Study: Advertising Half as Effective as Previously Thought
Advertising to mass markets became popular in the U.S. more than a century ago. And for almost that long, researchers have been studying whether and how advertising works. In the past 50 years, researchers have been studying the effectiveness of advertising with sophisticated statistical models.
Recently, I worked with colleagues to objectively look at how advertising works. We analyzed more than 750 estimates of how sales or market share respond to advertising; these studies were published between 1960 and 2008. The estimates spanned a broad sample of brands, product markets, time periods and countries. What have we found from all these studies? Here are some highlights:
SURPRISINGLY, ABOUT HALF
OF ALL ADS ARE INEFFECTIVE
It may be because firms continue campaigns past their period of effectiveness, persist with ineffective ads or just fail to test if their ads work. Given that so many ads are ineffective, the ads that do work are twice as effective.
THE AVERAGE EFFECT OF ADVERTISING IS HALF AS MUCH AS PREVIOUSLY BELIEVED
A 1% increase in advertising expenditures leads to a 0.1% increase in sales or market share. A 1984 study suggests that a 10% increase in advertising leads to a 2% increase in sales; in our study, we found only a 1% increase in sales.
THE LONG-TERM EFFECT OF
ADVERTISING IS TWICE AS HIGH
AS THE SHORT-TERM EFFECT
While this finding suggests waiting until all of the effects of the advertising sink in before investing in new advertising, the reverse is also true. If advertising is ineffective in the short term, it will not be effective in the long term, and there is no need to wait before trying something new.
THE EFFECT OF ADVERTISING
HAS DECLINED OVER TIME
This finding could be due to the growth of new online media for search, review and buying, and the increased tendency for consumers to make decisions at the point of purchase instead of in the living room while glued to the TV.
ADVERTISING IS MORE EFFECTIVE
IN RECESSIONS THAN IN EXPANSIONS
The reason for this effect could be that advertising during the recession is less noisy. Thus, consumers are more likely to notice and respond during a recession than in an expansion. More generally, a contrarian perspective may be worth testing -- advertise when the market does not and cut back when the market does.
TV ADVERTISING IS MORE
EFFECTIVE THAN PRINT ADVERTISING
This finding is likely linked to the fact that TV advertising is newer than traditional print media and connects with consumers in bold, visual ways. An extension of this finding may suggest that in general, newer media work better than older media. However, there were not enough studies of online media in the published sample to test this hypothesis.
MARKET CONTEXT CAN
AFFECT ADVERTISING'S IMPACT
Advertising tends to work better for durable goods than for nondurables, for pharma products than for other products, and for new products over mature products.
ADVERTISING EFFECTIVENESS IS
GENERALLY HIGHER IN EUROPE
THAN NORTH AMERICA
This could be due to over-advertising in North America relative to Europe or due to more clutter in North American relative to Europe. In looking at large, emerging markets, such as China or India, for example, one would probably get higher responsiveness to advertising than in the U.S. In general, newer markets are more responsive to advertising than more mature markets.
ADVERTISING REMAINS A POWERFUL MEANS FOR REACHING CONSUMERS
Cases abound of how advertising has helped launch new products, created new markets or built great brands. However, a great deal of advertising may be mundane and about half may be just ineffective. Indeed, advertising effectiveness varies a great deal across contexts. The most important piece of advice that comes from this research: Advertisers need to constantly test the effectiveness of their ads in real markets. While all advertisers hope that their ads will be huge winners -- only a few succeed.