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

8 things marketers can do to become more accountable

The recession has brought an unprecedented drive for accountability in the marketing world.  Here are 8 things marketers can do to become more accountable :

1. Start with the basics

If you want to understand the impact of your marketing efforts you need to start with measurement, then move on to analysis of the results and finally use the insights from the analysis to optimize your marketing efforts.  Now marketing budgets are under increased scrutiny many companies are looking for instant optimization by skipping measurement and analysis.  This never works.  You need the foundation of metrics and insights before you can optimize.

2. Align metrics to objectives

Measure what you need to measure, not what you can measure.  Many marketers get over-excited about modern measurement tools that allow them to track everything.  This often means they end up drowning in metrics.  Starting from the business, marketing and communications objectives and aligning your metrics to them will ensure you focus on the metrics that matter.  Mapping metrics to objectives also often improves the quality of the objectives themselves.

3. Use more than 1 metric

The last couple of years have seen a number of efforts by marketing professionals and academics to summarize marketing’s performance in one metric.  Reicheld’s Net Promoter Score, Peppers and Rogers’ Return On Customer and Doyle’s Increase in Shareholder Value are examples of such efforts.  While some of these metrics can be useful performance indicators, they will never be able to explain the workings of marketing in its entirety. 

4. Use a mix of financial and non-financial metrics

Finance departments everywhere are forcing marketing departments to adopt financial metrics.  This is a good thing.  Focusing on financial metrics only however is not.  It does not improve the understanding of how marketing works.  Counting the money is not enough. Marketers (and finance people) also need to understand where the money is coming from.  London School of Economics professor and marketing accountability guru Tim Ambler once compared the exclusive focus on financial metrics to the effects of cannabis – it distorts the reality and thereby creates the illusion of control.

5. Build a results repository

A results repository which stores all marketing related metrics in on place is probably the most important asset a marketer can have in the quest for accountability.  Though this sounds very obvious, it is surprising how few companies have one.  This doesn’t have to be a sophisticated database.  A simple excel sheet or access table can often be a great improvement.  It’s not about the technology, it’s about having the discipline of consistently capturing marketing performance metrics over time. 

6. Track marketing cost data

It is interesting how few companies adequately track metrics related to the costs of marketing.  Cost metrics tend to be stored in financial systems and kept at a very aggregate level.  This often makes them useless for performance analysis.  Keeping track of your marketing costs by marketing objective, program, channel, geography, segment and medium can greatly improve your ability to understand the effectiveness of your marketing investment.

7. Use statistical modeling to identify drivers of business performance

Econometric modeling has been around since the 1950’s and it’s power in helping understand marketing effectiveness is well documented and understood.  A recent study of the IPA awards however revealed that only 15% of the submissions used econometric modeling to measure performance.  In my experience, even companies who do econometric modeling often struggle with integrating them in marketing decision making.  This is a shame as econometric modeling can often identify the key marketing drivers that are correlated with business outcomes and help marketers focus on them.

8. Build a marketing dashboard

Marketing dashboards are a very visible and tangible output of your measurement efforts.  This not only makes them popular, it also means dashboards can become the catalyst for doing the 7 things mentioned above.  If you build a dashboard you start with measurement.  The design of a dashboard usually leads to a conversation about what metrics are important.  You will need a set of metrics to populate the dashboard, which usually includes both financial and non-financial metrics.  The financial metrics will require the discipline of tracking marketing cost metrics.  And all metrics need to be stored in results repository that powers the dashboard.  A typical results repository also usually holds 80-90% of the data required to do econometric modeling.