August 20, 2012
BrainTrust Query: The Surprising Math of Advertising Waste
Through a special arrangement, presented here for discussion is an excerpt from an article from the Joel Rubinson on Marketing Research blog.
John Wannamaker is famous for saying, "Half the money I spend on advertising is wasted; the trouble is I don’t know which half."
Being a curious soul, I decided to calculate how much wasted advertising a marketer can afford and still have a successful campaign. It turns out that, for a campaign to pay out, less than one percent of impressions need to be "impact impressions," that is, directly lead to a purchase.
Let’s work through the numbers with a prototypical brand:
- The brand: 10 percent of U.S. households buy it in a year and based on its price, repeat rate, purchase cycle and buying rate it annually generates 44 million unit sales and $110 million in dollar sales at retail.
- The action: It doubles its annual ad spend from $10 million to $20 million. At an average $5 CPM (cost-per-thousand), this means they are buying an extra two billion impressions across various media.
- The expectation: Generate a 20 percent increase in sales which translates into about 2 million more households buying the brand and generating 8.8 million in incremental unit sales.
- Impact impressions rate: It is a little less than one half of one percent which can be calculated as 8.8 million incremental units/two billion impressions. Alternatively, we can think of the incremental advertising as generating about two million more buyers (who then make a stream of purchases) which makes the impact rate even smaller.
Are the other 99 percent of impressions wasted? Not all are. They create consideration and familiarity from which a percent become new buyers; they reinforce beliefs and remind people of your brand as they are about to shop while competitors are still in consideration. But beyond that, I would advise against marketers thinking they can create such a rifle shot approach that could target the few percent of impressions that had an impact and save money by not buying the "wasted impressions." I think that there is a huge amount of randomness in consumer and shopper brains so the great majority of those billions of impressions is needed to allow a small percent of new buyers scattered about (in targeting and brand perception spaces) to accidentally find the brand and begin buying it.
I do think that targeting will improve results but can never eliminate what people wrongly call waste. Even digital, where we can use the most sophisticated targeting analytics such as retargeting and lookalike modeling of conversions, achieves lifts in response that might be multiples of what we would get otherwise, but are still in the single digits. This means target but don’t over target — or, as Jack Wakshlag, chief research officer at Turner Broadcasting says, "Segmentation is like salt. A little bit is good, a lot can kill ya."
BrainTrust
Recent Discussions
Discussion Questions
Discussion questions: What should be the goal for brands around generating impressions that drive purchases from advertising campaigns? Are the more targeted approaches promised from social and owned media likely to improve much on the effectiveness found in paid advertising channels?
Poll
Another nifty piece of research, Joel. The goal of advertising is ultimately to increase sales, whether it is bringing in new brand buyers or helping retain current brand buyers.
So far, little evidence that social and owned media are delivering value — doesn’t mean they aren’t, it means we haven’t figured out how to measure social media, let alone figure out what it does for a brand.
The goal of advertising is to generate awareness and interest in a brand. If a promotion is advertised, its goal is to cause consumers to take action. Brands should target their message to audiences that will be most open to trying/buying their products. Some brands will cast a wider net when generating awareness, and take a rifle approach when advertising promotions.
Let’s remember that advertising, in and of itself, is not the be all, end all and for a brand. Advertising should be part of a marketing plan that includes numerous layers of consumer contact, all designed to generate trial, purchase, repurchase and loyalty.
There is no one size fits all type of answer. Completely depends on the brand, and what level of brand recognition it has established even before the ad campaign begins. For example, a 1% rate for see and purchase is excellent for a huge P&G brand in a fast moving commodity type of category, but a lesser known specialty brand or premium type of brand should have other needs and expectations.
Joel, early in my career I worked at a company where we referred to extreme targeting as ‘The spiraling vortex of doom” — messaging more and more to fewer and fewer people is not a sustainable strategy for any brand seeking to steal share and grow.
