Insight, Analytics and the New Marketing
Slow Cooked Advertising
Yesterday was Memorial Day in the US - the official start of the summer BBQ season and everyone seemed to have their grill out in the city. I had a few friends over for a BBQ and decided to prepare a smoked brisket. I followed the instructions of this enthusiastic grill master and slowly cooked an 8 pound brisket for 8 hrs on the charcoal grill. 8hrs … that’s right – a lot of time to spend on your own by the BBQ. My mind started wandering after a few hours and I caught myself thinking about all sorts of things, the analogy between slow cooked meat and the long term effects of advertising being one of them. It’s not a great analogy – I admit. It takes time to slow cook a brisket just like it takes time for advertising to truly affect behavior. That’s about where the comparison ends.
Paul Feldwick1, former global planning director of DDB, used a much better metaphor. He once said brands need to go to the gym if they want to be big strong and healthy and he described how brands are built through repetition over a longer period of time – very much in the same way people build muscles. This metaphor seems to be supported by empirical evidence.
Fact 1 : Advertising efforts rarely pay themselves back in the short term.
Dyson (2008)2 gives an overview of 5 recent studies that show that every 1$ spent on advertising on average only generates 50c in payback in the short term.
|
Source |
Description |
Payback per $ |
|
IRI3 |
UK study covering 300 brands analyzing TV impact |
$0.52 |
|
Deutsche Bank4 |
US Based study of TV’s impact on mature fmcg brands |
Rarely pays back |
|
MindShare5 |
Various global TV studies |
$0.40 |
|
MMA6 |
Analysis of US databases |
$0.54 |
|
Data2Decisions2 |
Database of TV impacts |
$0.50 average – over 50% of short term TV returns achieve less that $0.30 |
Most advertising efforts don’t pay back in the short term. Going to the gym doesn’t pay off initially either. It cost a lot of money and effort and you get can see very little results in the short run.
Fact 2 : Advertising’s long term effects are substantial
Plenty of evidence exists that the long term effects of advertising can be substantial. The most famous and most often quoted piece of research was published by IRI6 in 1992. They selected 44 advertising tests that generated significant results in the 1st year and that received no additional advertising support in the 2 subsequent years. The average incremental sales of these tests in year one were 22%. The incremental effects in year two were 14% and in year three 7%. This means that the long term effects (year 2 + year 3) doubled the overall impact of the results. IRI also found that long term resulted from existing buyers buying more or more often rather than new buyers coming into the franchise. This suggests that the advertising caused trial which resulted in short term effects and that some of the customers who tried would continue to buy as a result of a positive experience, resulting in longer term effects.
The following table gives an overview of some of the evidence for the existence of long term advertising effects :
|
Source |
Description |
Long term multiplier (cumulative effects is x times the short term effect) |
|
IRI7 |
US study of 44 tests |
2 |
|
Hess & Ambach8 |
US Based study loyalty program data |
1.5 to 4 |
|
Broadbent S9 |
Meta analysis of 113 global case studies |
3 |
|
Dyson P2 |
Analysis by Data2Decisions in UK |
2 to 6 |
The examples above all demonstrate that the sales effects of advertising can carry on in the long run. Advertising can also impact long term price elasticity. This means that brands can maintain a higher price level as a result of advertising. A good example of this is the work done by OHAL10 in the UK sanitary protection market where prior to 1990 no TV advertising was allowed. They found that customers were les price sensitive after advertising was allowed than before. The price elasticity dropped from 2.5 to 2.
Other evidence for long term advertising effects comes from cases studies of individual brands such as Andrex11, BMW12, PG Tips13 and Stella Artois14.
It’s clear that the long term effects of advertising can be just as substantial as the transformation your body will go through over time if you start going to the gym 4 times a week.
Long term effects are rarely measured
Because the long term advertising effects can be so large, omitting them from measurement can easily lead to wrong decision making. Broadbent (1999)15 called quantifying the long term effects of advertising the most important task facing advertising researchers. He said that a lot of work still needs to be done in the area and that this work shouldn’t just be done in tough times. In spite of the obvious importance of quantifying long term advertising effects very few companies are doing this. This is for the following reasons :
Measuring long term effects is hard : In the long term, many factors other than advertising impact consumer behavior, not the least the consumer’s experience with the brand itself. This makes it very hard to isolate the long term effects of advertising. It usually requires advanced econometric modeling and long term in market tests set up with “clean” experimental design.
Long term insights are not always immediately actionable : Marketers cannot wait one to three years for results on long term effects to become available. They need to make decisions almost instantaneously. This means that in order for long term measurement to affect decision making today it should be focused on finding predictors of long term performance that can be observed in the short run. This adds to the complexity. Measuring alone is not enough, prediction is required for the work to be actionable.
The abundance of short term data : The advent of digital has made a lot of data available that is enthusiastically being used by marketers to better understand performance. Most of this data is available with the speed of light which means it can be used to get a very quick read on a campaign’s short term results. This however has shifted the focus of most marketing analytics efforts to the short term.
Short term pressures : There is currently little appetite for the long term view on marketing performance. Marketing budgets are under pressure and marketers are forced to demonstrate pay back – preferably in the short term.
Shareholders care about long term effects
One common misconception is that shareholders don’t care about the long term. Barwise16 gives seven proof points of how shareholders are most interested in maximizing long term shareholder value. Perhaps the most compelling proof point is the substantial value they attach to intangible assets and brand value as illustrated by the graph17 below.
So we know that advertising hardly pays back in the short term but that it can generate substantial returns in the long run. We also know that, contrary to common belief, shareholders care about long term effects of advertising on business performance. Advertising, as an industry, would therefore probably do well with creating a much better understanding the long term effects of their efforts.
REFERENCES
1.P Feldwick, Building Brand Muscle, Admap, July 2002
2. P Dyson, Cutting adspend in a recession delays recovery, WARC Online, March 2008
3. M Campbell: Is ROI dead?, Admap, March 2005
4. Deutsche Bank: Commercial noise – why TV advertising does not work for mature brands, Ad Age, May 2004
5. A Ruffle, ROI: A passing fad or enduring trend? Admap (China Supplement), February 2007
6. E Ephron & G Pollack, The curse of Lord Leverhulme, Admap, July/August 2003
7. L Lodish & B Lubetkin, General truths? Nine key findings from IRI test data, Admap, February 1992
8. M Hess & G Ambach, Short and Long-term Effects of Advertising and Promotion, American Association of Advertising Agencies, 2002.
9. S Broadbent, What Do Advertisements Really Do for brands?, International Journal of Advertising, Vol. 19, No. 2, 2000
10. P Baker, Surely there are lasting effects of advertising?, Admap July 1999
11. Andrex sold on a pup, M Stow, IPA Awards, 1992.
12. T Broadbent, BMW how 15 years of consistent advertising helped BMW treble sales without losing prestige, IPA Awards, 1994.
13. C Cooper, L Cook and N Jones, PG Tips how the chimps have kept PG Tips brand leaders through 35 years of intense competition, IPA Awards, 1990.
14. P Brown, Stella Artois reassuringly profitable, IPA Awards, 2000.
15. S Broadbent, Tough Times, Admap April 1999
16. P Barwise, Advertising for Long Term Shareholder Value, Admap 1999
17. P Doyle, How Shareholder Value Analysis Re-defines Marketing, Market Leader 2000
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