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How to stop waste in advertising
Gita Piramal |
May 19, 2005
More than half the money spent on advertising is wasted. How can you improve your ROI (return on investment) and get more sales for less rupees?
In a candid conversation with The Smart Manager, John Philip Jones reveals practical tips and advice on how to stop waste in advertising.
Back in 1979 the Mike Naples classic book, Effective Frequency, concluded that one exposure within a purchase cycle would normally be ineffective, two exposures would be an effective level and three would likely be the optimum.
In India, most manufacturers play safe by hiking the 'three times' rule to seven. But what if once is enough? You could then use the money left over from the other six ads for other activities: to run the campaign for a whole year instead of a few short stabs, to improve profits, capture more markets and other customer segments, beef up dealer push. . . the list is endless.
New research, based on rigorous studies conducted over the past ten years involving several hundreds of brands and over 110,000 consumers, by John Philip Jones, professor of marketing at Syracuse University, New York and a former ad man himself (he worked at J Walter Thompson for 27 years before joining academia in 1981) reveals that a good ad can make sales jump 19% -- with just one exposure.
For those curious -- and brave -- marketers willing to explore the idea of 'once is enough', hear what John Philip Jones has to say about waste in advertising, bad campaigns and ineffective advertising.
If you have a great product like Google, do you need to advertise at all?
Advertisers advertise because competitors advertise, that is the main drive to advertise. If you can get away without advertising, save your money. But there comes a time when competition will force you to advertise.
You've often spoken about the huge amount of waste that goes on in advertising because agencies and clients over spend on trying to capture people's attention. . .
I have consistently argued a basic psychological principle: that it is harder to get into peoples' heads in the first place than it is to stay there. In other words, it takes more weight, more effort, more repetition, to get your ad campaign into peoples' heads in the first place.
Once you have captured the mental territory, then you can send in the occupation forces. And these have a much easier job to do for all they have to do is to remind and reinforce or, in other words, hold the mental territory that has been already captured.
This means that fifteen-second ads, magazines, billboards and support media can perform wonderfully well in holding the mental ground that has already been captured, say by television.
How many times should an ad appear?
One exposure per week is enough. But because customers differ, you may do your media planning in such way that your ad is aired or published several times. But once a week is enough to increase sales.
Think how much money is freed up if you accept this principle! At the same time, you have to have continuity. Each customer must see you once a week.
Why once a week? What's special about once in seven days?
Advertising has three orders of effect: short term, medium term and long-term. These effects can be measured in terms of consumer purchasing. (Cognitive and attitudinal data are too soft and indirect to measure these effects robustly).
One extremely important point is that each effect is a gatekeeper to the next. In particular, without a short-term effect, no other effect is possible.
Before the mid-1980s, it was impossible to measure accurately the short-term effects of advertising. Since the early 1990s measurement was made possible with the use of a large-scale and expensive technique called Pure Single-Source Research.
This type of research has been used in a number of countries. The measure of an advertisement's short-term effect is market share change, and is entitled Short-Term Advertising Strength (STAS).
In about 30 per cent of cases this effect is very large. In about 40 per cent of cases it is slightly positive. In about 30 per cent of cases, sales actually go down because the campaign is unable to protect the brand from stronger campaigns from competitors.
STAS is driven exclusively by the creative quality of the advertising campaign. These are felt within seven days of an advertisement appearing, and such effects are highly volatile.
You mentioned continuity, not concentration. . .
Yes, for many years the advertising industry followed a pattern of short-term media concentration to ensure that consumers saw three exposures of an advertisement before they were expected to buy a brand.
This policy was based on an incorrect interpretation of available research. Now we know that a single advertising exposure can produce sales, and more exposures generate diminishing returns.
This is based on a vast amount of data. In simple terms, what this means is that short-term media concentration produces sales that are more and more expensive to achieve. It is therefore uneconomic.
At the same time, any gaps in a manufacturer's annual media schedule will leave the brand vulnerable to the competition of other brands in the market place.
When schedules are based on short-term concentration, there are inevitably going to be long gaps between the periods of high advertising weight: a highly inefficient way of employing media budgets.
Since the mid-1990s, it has been realised by the majority of American advertisers that the most effective and economic media policy is to reduce the weight of the short-term bursts of advertising and to deploy the money on a relatively continuous basis across a year.
