Share with your friends










Submit

Analytics Magazine

Forum: Revisiting advertising effectiveness

Analytics data science news articles

There’s a strong case to be made that advertising as we know it has been a mixed bag financially.

Will TowlerBy Will Towler

Does advertising work? Few will deny that advertising plays an important role in building awareness. The idiom, “out of sight, out of mind,” speaks to the importance of being seen in order to even be thought of. Looking back over the years, however, there’s a strong case to be made that advertising as we know it has been a mixed bag financially. And while emerging forms of advertising improve our ability to target, modern channels are being questioned just as much as traditional media in terms of overall effectiveness. What appears to be certain is, as consumers have greater access to information, the link between an ad’s effectiveness and the intrinsic “compellingness” of what’s advertised is likely to increase.

Academic literature appears to validate the often-quoted dictum that half of advertising falls short financially. According to Leonard Lodish (Wharton School of Business), Ye Hu (Bauer College of Business), et al., there’s greater than a 50 percent chance that TV advertising won’t be profitable. Their analysis is based on roughly 30 years of data in which they estimate that a 1 percent increase in TV ad spend generates about a 0.1 percent increase in sales on average [1]. To put this in context, a $500,000 increase in ad expenditures for a $1 billion brand spending 5 percent of sales on advertising would create $1 million in extra sales. The extent to which this is profitable, of course, depends on underlying operating costs. However, a 2:1 sales lift to advertising expense ratio doesn’t seem great given that cost of goods or services sold still need to be accounted for.

Broader meta-analysis indicates that newer products and services are likely to benefit the most from advertising, but ad effectiveness in general has decreased over time. For example, Gerard Tellis (Marshall School of Business) together with Raj Sethuraman and Richard Briesch (Cox School of Business) reviewed studies including hundreds of advertising elasticity estimates and found levels for products in the growth stage of the lifecycle 45 percent greater than for those in the mature stage. However, they also found that average elasticities dropped by close to 25 percent for all products considered over the half century reviewed. Increasing clutter is claimed to be a key culprit [2].

Much of the publically available research on advertising effectiveness relates to traditional channels. But as digital receives greater attention, the story doesn’t appear to be any more positive. The infamous AT&T banner ad that appeared on HotWired in 1994 had a 44 percent click-through rate according to some involved at the time [3]. Today, Google’s Display Benchmarks Tool puts U.S. click-through rates at less than 0.2 percent on average. Dave Chaffey of Smart Insights provides a thought-provoking review of click-through rates by format and platform, illustrating how performance can be improved through effective targeting. However, even the highly targeted example he shares only had a click-through rate of 1.3 percent. Chaffey highlights the increasing challenges that digital faces, explaining that ad blockers now account for 35 percent of ads in some countries, and just 45 percent of digital ads are clickable due to poor visibility [4].

Advertising analytics, Internet advertising, marketing, return on investment, meta-analysis, click-through rate

Broader meta-analysis indicates that newer products and services are likely to benefit the most from advertising.

In 2014, The Atlantic published an article titled, “A Dangerous Question: Does Internet Advertising Work At All?” Writer Derek Thompson argues that the Internet has led to greater media fragmentation, reducing the impact of advertising. Thompson hypothesizes that by providing greater access to information, consumers are now able to make more informed decisions without advertising. He writes, “The Internet was supposed to tell us which ads work and which ads don’t. But instead it’s flooded consumers’ brains with reviews, comments and other digital data that has diluted the power of advertising altogether.” Thompson also puts paid search under the microscope, calling out how predispositions may exaggerate reported ad effectiveness (what he refers to as the “I was gonna buy it anyway” effect) [5].

Beyond “advertising” per se, perhaps there’s a deeper issue at play. Apple provides an interesting case in point. Apple’s 1984 Super Bowl commercial is widely recognized as one of the most successful ads of all time. What’s often forgotten is that one year later, Apple aired another commercial during the 1985 Super Bowl, “Lemmings,” considered by most to have been a flop. What’s the difference? The “1984” ad announced the launch of Macintosh, a milestone product that greatly increased the affordability, functionality and ease of personal computing. The 1985 commercial announced Macintosh Office, much of which was still under development and wouldn’t be available for one to two years later. As Owen Linzmayer writes in “Apple Confidential,” “Lemmings” might have been received differently had it introduced another breakthrough product like Macintosh. Quoting Steve Hayden, copywriter on both ads, Linzmayer sums it up with, “You can’t write a check with advertising that the product can’t cash” [6].

So, what does all this mean for marketers? As an investment, advertising brings with it the chance of both profit and loss. To improve the likelihood of positive results, never before have relevance and uniqueness, in terms of message and channel, been more important. Similarly, predicting the likely success of an ad and explaining its impact is ultimately tied to understanding the appeal of what’s being advertised, which creative elements can bring to life but can’t replace.

Will Towler (wjtowler@hotmail.com) is an analytics and insights specialist. The views expressed in this article are those of the author and do not necessarily represent the views of an employer or business partners. He is a member of INFORMS.

