There is an increasing amount of empirical evidence that suggests TV advertising is getting increasingly effective.  Perhaps the most often quoted analysis is the one done by Les Binet and Peter Field in 2008.  They mined the IPA databank which holds more than 1000 marketing effectiveness case studies from around the world gathered as part of the IPA Marketing Effectiveness Awards.  They found that campaigns that used TV have been growing in effectiveness over the past 3 decades.  The graph below shows the average % increase in market share growth for campaigns that include TV for the 1980’s, 1990’s and 2000’s.

In June 2009 Joel Rubinson of the ARF performed one of the most extensive reviews of quantitative evidence available in an attempt to validate the hypothesis that TV is losing its effectiveness.  He combined 7 different databases of quantitative evidence of the impact of TV campaigns on sales.  They included data from the IRI panel, econometric modeling companies like PM Group, Dratfield and Marketing Evolution and research data from Pointlogic and Milward Brown.  This combined database contained more than 300 cases across 74 different product categories.  Rubinson was not able to validate the hypothesis that TV is becoming less effective.  On the contrary – 6 out of the 7 databases showed that TV advertising has become more effective over time.  The Pointlogic data for example showed that among 25 different types of touchpoints measured in their survey between 2004 and 2007, TV moved up from 7^th to 4^th in terms of people impacted per $1,000 spent.  In an interview with Brandweek Rubinson said that his study concluded that “units sold numbers increased as a result of increased TV impressions. [When you observe it] across 388 case histories, I think you’ve got to believe it.

These findings are also confirmed by marketing science company MMA.  “We haven’t seen a significant trend in the erosion of effectiveness of TV,” said Douglas Brooks, senior VP of MMA in an interview with Advertising Age in Feb 2009. In fact, MMA, which reports to clients each year on its findings regarding aggregate TV effectiveness, has seen a slight uptick in effectiveness in recent years.

As usual, yesterday’s Superbowl was accompanied by the Ad Bowl the annual contest for best TV commercial during the most expensive airtime of the year.  This seems to be the only time of the year where marketers are still allowed to get excited about TV advertising.  For the most part, TV has become a dirty word in today’s marketing world.  Most marketers can’t wait to move as many of their dollars away from it.  They claim is the medium of the past – for obvious reasons.  Most people, especially younger generations, seem to be spending all their time online. They can’t possibly have time to watch TV.  And even if they are watching it, they are probably skipping the ads on their DVR’s.  Also, with the fragmentation of TV channels, you couldn’t even reach them if you wanted to.  It wouldn’t be cost efficient.  Putting your money in TV is a bad idea.  The majority of the US marketers feel TV is no longer working (The Association of National Advertisers did a survey in February 2008 that showed that 62% of US marketers believe that TV advertising had become less effective in the last couple of years).  They have to be right. 

But are they really?  What do the facts tell us?  That’s what I will explore in the next couple of posts.  In this one we will take a closer look at TV consumption in general and TV advertising more specifically. 

The fourth chapter of the Math Marketing paper describes the current landscape of potential Math Marketing partners.

If companies need external partnerships to stay at the forefront of the Math Marketing revolution, whom should they partner with and what should they look out for? The Math Marketing partner of the future needs to be strong across three dimensions.

Broad Aperture
Math marketers must be able to look at the marketing landscape in its entirety. This includes all media and all elements of the marketing mix. They should understand the impact of marketing on overall business results. They also need the senior-level client relationships that can give them the authority
to take, and act on, this broader view.

Specialty Skills
Math marketers must have the specialty skills necessary to master the modern Math Marketing toolkit. This includes econometric modeling, data mining, statistics, Web analytics, online ad serving competencies, quantitative market research techniques, dashboard and visualization technologies, and social media analytics. They must always stay abreast of the latest developments in the Math Marketing industry; departments must also have the robust technical infrastructure to handle the large volumes of data involved in modern Math Marketing.

Access to Data
Math marketers need access to data. Traditionally, most data was owned and stored by clients. While clients still internally house the bulk of transactional and customer-level data, the digital era has seen other islands of data being created outside of clients’ corporate data warehouses. Microsoft and Google got in the ad-serving game with their acquisitions of aQuantive and DoubleClick, respectively. They are rapidly gathering online ad-serving data that can be used to optimize online ad spend. Online media agencies are investing in data infrastructures that enable them to get feeds from ad servers and store them themselves. Search engines have the most powerful source of search data for needs-based targeting. But very few companies have integrated this digital data with their customer data warehouses. It will be interesting to see in the next couple of years who will own what data and who will be creating the next-generation, single-customer views that will combine media exposure and interaction with search, website behavior with transactional and demographics data, all in one place.