A number of individual cases are available to demonstrate this point. And more recently, aggregated data from Media Marketing Assessment, based on rigorous econometric evaluation, have shown clearly that continuity is the best policy. As I said earlier, low intensity firepower, once a week every week, is effective advertising.
What about a new campaign for an old brand? What should be the frequency?
The 'massed approach' is still the most appropriate strategy as the first stage of getting a new campaign into people's heads. After that, it depends on how different the new campaign is, which relates to 'wear-in'. We have found that when a new campaign or a new ad is introduced, it takes time to wear-in.
The more different it is from the one before, the longer it takes to wear-in. The more similar it is to the one before, the less time and the less repetitions it takes to wear-in because there is less new learning involved.
The greater the change in the positioning, the greater the change in the attribute claim, or the greater the change in the execution style, the longer the new ad or campaign takes to wear-in, and the more repetitions it is going to take before you get to the reinforcement/reminder stage.
It is also important to recognize that the more successful the previous ad or campaign has been and the longer it has been running, the more repetitions the new and different one will take to wear-in.
And how much should a new brand spend? What should be its media strategy?
Manufacturers' advertising investments in any category can be described with a statistical regression known as the Advertising Intensiveness Curve (AIC). This shows that small brands must over-advertise (with their share of voice exceeding their share of market).
On the other hand, large brands can afford to under-advertise (with their share of voice below their share of market). This increases the profitability of large brands. But there are strict limits. Any reduction below these limits will invariably lead to a loss in market share.
For example, if a brand has an 8 per cent market share, you have to overspend by about 2 per cent. When a brand has a 15 per cent market share, it really starts making money.
In the early stages, you have to spend like crazy, the rule of thumb is to spend three times more. If you want 3 per cent market share, you spend 9 per cent on share of voice.
You have gone on record as saying that one out of five ads actually causes a drop in sales. How did you arrive at this conclusion?
It's true. Not all advertising is created equal. Life is just not as simple as making an advertisement and then broadcasting it. This fact is based on research on over 150 brands conducted over many years in both developed and developing countries.
We found that for one out of five ads the effects were magnificent: 94 per cent increase in the short-term. For one out of five ads the effect was minimal. For one out of five ads the effect was negative -- the households that received the advertisement bought less than those that did not. For two out of five, the effect was positive.
Quite simply this means that in 60 per cent of the cases the advertiser benefited from the advertising effort, that the ad made no different to 20 per cent of the cases, while 20 per cent spent money to lose more money.
How can one reduce this wastage?
In view of the fact that only a third of campaigns produce positive short-term results, it is very important that manufacturers should pre-test their ads so as to predict as accurately as possible whether their campaigns will be effective in the marketplace.
A number of pre-testing systems are available in the United States. The method with the best track record is that used by Advertising Research Systems (ARS).
This method tests the commercial in a cinema in front of an audience of 500 people. These people see an entertainment program in which are inserted some commercials, including the one being tested.
The entertainment programme is preceded by a lottery, in which people are asked to allocate a sum of money among different brands (including the one being tested). After the program, there is another similar lottery.
The measurement of the effectiveness of the tested commercial is determined by comparing the audience's preference for the brand after the programme with their preference before the program.
This testing system has been used for 50 years and there is a very large battery of test evidence of its effectiveness from a number of countries. This evidence for its predictive ability is very strong, and aggregated data are available to illustrate this. There are also a number of cases which show the system in action for specific named brands.
It is a common lament by advertising agencies that research kills creativity. This is simply not true. The grand prix and a silver Loerie winner in 1998 were pre-tested by Impact Information.
The creative directors themselves decided that the most creative ads were those which had been pre-tested.
What the advertising agencies mean is that research sometimes kills ideas that they hoped to get past their clients. At the same time, the most important contribution to effective advertising is the creative contribution.
The one-third of campaigns that are effective, are effective mainly because of the competitive quality of the creative. The two-thirds of campaigns that are ineffective, are ineffective mainly because of the inadequacy of the creative in a competitive environment.
My work is not a prescription for dull advertising; nor for what some people consider exciting advertising. It's a rallying cry for effective advertising.
Coming to promotions, when are promotions most effective?
Manufacturers are subject to a number of pressures to increase their expenditures on trade and consumer promotions. These pressures include competition from other manufacturers who promote in order to boost their own short-term sales.