References

  1. Ye Hu, Leonard M. Lodish, Abba M. Krieger, 2007, “An Analysis of Real World TV Advertising Tests: A 15-Year Update,” Journal of Advertising Research, September 2007.
  2. Raj Sethuraman, Gerard J. Tellis, Richard A. Briesch, 2011, “How Well Does Advertising Work? Generalizations from Meta-Analysis of Brand Advertising Elasticities,” Journal of Marketing Research, June 2011.
  3. Jim Edwards, “Behold: The First Banner Ad From 1994,” http://www.businessinsider.com/behold-the-first-banner-ad-ever–from-1994-2013-2
  4. Dave Chaffey, “Display Advertising Clickthrough Rates,” http://www.smartinsights.com/internet-advertising/internet-advertising-analytics/display-advertising-clickthrough-rates/
  5. Derek Thompson, 2014, “A Dangerous Question: Does Internet Advertising Work at All?” The Atlantic, June 13, 2014.
  6. Owen Linzmeyer, 2004, “Apple Confidential 2.0: The Definitive History of the World’s Most Colorful Company,” No Starch Press, 2004.

Analytics data science news articles

Save

Related Posts

  • 75
    The consumer goods industry thrived for years on its ability to please the average shopper. From toothpaste to soap powder, it knew how to give people what they wanted – and how to sweeten the purchase with the right price, a tempting discount or a great deal. But for the…
    Tags: analytics, percent, marketing
  • 72
    Averages lie to you. One of our publishing clients looked at the average sell-through rate of its online advertising inventory and noted it was 70 percent. “We can launch a metered paywall, and as long as we do not lose more than 30 percent of our inventory, the lost advertising…
    Tags: advertising, percent, analytics, marketing
  • 70
    Companies across industries admit to the growing importance of data analytics to improve sales and marketing effectiveness and decision-making. However, many struggle to piece together siloed data, properly define the problem or design the solution. As a result, they often fail to realize widespread business impact from their efforts, according…
    Tags: analytics, marketing
  • 60
    Two senior executives from marquee companies – Nicole Piasecki, VP of Business Development and Strategic Integration at Boeing Commercial Airplanes, and Sandy Carter, VP of Social Business Evangelism and Sales at IBM – will headline the 2013 INFORMS Conference on Business Analytics & Operations Research, April 7-9, in San Antonio,…
    Tags: analytics, marketing
  • 56
    FEATURES ABM and predictive lead scoring Account-based marketing, and the related technology of predictive lead scoring, is dramatically changing the face of sales and marketing. By Megan Lueders Software survey: joys, perils of statistics Trends, developments and what the past year of sports and politics taught us about variability and…
    Tags: analytics, marketing

Analytics Blog

Electoral College put to the math test


With the campaign two months behind us and the inauguration of Donald Trump two days away, isn’t it time to put the 2016 U.S. presidential election to bed and focus on issues that have yet to be decided? Of course not.


Headlines

Gaining distribution in small retail formats brings big payoffs

Small retail formats with limited assortments such as Save-A-Lot and Aldi and neighborhood stores like Target Express have been growing in popularity in the United States and around the world. For brands, the limited assortments mean greater competition for shelf-space, raising the question of whether it is worth expending marketing effort and slotting allowances to get on to their shelves. According to a forthcoming study in a leading INFORMS scholarly marketing journal, Marketing Science, the answer is “yes.” Read more →

Cognitive computing a disruptive force, but are CMOs ready?

While marketing and sales professionals increasingly find themselves drowning in data, a new IBM study finds that 64 percent of surveyed CMOs and sales leaders believe their industries will be ready to adopt cognitive technologies in the next three years. However, despite this stated readiness, the study finds that only 24 percent of those surveyed believe they have strategy in place to implement these technologies today. Read more →

How weather can impact consumer purchase response to mobile ads

Among the many factors that impact digital marketing and online advertising strategy, a new study in the INFORMS journal Marketing Science provides insight to a growing trend among firms and big brands: weather-based advertising. According to the study, certain weather conditions are more amenable for consumer responses to mobile marketing efforts, while the tone of the ad content can either help or hurt such response depending on the current local weather. Read more →

UPCOMING ANALYTICS EVENTS

INFORMS-SPONSORED EVENTS

Essential Practice Skills for High-Impact Analytics Projects
Sept. 26-27, Executive Conference Center, Arlington, Va.

Foundations of Modern Predictive Analytics
Oct. 2-3, VT Executive Briefing Center, Arlington, Va.

2017 INFORMS Annual Meeting
October 22-25, 2017, Houston

2017 Winter Simulation Conference (WSC 2017)
Dec. 3-6, 2017, Las Vegas

CAP® EXAM SCHEDULE

CAP® Exam computer-based testing sites are available in 700 locations worldwide. Take the exam close to home and on your schedule:


 
For more information, go to 
https://www.certifiedanalytics.org.