There are various players in the Math Marketing area:

Media companies have always used mathematics to make decisions about investing media budgets. Most of them have econometric capabilities and are investing in ad-serving, data-warehousing infrastructures, which will allow them to mine that data for optimization and give them a considerable competitive advantage. They are predominantly focused on media decisions and have historically had a more transactional and less strategic view. This was usually reflected in client relationships, where media agencies tend to have less board-level access. This is changing rapidly, however, with media companies aggressively building their strategic capabilities. If they can attract the talent and own the data, they will be in a great position to answer the ROI questions of the future. However, there will always be the perceived issue of the “fox guarding the henhouse.” Clients will always have a suspicion that media agencies will favor recommendations that might benefit media agencies first.

Integrated communications agencies have traditionally had strategic relationships with clients through brand-planning teams. Some of them have built strong strategic services departments over the years. Teams like these will be able to take a broad view of ROI, and look at the impact of all 360 Degree marketing communications on a brand holistically. Their analytics teams also tend to have the technical skills to analyze large volumes of data. However, with new channels being introduced continuously, the teams will need to keep investing in new specialists who understand the inner workings of these channels well enough to use the data to answer the ROI question. (This technical knowledge might come more naturally for media agencies who know the details for media execution purposes.) Ogilvy’s strategic services group in New York, for example, is comprised of a team of 150 planners and consultants specializing in brand planning, marketing and digital strategy, and analytics. The integrated communications agencies usually get access to data through clients and partnerships with media agencies. Very few communications agencies store their own data, which could put them at a disadvantage versus others in the category.

Management consultants have entered the marketing ROI arena as an extension of their broader strategic services. For them, marketing represents perhaps the last area of expansion. By the very nature of what they do, they tend to take a broad and holistic view and probably have more senior client relationships than any other player in the category. This can give them the authority to tackle the marketing ROI question holistically. They are also often seen as more impartial than media and communications agencies. One of their main challenges is that they are often too far removed from the day-to-day execution of marketing campaigns, which means they often lack the in-depth technical knowledge of today’s marketing channels required to analyze ROI. Some of them are ramping up their services fast, though, as demonstrated by Accenture’s acquisition of digital multivariate testing company Memetrics in 2007. Management consultants usually do not have direct data access and therefore rely on clients to share data with them.

As mentioned earlier, Google and Microsoft entered the marketing effectiveness area with their acquisitions of the major ad servers in the industry. With the digitization of all media, they will soon hold the majority of all marketing effectiveness data. They have the capability to handle the largest volumes of data, and have mathematicians and engineers who, if focused on marketing effectiveness, could have the ability to do just about anything. They are not positioned strategically and therefore lack the broad aperture required to become real ROI partners, but they have the size and the financial power to change this quickly.

These main players will be supported by specialized companies to help them solve certain pieces of the overall ROI puzzle:

Agencies with a strong CRM and technology focus, such as Epsilon, Acxiom, Targetbase, Unica and Dunnhumby, have a great ability to mine high volumes
of customer-level data. Some of them also have easier access to data, as they tend to manage clients’ data warehouses. They have mastered the art of optimizing one-to-one communications, but they are almost never responsible for the entire marketing mix, which usually prevents them from looking at marketing ROI holistically.

Marketing research agencies help quantify ROI through surveys and panels. Since they are primarily the providers of research data and insights, some of them have developed extended ROI capabilities in brand measurement and econometric modeling. Millward Brown’s Optimor is a great example of such an extended capability.

Finally, there are analytics vendors who specialize in just one area of analytics. This category includes web analytics vendors such as Omniture and WebTrends; marketing mix specialists such as Market Share Partners, MMA and Hudson River Group; Financial social media analytics vendors such as Nielsen BuzzMetrics, Visible Technologies and TNS Cymfony; and many more. These players usually have partnerships with some of the players mentioned above and, in some cases, have even been acquired by them.

The diagram below summarizes the current Math Marketing landscape, with the main players plotted on a grid based on their ability to have a broad aperture and on their specialty skills.

A true ROI partner will have a combination of both and would therefore appear in the top right corner. No one is there at the moment. However, it is clear that the main contenders are management consultants, integrated communications agencies, media agencies, and Google and Microsoft.

Two weeks ago I wrote a post about setting the marketing budget.  It described the often very basic rules marketers use to make multi million dollar investment decisions in marketing.  It also had data from a recent McKinsey survey showing that although 45% of the companies were planning to reduce their budgets, 27% had no changes planned, 20% of companies were planning to increase their budget and 9% didn’t know.  What can we learn from past recessions that can help us spend our marketing dollars better during this one?

Over the last months professional marketing literature has been dominated by material advising marketers on what to do during a recession.  A lot of that material covered rules and recommendations about how marketing budgets should be set or adjusted during recessions.  Reading through it I noticed very little new thinking.  Most of the articles were either reruns of material that was written after past recessions or they are articles that use the same methodologies used in those articles on more recent data. 

The most popular methodology used to demonstrate what happens when advertising budgets get cut during a recession compares companies that cut their advertising to those that held their spend stable or even increased it.  Performance of these companies is then compared during the recession and in a period after that. 