You are right about the supposedly “wasted” impressions. I think the opportunity of social and digital is not to replace top of the funnel methods, it’s to enhance them with more targeted conversations that can potentially upsell or cross sell a customer, get them to buy with greater frequency or increase the likelihood they will talk about the brand. All of this collectively can build more brand affinity and loyalty, but it never was an either/or proposition and never will be.
I have great respect for Joel, and I think this analysis helps make the broader point that for people who aren’t measuring their marketing, it may be paying off at lower levels of direct effectiveness than they might imagine. But even the effectiveness rates Joel cites might be extremely optimistic for some (many? most?) ad campaigns.
It’s time for marketers of all stripes (CPG, retailer, whatever) to stop hoping that their advertising will pay off, and to start demanding that it does. If your ad agency or marketing vendors can’t provide concrete, clear, positive, measurable ROI, then they don’t deserve your business.
And, you should reach out to one of the dozens of companies that do provide that measurement — many actively participate in these RetailWire discussion pages.
Impressions, like measuring the value of an advertisement, is more art than science. It is with caution that the reader should take away the numbers that the author puts forth. Advertising campaigns have numerous returns including “halo effects” that impact sales even after a campaign is done. Wasted impressions at the 99% level is taken out of context, and does not measure a truly impactful, successful ad campaign. A successful ad campaign markets to a target audience with measurable impact.
For example, Apple’s ad campaign for its new iPhone 5 will start with pre-launch announcements and then a full blown ad campaign. It will probably be very successful and its ad campaign will be credited with creating incredible sales and even better profits. No one will even presume that this could have been done for just 1% of the ad dollars spent. The incremental sales which these advertising dollars create are measured in the millions. The impact is felt along every product in Apple’s line, including their iTunes store, software, and accessories.
At best, each advertising dollar is difficult to measure. However, at the minimum, the advertising creates revenues which continue to make Apple the largest company in the world.
I love Joel’s analysis. It certainly puts perspective on the historical success of advertising success. Perhaps those advertisers weren’t as brilliant as they thought.
With regard to the question, the goal of advertising should NOT be to generate impressions. I have objected to this measure since I was a marketing assistant way back in 1971. The goal of advertising is to generate sales. Ad agencies never wanted to measure sales, only impressions, yet there was no proof that more impressions generated more sales.
In my later life with in-store media, we proved time and time again that advertising in -store generated sales, but fought agency recommendations with CPG clients because they couldn’t fit “impressions” into their impressions model.
Social media will change all that. Broadcast marketing (impressions) is dead. Once marketers understand that with social media, the receiver is in charge, the game changes, impressions become irrelevant.
Many years ago Anheuser-Busch did a complex study to investigate this issue. The finding was that a certain level of advertising is necessary to maintain image, familiarity, and loyalty. In addition, the amount of advertising necessary varied by product.
Advocating a specific percentage is naive without a lot of testing and data.
I liked this article when read it last week. And I still like it. In part, it’s an antidote to the dramatic over promises we hear from those selling what they claim are more highly targeted media. My sense is twofold…
– We need to accept that there will always be advertising waste. Any salesman knows this. I worked with a very sophisticated door to door operation. Their rule? Knock on 9 doors, get in 3. Give 3 presentations, make 1 sale. It’s a fact of marketing and sales.
– Media “targets” never have and never will match your target descriptions. It simply isn’t possible. So no matter what you are promised, be skeptical.
This doesn’t mean that buying careful targeting isn’t important — it is. But it’s also oversold. Laser-like targeting simply doesn’t exist so we’d better accept some more flexible reality and learn to succeed there.
It’s a gross oversimplification to assume that any one impression caused a purchase. The overwhelming majority of factors influencing purchase decisions are subconscious and the result of a huge number of impressions that we’ll probably never have a way to count or measure.
On the web, 98% of visitors to an e-commerce site don’t buy, and between 30% – 80% bounce after looking at just one page for a few seconds. If we just looked at the last impression that drove that visitor to the site, we’d consider most of our marketing tactics a failure, but when start to look at multiple touchpoint attribution, a different picture emerges.
We need much better models for multi-touch attribution in physical stores.
