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A lot has been made recently
by published research from Deutsch-Bank and
IRI that only 17% of TV advertising for FMCG
brands were found to generate positive financial
ROI. Clearly, there is a fear among vested interests
in the media industry of the demise of traditional
mass media.
There is no doubt that there
should be concern among advertisers about the
efficacy of their media spend. Issues like DVRs;
the fragmentation of media and a rising tide
of consumer skepticism about mass media advertising
messages should raise the concern for all vested
interests regarding what appears to be a declining
efficacy of mass media over time.
The dilemma with advertising effectiveness and ROI measurement
is perhaps a by-product of recent evidence from an ANA/Forrester Research study
(2004) suggesting that there is little consensus among marketers on simple definitions.
Putting this in context, many FMCG marketers today are increasingly
relying on sales response modeling to help determine how they should spend their
marketing dollars, across various mix elements like media, promotions, trade merchandising
and direct marketing.
As enlightening as these efforts can be, there is a caveat
emptor for all users of these tools in taking a holistic view of how to best allocate
their marketing funds. That dilemma is that nearly all sales response models fail
to take into account what is commonly referred to as “long-term advertising
effects”.
John Philip Jones, in his
classic book, When Ads Work (1995) appropriately
pointed out that there are two distinct effects
from media advertising. The first is an immediate
impact on sales, usually within the week that
an ad airs. The second of these is a “long-term
effect”, which is a persistence of impact
from six months to a year or more.
Today, marketers who rely
on econometrics-based sales response models
for determining the effectiveness and ROI of
their advertising spend are seriously short
changing themselves. For one, sales response
models are adept at accurately measuring “short-term”
ad effects, but almost all fail to consider
the “longer-term” and brand-building
effects of media advertising.
A Case Study of Long-Term
Ad Effects
To illustrate the importance
of this issue, I want to cite a case from a
large and dominant brand in a FMCG category.
While the identity of this brand shall remain
anonymous here, it is important to note that
this brand was cited as one generating negative
ROI in the previously mentioned IRI-Deutsch-Bank
study.
In a sales response modeling
approach, which does explicitly account for
“long-term ad effects” we see in the
illustration below a comparison of advertising
effects with and without the long-term effects
considered.
As can be seen, for this brand,
the difference between short and long-term effects
is substantial! What is more interesting is
when we compare the financial returns to advertising
under the two different scenarios.
Click image to view full size
As evidence shows here, the
with and without “long-term ad effects”
models moved advertising from a negative to
a substantially positive financial return to
this brand.
A Holistic View of Advertising
Effectiveness and Returns
In IRI’s comprehensive
BehaviorScan study ADWORKS 1, evidence was presented
showing that there was clear evidence of “long-term
ad effects” or a persistence of advertising
impact over long periods in almost half the
FMCG cases studied. Yet there seems to be an
inconsistency with the less favorable ROI assessments
in their more recent study with Deutsch Bank.
So, does this mean that mass
media advertising is on death’s door? I
think not. However, advertisers must be careful
in taking their sales response models too far
if they do not explicitly take into consideration
“long-term advertising effects”.
The purpose of this article
is to posit a broader and more holistic view
of marketing and media effectiveness and financial
returns. Clearly, there is a lack of consensus
in the industry on what marketing and media
ROI really mean. This article has illustrated
why failure to take into account longer-term
effects from advertising can lead to erroneous
conclusions about media efficacy, which in turn
can likewise lead to erroneous budgetary decisions.
© 2005, Michael Wolfe
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