This methodology was 1^st tried out in the 1920’s by Roland S Vaile.  He published his results in the Harvard Business Review issue of April 1927.  Vaile compared companies that maintained their advertising spend during the 1923 recession to those that cut their budgets.  He found that the biggest sales increases were recorded by companies that advertised the most.

Buchen Advertising Inc. applied the same methodology to 4 recessions in the 40’s, 50’s and 60’s.  They were able to show that companies who cut their budgets during the recession not only performed worse during those recession but also in the subsequent years of recovery.

In 1982 Cahners Publishing Company published the results of an analysis of the Profit Impact of Marketing Studies (PIMS) database which then held information for almost 2000 companies.  They showed that companies who increased their budgets during a recession gained on average 1.5% in market share during those periods.

Similar research was done by Biel (1991), Hillier and Baxter (2001), Buck (2001).  The most recent example was presented at an IPA conference in 2008.  Malik consulting repeated the analysis Hillier and Baxter did in 2001 on more recent data.  The conclusion was very similar to all of the studies mentioned so far.  Companies who increase their budgets during a recession show increases in market share and return on capital employed (ROCE) in the years after the recession. 

While the observations in all these studies are accurate, I often feel nervous about the recommendations derived from them.  Most people claim these studies make a case for increasing investments during a recession to outmuscle weaker competitors and gain market share that can lead to a sustained advantage during the recovery and beyond.  This implies causality and none of the studies above delivers proof of this.  Do companies who spend more during a recession perform better in the long run because they increased their spend?  Or are companies who perform well before, during and after a recession better placed to maintain or increase their spend during a recession?  Some of the authors acknowledge this issue of potential reverse causality.  Few offer an alternative approach. 

I believe a more thorough approach is required to make the case for sustained marketing investment during tough economic times, especially if we want the arguments to stand up to the scrutiny of already skeptical CFO’s and CEO’s.  Three things can help here :

1. Increase the use of econometric modeling

2. Take a holistic view of the marketing plan

3. Determine the long term effects of marketing 

Increase the use of econometric modeling : Econometric modeling has been around for a long and it’s power in helping marketers understand what works and what doesn’t has been demonstrated over time.  Today however it’s use is still fairly limited.  Only 15% of the case studies submitted for the IPA awards use econometric modeling to identify the effects of campaigns.  The most often quoted paper that uses econometric modeling to make a case for sustained investments throughout a recession is probably Cutting Adspend in  Recession Delays Recovery by Dyson in 2008.  The article uses econometric modeling to prove exactly what it’s title says.  Dyson showed that “the increased spend required during the recovery just to get back to pre-recession sales levels within a year will have to be around 60 per cent higher than the amount saved by cutting the ad budget in the first place”. 

Take a holistic view of the marketing plan : Let’s say you have build econometric models that give you a clear sight into what would happen if budgets are cut.  One would still need to take into account media costs and consumption.  Media costs often fall during a recession.  Simon Broadbent (1999) gave a very interesting example which demonstrated the impact of cost savings due to falling media costs.  This in one example leads him to recommend increasing spend during the recession of the early 90’s.  There is also evidence that media consumption can change during a recession.  People stay home and consume more media, which could increase the efficiency of media spend during tough times.  Clearly an approach like this which uses modeling and takes into account the specific context of the brand, the category and the media landscape is much more thorough and easier to defend than the one size fits all golden rules described earlier.

Determine the long term effects of marketing : Budget cuts during a recession are often the result of a short term view.  Advertising efforts rarely pay themselves back in the short term.  As described in a previous post on the long term effects of advertising, 5 recent studies showed that every 1$ spent on advertising on average only generates 50c in payback in the short term (Dyson 2008).  However, there is growing evidence that the long term effects could be 2-6 times the size of the short term effects.  Broadbent (1999) 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.  The understanding of long term effects is incredibly important as it can impact shareholder value.  According to Barwise (1999) it is a myth that financial markets only care about short term financial results.  They tend to maximize long term shareholder value.  It is therefore up to the marketing community to demonstrate that long term shareholder value is not only a function of short term financial performance but also of sustained longer term investment in the brand.

References

P Barwise, Advertising for Long term Shareholder Value, Admap Magazine October 1999

A Biel, The cost of cutbacks, Admap Magazine 1991

S Broadbent, Tough Times, Admap Magazine April 1999

S Buck, The true cost of cutting adspend, WARC, January 2001

P Dyson, Cutting adspend in a recession delays recovery, WARC Online, March 2008

P Field, Marketing in a downturn: Lessons from the past, Market Leader, Issue 42 2008

T Hillier & M Baxter, How to prevent a hangover, Market Leader, Issue 14, 2001

B Ryan, Advertising in a Recession, AAAA, Value of Advertising Committee, 1991

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.

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 1^st 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 :

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