Articles

3.6.2010 Half of My Ad Dollars Are Wasted

A cliché is a Truth grown too familiar. The most damaging cliché to advertising is "I know half my dollars are wasted, but I don't know which half." That's the Curse of Lord Leverhulme, part joke, part dare. In fact, "half the dollars wasted" is generous if the measure is sales response. Campaigns that measurably increase sales are outnumbered by campaigns that don't by at least two-to-one.

Since we've been unable to prove Leverhulme wrong, we've shifted the focus to vague longer-term benefits like "building brand equity." But we haven't stopped trying. The sharper analysis made possible by marketing-mix modeling hasn't seemed to help. The celebrated Adworks 2 (1999) showed the TV advertising of the top 10% of consumer packaged goods (CPG) brands paid back about 32 cents on the dollar. And most marketers consider CPG brands to be expert advertisers and Television to be the most cost effective form of advertising.

But are half of the dollars actually wasted? We doubt it. Almost everything we know about sales response to advertising comes from decades of analyzing consumer packaged goods (CPG) brands on Television. That may not be the place to look.

CPG brands are a minor part of advertising. They operate in mature consumer markets characterized by known brands and intense competition (which means they often advertise just to hold place). There is little product differentiation. They are small in dollar volume. And most of their advertising is concentrated in a single medium, Television.

Could we learn more by looking at other categories? Might not advertising produce greater returns for brands in growing markets where news and information are important to the sale, for example Finance, Electronics, Retail, Movies?

The results from marketing-mix modeling are encouraging. The Non-CPG brands studied, on average, return 87 cents in profit for each advertising dollar spent. This is substantially better than the average 54 cent payback of the CPG brands in the database. But on average, it is still not a positive return.

B.L. 3.6.2010

Source: Gerry Pollak at ARF/ESOMAR