But the regrettable fact is that the vast majority of promotions are totally uneconomic. Despite the high sales return they achieve, they produce an actual reduction in the manufacturer's profit.
One basic problem with promotions is that they encourage a general disloyalty to brands on the part of consumers.
An even worse problem is that promotions have no long-term effects. They are different from advertising in this respect. It will be remembered that advertising can produce a long-term effect which can be added to its medium term effect, with a beneficial effect on ROI.
One proven system of improving the benefit of trade and consumer promotions is to use such promotions together with consumer advertising, in a mutually supporting role.
The ad nudges the consumer towards a brand, and in the shop, the promotion nudges the consumer not only towards the purchase of your brand but also blocks purchase of rival brand.
For someone who is devoted to metrics, why are you so against market surveys?
Mainly, when you try to study people's emotional attachment to brands, things go wrong. Unfortunately, when you conduct a search, all you do is study status quo. All successful brands break status quo.
Results say that if Edison had to do market research to develop lighting, we would have enormous kerosene lamps today … explain then why is it that after all of WPP's efforts, do 90 per cent of brands fail, why only 30 per cent of advertising succeeds and 70 per cent fails?
If you go to a doctor and he diagnoses appendicitis, picks up a knife and says, don't worry I have a 30 per cent success rate, how are you going to feel about that? That is not very helpful, is it?
Let's go back to an old chestnut: is advertising is an expense or an investment?
I am essentially concerned with the question: is advertising paying for itself in the short- and long-term. This is an urgent question when there are recessionary pressures in the economy.
Business cycles during the period since 1948 have shown a recession in approximately one year out of every five, although the cycles themselves are irregular. During a recessionary downturn, advertising volume in real terms dips by an average of 5 per cent.
Worldwide, advertising volume has been increasing during the whole period 1994 through 2000. In 2001 there was a sharp reduction. There was not real recovery in 2002, and 2003 looks no better, as far as we can forecast.
During a recessionary downturn there is a lack of buoyancy in manufacturers' profits. In these circumstances, manufacturers will often reduce their advertising, and this will generally provide a similar proportionate increase in their profit.
But there is one very substantial qualification to this calculation. It is assumed that sales remain unchanged if advertising is cut back. This is normally most unlikely.
What matters in all cases is the manufacturer's ROI ie net profit as a percentage of the value of capital employed. As a general rule, manufacturers who spend greater amounts on advertising benefit from an above-average ratio of ROI.
When, during a recession, those manufacturers who reduce their advertising suffer from a fall in their ROI; those who increase their advertising benefit from a boost in their ROI. Some manufacturers believe that to increase their advertising when others are reducing theirs will strengthen their brands in the long-term.
During recessionary circumstances, it is more than ever important for manufacturers to follow five basic policies: measure behavioral effects; pre-test to weed out ineffective ads; determine ad budgets strategically; pursue media continuity, not concentration; and use promotions tactically.
Ad budgets tend to be heavily titled towards television. What's the future for magazines?
For some categories, magazines can be a very effective channel. For example, a research agency, Starch, once collected 110,000 interviews for two weekly magazines, over a five-year period. The interviews were routinely carried out seven days after publication of the two magazines.
The interviews collected more than Starch's traditional advertisement reading and noted research data. The data also contained the purchase levels of 73 packaged goods brands during that week prior to each interview. As a result, it was possible to relate brand purchase levels to the presence or absence of advertising for those brands measured.
The research showed that a reader of an issue containing an advertisement for a measured brand was 19 per cent more likely to have purchased that brand in those seven days prior to the interview. This was in contrast to those readers of issues not carrying such an ad.
This striking result demonstrates the significant short-term impact of magazine advertising on sales of repeat-purchase packaged goods. Since the interviews were carried out seven days after publication, the potential of exposure to an advertisement could be linked with a 19 per cent increase in recent buying.
In many cases, the effect of the advertising was felt immediately after just one exposure, suggesting that magazine advertising can deliver sales as powerfully as television.
Have you read Naomi Klein's book, No Logo? What is your reaction?
Have you read her book? Have you seen any evidence at all in it? There is not one single evidence in it. Look at the notes at the back: has a single piece of primary data been cited? She says what journalists are saying.
She says that Johnson & Johnson and other large companies are forces of evil, because they encourage materialism. That is absolute nonsense.
Published with the kind permission of The Smart Manager, India's first world class management magazine, available bi-monthly.