Evidence that TV advertising works
Andy Farr - Prepared for Millward Brown Optimor, 2004
An alternative perspective on the evidence put forward in the Deutsche Bank report Commercial noise - Why TV Advertising doesn’t work for mature brands.
Deutsche Bank has concluded that "TV advertising doesn't work for mature package goods brands" based on data that indicates an average return of 30%. In contrast the average return from investing in the stock market over the past 100 years has been 12%. Rather than suggesting that TV advertising doesn’t work, this makes it look like a very powerful marketing tool.
Deutsche Bank have highlighted that for half the advertising campaigns they analysed the return was not sufficient to cover the media cost. However they fail to mention that the gain from the 50% of cases where TV advertising was profitable more than offsets this loss. As with investments in the stock market TV advertising can be very profitable but the return is not guaranteed. Would Deutsche Bank advise its investors not to invest in the stock market just because some shares decline? We suspect not. Rather they invest in research to try to predict which shares will gain and which will not. Advertisers do the same, and for some the pay off from the combined investment is significant.
Let's examine the facts. The Deutsche Bank report is based on IRI marketing mix modelling results for 23 brands over a 3-year period, yielding 68 cases where an ROI from TV advertising could be measured. IRI have calculated the direct short-term sales uplift in response to TV advertising, and also the halo effects from other brands within the franchise. This direct plus halo effect has then been doubled by Deutsche Bank to create an estimate of the combined short and long-term effect of advertising.
Of the 68 cases where data exists 34 show a positive ROI. This means that advertising was profitable in 50% of the cases (a far higher proportion than for trade promotion according to the sources quoted in the Deutsche Bank report). However this number is not the most important. We also need to look at the magnitude of the return.
The IRI numbers show that when advertising was profitable the average return on investment, after the subtraction of advertising costs, was 132% (ie TV advertising generated an average return for these brands of $2 .32 per $1 invested, a net profit of $1.32). By the same token the average for the loss making brands was -72% (or 28 cents return for each dollar spent). The net effect of this is that the average return on advertising investment across the 68 cases was +30%. Most major organisations would be happy with a 30% return from any of their activities.
What should we read into the range of response? It reminds us of a fact of economic life - in a competitive environment, where each company's success depends upon another's failure, finding the right message, executing it effectively and delivering it through the optimal mix of channels and media to reach the right audience is what makes some campaigns, some brands and some companies more successful than others. Just like any other investment advertising is not risk free. The media budget creates the opportunity for inspiration, but not a guarantee. However, the IRI numbers suggest that the investment is worthwhile because when it is successful the return from TV advertising more than outweighs the failures.
So instead of the headline "TV advertising doesn't work for mature package goods
" we would suggest an alternative - "Major new study proves the effectiveness of TV advertising
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