involved with the brand. In theory, the deeper and more memorable the brand experience, the greater the chance that this consumer not only becomes a customer, but a loyal customer who is so enthusias- tic that she recruits all her friends. All this has implications for advertisers’ media needs. In general, advertisers are now looking for media that meet the following criteria: • Can deliver sales and prove it with precise measurement. • Are effective and highly efficient, since budgets are tighter than they used to be. • Can reach the precise audience they are targeting without including people outside the target audience, which would be a waste of media dollars. • Can break through the noise and clutter of today’s 24-hour non-stop advertising world. • Offer an approach that “decreases the distance” between the advertiser and the consumer, such as direct marketing approaches can. • Offer an approach that engenders loyalty among con- sumers, because so much money is required to win new customers. • Can respond to advertisers’ needs to act quickly, e.g., to get a new ad up.

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TRB’s Transit Cooperative Research Program (TCRP) Report 133: Practical Measures to Increase Transit Advertising Revenues explores strategies designed to significantly increase transit’s share of total advertising expenditures. The report examines advertising decision makers’ perceptions about current and future transit advertising products and highlights a strategic responsive communications plan designed to improve those perceptions and increase transit revenue.

An executive summary and PowerPoint presentation on this report are available online.

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