How Do You Know If Your Ad Money Are Wasted?

 

You have most certainly heard the famous, although a bit worn quote of John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half”. Although Mr. Wanamaker’s point may first appear to be true, let us dig a little deeper on the topic.

Wikipedia defines advertising as “a form of communication … used to encourage, persuade, or manipulate an audience … to continue or take some new action. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering.” To put it in layman’s terms, purpose of advertising is to guide consumers’ behavior and ultimately to get them to buy the advertised product.

So, may the way to achieve this goal be either short-term (e.g., inform of a limited time offer) or long-term (e.g., building a brand image), in order to know if the advertising is effective, one needs to know if it makes, eventually, consumers to buy the advertised product. This approach was echoed by “The father of advertising”, Mr. David Ogilvy who once stated “A good advertisement is one which sells the product without drawing attention to itself. Instead of saying, ‘What a clever advertisement,’ the reader says, ‘I never knew that before. I must try this product.’”

IS THE CAMPAIGN GENERATING SALES?
But how to know if the advertising makes the consumers to buy? The best possible way to know is to use actual market tests. However, although market tests provide the most accurate data they also incur extremely high costs. On the other hand, the simpler approaches (e.g., focus groups and surveys) are cheap to implement but they provide data that can include various biases, and are therefore seen as not very accurate. The third way to do it is by using neuroimaging methods which are much more accurate than traditional methods, yet much less expensive than actual market tests.

Before going any further, let us very briefly discuss why exactly are neuroimaging methods so effective in predicting people’s actual behavior? To put it very simply, it is because the brain has evolved for quickly evaluating situations and stimuli as either rewarding, neutral or harmful for the organism. Thus the rewarding opportunities (e.g., consumption of food) are related to approach motivation, avoidance have evolved to protect the organism from potential harm, while neutral stimuli do not have any significant effect. This approach/avoidance dichotomy is fundamental for all living creatures, it has been found even in single celled organisms.

CORRECT PARTS IN THE BRAIN
And this is exactly what numerous scientific articles have found when predicting people’s behavior. The brain has to be activated in a certain way in order to ensure the product will be bought. Activate the brain any other way and the product will be left on the shelf at the store.

Now we know that effective advertising should induce approach motivation, should not be insignificant, and most certainly should not elicit avoidance motivation. So how is it, do the advertisements in general activate the brain’s approach or avoidance systems, or none of them? Let’s take a sample, all TV commercials Exakti Intelligence Ltd. has analyzed with neuroimaging technique during the year 2013 so far. Should Mr. Wanamaker be right, roughly half of material should induce approach motivation while rest of them should be either neutral or induce avoidance.

The results may surprise you. A little bit over 62% of all seconds in all commercials were insignificant! Only 38% of those seconds were effective. That is, companies had paid for various agencies and television networks for huge amount of money, and 62% of that money did not produce any significant effect on their customers. Putting the result into perspective: according to the Association of Finnish Advertisers, companies in Finland use annually 280.000.000€ for advertising in television, so 174.000.000€ was more-or-less wasted. Could that money be used more cost-effectively?

So only 38% of all seconds in TV commercials were effective, but even more surprising was that out of these effective seconds, most were effective in HARMFUL sense! That’s right, 63% of all effective seconds (24% in total) were actually inducing avoidance motivation instead of targeted approach motivation. In customers’ brains, 24% of all aired and expensive seconds were considered as harmful for the individual. This means that companies in Finland use 67.000.000€ every year, out of their own pocket, for doing the opposite of what the companies intended: alienating customers from themselves and easing their competitors’ task.

Only 14% of all seconds were doing what all, or at least most of the seconds in TV commercials should: “encourage, persuade and drive consumers’ behavior with respect to the commercial offering.”

 

 

If 62% of all TV commercial content does not have any significant impact on customers, 24% are doing actually harm for the product and the brand, and only 14% are actually positively effective, how these seconds are distributed in commercials? The data showed that 4% of all TV commercials are doing what advertisements should do, they are positively effective from the first frame to the very last. Fortunately only 2% of all commercials were harmful in their entirety and 9% of all commercials were totally insignificant without any effective frame or second. In total of 85% of them included mixed effects.

 

MOST PRODUCTS ARE REJECTED
At first these results may sound unbelievable, but if you consider that only 10% of all new products will succeed (Nielsen) and only 3% of new consumer packaged goods exceed the benchmark level of a highly successful launch (Harvard Business Review), it may not be so unbelievable after all. After all, advertising budgets have increased from 172 billion dollars in 1996 to over 5 trillion in 2012. As advertising bombardment increases, customers may have reached the point of saturation, and creating positively effective commercials becomes ever more difficult.

So it appears that Mr. Wanamaker was hopelessly optimistic (although this study covers only TV commercials). Half of the money is not wasted, but 62% (174.000.000€). And the other half of the money is not doing the thing but inexplicably only 14%. But the most terrifying part may still be that 67.000.000€ of marketing money in Finland alone is doing exactly the opposite it should. Damage. And companies are funding this damage by themselves.

Also, based on ever-so-trendy Return On Investment (ROI) analysis, TV advertising in Finland has negative value -0.86! This is in line with Accenture’s research that shows that over 82% of TV commercials generate negative ROI.

In the end, which company could afford, especially in the current economy, that only 14% of their marketing budget has any positive effect at all, especially when the problem could be so easily avoided? Isn’t it a no-brainer to conclude that maybe focusing money on positively effective TV commercials would be the thing to do, instead of spending money with “the more the merrier” logic? Concentrate on marketing communication that really has the impact you desire, and eliminate everything else. I bet that is the logic R&D, HR and all other divisions in your company are doing right now.

 

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