The study, released on the eve of the TV buying upfront, examined 23 household, personal-care, food and beverage brands using customized marketing-mix analysis from Information Resources Inc. It found only 18% generated a positive return on investment in the short-term (a year or less) from TV advertising. Less than half-45%-saw their TV investment pay off long term.
Though the research jibes in many ways with previous research by academics and research firms, it appears to be the first such extensive Wall Street examination of whether TV advertising works in the industry and could increase pressure on marketers to make their ad dollars work harder.
The lackluster returns come as the industry has stepped up ad spending after a long decline. Package-good brands' share of U.S. ad spending slipped to an all-time-low 14% in 2000, but bounced back to 20% in 2003, the same as 1997, according to the report.
Home and personal-care brands, the biggest and fastest-growing ad spenders in the industry, showed a particularly strong negative correlation between increased TV spending and ROI. Their ad outlays outpaced sales growth 8% to 4.5% over the past three years.
"The marketing line is going to be the next cost bucket all these companies look at," said analyst Andrew Shore, who authored the report. "For the past 50 years, the media industry has been extracting a sort of value-added tax from [package-goods] companies. And right now I think they're in the early throes of this revolution saying ... `It's not working anymore."'
Mr. Shore attributed most package-good brands getting poor returns in large part to the rising cost of TV combined with declining and fragmented viewership and lack of adequate measurement systems, such as commercial ratings. Indeed, that was the theme of a speech by Procter & Gamble Co. Global Marketing Officer Jim Stengel to the American Association of Advertising Agencies in February.
Mr. Shore acknowledged his analysis may understate ROI, since it bases TV spending on syndicated data that package-good executives say overstates actual spending by as much as 100%. But the study also didn't include costs for such things as agency fees, production, celebrity talent, copy testing and other items that can account for 25% or more of ad costs. Even if syndicated data overstate TV costs by 50% to 100%, many of the brands still had negative returns.
But newer brands or brands with substantially new products, including P&G's Crest Whitestrips and Swiffer, Gillette Co.'s Mach 3 and PepsiCo's Aquafina-ran counter to the findings, all getting strong positive returns. Even some mature brands, such as PepsiCo's Gatorade, P&G's Tide and Anheuser-Busch's Bud Light, also had strong ROI, which Deutsche Bank credited to strong creative or good copy strategy.
David Poltrack, exec VP-research and planning for Viacom's CBS, said the Deutsche Bank findings are similar to those of "How Advertising Works" studies of the 1980s and early 1990s that the TV industry commissioned with IRI, noting that TV ROIs are lower for mature brands and declining categories. "In flat or declining categories," he said, "to the extent advertising works, you have to take business from someone else, who is also advertising. So ineffective advertising is not going to work in a mature category."
The last "How Advertising Works" study in the early 1990s concluded about half of brands get positive returns from TV, he said. But Mr. Poltrack acknowledged that payback for package-goods brands may have declined since then, as TV rates have been pushed up by marketers of price-sensitive brands, including movies and pharmaceuticals, where ROIs are clearly stronger.
Indeed, other industries did fare better in the report, which cited IRI data showing ROI for pharmaceutical TV advertising averaging six to 10 times better than for package-good brands.
"Looking for advertising effectiveness in package-goods is like the drunk looking for his keys under a lamppost because that's where the light is," said Erwin Ephron of the media consulting firm Ephron Papazian & Ephron. Researchers have focused on the industry because it has better data to draw on, he said, but it also has weaker ROI because of its many mature brands.
TOO MUCH TV
ROI is generally stronger for magazines and radio than TV because marketers spend less on those media, Mr. Ephron said. Marketers are getting diminished returns from TV in part because an ad has less incremental effect each viewing, he said, adding: "The simple answer is [package-goods marketers] are spending too much on TV."
The Deutsche Bank report also said package-goods marketers may be poisoning the TV well themselves with escalating trade promotion. Data from the 23 brands studied indicated heavily promoted categories, including snacks and carbonated beverages, had some of the weakest consumer response to TV. Couponing, however, appeared to improve TV-ad effectiveness.
Some marketers are already using marketing-mix modeling to try and reverse spending mistakes, Mr. Shore said.
Long-term ROI for Clorox bleach advertising plummeted when it hiked spending in 2002 and 2003 amid declining sales, according to his report. This year, Clorox shifted money from TV to trade promotion while running harder-hitting ads from Omnicom Group's DDB, San Francisco. Both sales and share rebounded.