The comments today certainly underscore the uncertainty of measuring the effectiveness of advertising. After laboring in the vineyards of four ad agencies and four retail ad departments over a period of forty years, I must confess that I’ve simply not learned anything new during this discussion. We return to the same thoughts and arguments like a dog returns to its vomit (Proverbs 26:11 and 2 Peter 2:22).
Perhaps I can add something vaguely different from earlier comments: Since we’re so bad at attaching ad spending to sales, perhaps we should consider the “surprise” sales from ad spending. These are sales to extremely untargeted consumers. Prior to being exposed to your advertising, some shoppers were not only unaware of your brand, but of your entire category. You talk to them by mistake, and they’re converted first to your category and, even better, to your brand. Surprise!
To me, advertising is just one part of a marketing strategy. Impressions do help build brand value… IF the impressions are compelling. 95+% of impressions are forever forgotten. And of course even a smaller than a couple percent actually purchase based upon the ad. There are ways to measure brand value, through social channels and elsewhere. I think targeted messages are taking on an entirely new direction, based upon up-to-the-minute consumer sentiment about the brand. There is a ton to learn about your brand in the seemingly unstructured chatter we call the Web. Some good case studies out there.
Make the campaigns more relationally focused with a benefit to the local community. Support local schools and ask the schools to help you promote to the students. See Publix as the best model for this.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
Another nifty piece of research, Joel. The goal of advertising is ultimately to increase sales, whether it is bringing in new brand buyers or helping retain current brand buyers.
So far, little evidence that social and owned media are delivering value — doesn’t mean they aren’t, it means we haven’t figured out how to measure social media, let alone figure out what it does for a brand.
The goal of advertising is to generate awareness and interest in a brand. If a promotion is advertised, its goal is to cause consumers to take action. Brands should target their message to audiences that will be most open to trying/buying their products. Some brands will cast a wider net when generating awareness, and take a rifle approach when advertising promotions.
Let’s remember that advertising, in and of itself, is not the be all, end all and for a brand. Advertising should be part of a marketing plan that includes numerous layers of consumer contact, all designed to generate trial, purchase, repurchase and loyalty.
There is no one size fits all type of answer. Completely depends on the brand, and what level of brand recognition it has established even before the ad campaign begins. For example, a 1% rate for see and purchase is excellent for a huge P&G brand in a fast moving commodity type of category, but a lesser known specialty brand or premium type of brand should have other needs and expectations.
Joel, early in my career I worked at a company where we referred to extreme targeting as ‘The spiraling vortex of doom” — messaging more and more to fewer and fewer people is not a sustainable strategy for any brand seeking to steal share and grow.
You are right about the supposedly “wasted” impressions. I think the opportunity of social and digital is not to replace top of the funnel methods, it’s to enhance them with more targeted conversations that can potentially upsell or cross sell a customer, get them to buy with greater frequency or increase the likelihood they will talk about the brand. All of this collectively can build more brand affinity and loyalty, but it never was an either/or proposition and never will be.
I have great respect for Joel, and I think this analysis helps make the broader point that for people who aren’t measuring their marketing, it may be paying off at lower levels of direct effectiveness than they might imagine. But even the effectiveness rates Joel cites might be extremely optimistic for some (many? most?) ad campaigns.
It’s time for marketers of all stripes (CPG, retailer, whatever) to stop hoping that their advertising will pay off, and to start demanding that it does. If your ad agency or marketing vendors can’t provide concrete, clear, positive, measurable ROI, then they don’t deserve your business.
And, you should reach out to one of the dozens of companies that do provide that measurement — many actively participate in these RetailWire discussion pages.
Impressions, like measuring the value of an advertisement, is more art than science. It is with caution that the reader should take away the numbers that the author puts forth. Advertising campaigns have numerous returns including “halo effects” that impact sales even after a campaign is done. Wasted impressions at the 99% level is taken out of context, and does not measure a truly impactful, successful ad campaign. A successful ad campaign markets to a target audience with measurable impact.
