Ephron & Pollak on General Advertising
Commenting on the ad industry as a whole, Ephron points out that “campaigns that measurably increase sales are outnumbered by campaigns that don’t by at least two-to-one.”
Ephron & Pollak describe how most advertising effectiveness studies focus on consumer package goods advertising. CPG advertising is less effective than average due to several factors: mature consumer markets, high brand awareness, intense competition, low product differentiation, high concentration on TV, etc. Using a marketing database covering 45 firms and 3/4 of a billion dollars in spend, they show that non-CPG advertisers enjoy “substantially better” sales-to-ad-spend ratios than CPG advertisers.
But — and here’s the kicker — on average, the non-CPG folks still don’t enjoy a positive return.
They break out the sample in more detail in this graph:
As I read this figure, it shows that something like 80% of all big advertisers in the sample (and 100% of all CPG advertisers in the sample) generated less than a dollar of payback per dollar of advertising.
That is, 80% of the advertising efforts were underwater. That’s something like half a billion dollars wasted. These big general campaigns didn’t generate profits. They consumed profits. They didn’t create shareholder value. They destroyed value.
Intellectually, I know the reasons why firms opt to run big general advertising campaigns. They could be driving top line sales to capture market share and push out competitors. Maybe they’re in a network effect industry and they have to get big fast. Maybe they want top line to satisfy investors, or to get acquired. Perhaps they’re using advertising to prop up a weak product value proposition. All understandable reasons.
(Or maybe they’re advertising that way just because that’s what they’ve always done. Bad reason.)
Sure, I understand general advertising intellectually. But in my gut, I honestly don’t get brand advertising. I don’t understand why any firm would run advertising they can’t track, or would run advertising which costs more than it returned. I was trained in direct. Every day I work in direct. So that’s my bias. I grok direct. I also believe in word-of-mouth, and agree that markets are conversations. But general advertising which destroys value? Just don’t get it.
OK, I’ll climb off my soapbox now. Time to head back to my safe world of direct. Give me tracking codes, response rates, and test cells. And, yeah, old-fashioned bottom line.