For example, Apple’s ad campaign for its new iPhone 5 will start with pre-launch announcements and then a full blown ad campaign. It will probably be very successful and its ad campaign will be credited with creating incredible sales and even better profits. No one will even presume that this could have been done for just 1% of the ad dollars spent. The incremental sales which these advertising dollars create are measured in the millions. The impact is felt along every product in Apple’s line, including their iTunes store, software, and accessories.
At best, each advertising dollar is difficult to measure. However, at the minimum, the advertising creates revenues which continue to make Apple the largest company in the world.
I love Joel’s analysis. It certainly puts perspective on the historical success of advertising success. Perhaps those advertisers weren’t as brilliant as they thought.
With regard to the question, the goal of advertising should NOT be to generate impressions. I have objected to this measure since I was a marketing assistant way back in 1971. The goal of advertising is to generate sales. Ad agencies never wanted to measure sales, only impressions, yet there was no proof that more impressions generated more sales.
In my later life with in-store media, we proved time and time again that advertising in -store generated sales, but fought agency recommendations with CPG clients because they couldn’t fit “impressions” into their impressions model.
Social media will change all that. Broadcast marketing (impressions) is dead. Once marketers understand that with social media, the receiver is in charge, the game changes, impressions become irrelevant.
Many years ago Anheuser-Busch did a complex study to investigate this issue. The finding was that a certain level of advertising is necessary to maintain image, familiarity, and loyalty. In addition, the amount of advertising necessary varied by product.
Advocating a specific percentage is naive without a lot of testing and data.
I liked this article when read it last week. And I still like it. In part, it’s an antidote to the dramatic over promises we hear from those selling what they claim are more highly targeted media. My sense is twofold…
– We need to accept that there will always be advertising waste. Any salesman knows this. I worked with a very sophisticated door to door operation. Their rule? Knock on 9 doors, get in 3. Give 3 presentations, make 1 sale. It’s a fact of marketing and sales.
– Media “targets” never have and never will match your target descriptions. It simply isn’t possible. So no matter what you are promised, be skeptical.
This doesn’t mean that buying careful targeting isn’t important — it is. But it’s also oversold. Laser-like targeting simply doesn’t exist so we’d better accept some more flexible reality and learn to succeed there.
It’s a gross oversimplification to assume that any one impression caused a purchase. The overwhelming majority of factors influencing purchase decisions are subconscious and the result of a huge number of impressions that we’ll probably never have a way to count or measure.
On the web, 98% of visitors to an e-commerce site don’t buy, and between 30% – 80% bounce after looking at just one page for a few seconds. If we just looked at the last impression that drove that visitor to the site, we’d consider most of our marketing tactics a failure, but when start to look at multiple touchpoint attribution, a different picture emerges.
We need much better models for multi-touch attribution in physical stores.
The comments today certainly underscore the uncertainty of measuring the effectiveness of advertising. After laboring in the vineyards of four ad agencies and four retail ad departments over a period of forty years, I must confess that I’ve simply not learned anything new during this discussion. We return to the same thoughts and arguments like a dog returns to its vomit (Proverbs 26:11 and 2 Peter 2:22).
Perhaps I can add something vaguely different from earlier comments: Since we’re so bad at attaching ad spending to sales, perhaps we should consider the “surprise” sales from ad spending. These are sales to extremely untargeted consumers. Prior to being exposed to your advertising, some shoppers were not only unaware of your brand, but of your entire category. You talk to them by mistake, and they’re converted first to your category and, even better, to your brand. Surprise!
To me, advertising is just one part of a marketing strategy. Impressions do help build brand value… IF the impressions are compelling. 95+% of impressions are forever forgotten. And of course even a smaller than a couple percent actually purchase based upon the ad. There are ways to measure brand value, through social channels and elsewhere. I think targeted messages are taking on an entirely new direction, based upon up-to-the-minute consumer sentiment about the brand. There is a ton to learn about your brand in the seemingly unstructured chatter we call the Web. Some good case studies out there.
Make the campaigns more relationally focused with a benefit to the local community. Support local schools and ask the schools to help you promote to the students. See Publix as the best model for this.