How and When Advertising WorksPublished: March 27, 1999 in Knowledge@Wharton
Retailing tycoon John Wanamaker once said, "I know that half of my advertising doesn't work. The problem is, I don't know which half." Your company may be spending millions of dollars on advertising, but how do you know which ads are effective? A thorough evaluation of your company's television advertising would likely show that some of the current advertising is not effective, while other ads are moderately helpful, and still others are very helpful. Leonard Lodish of the Wharton School has developed a model for measuring the effectiveness of television advertising. Companies which have used the model have found it be a highly effective management tool.
The fundamental question for Lodish's research was, why do some advertising treatments have an impact on sales and others do not? He found that many firms accept as given certain television advertising "rules". Many of these "rules" are, however, of questionable veracity. For example, most firms believe that the following are beyond dispute:
- In order to increase market share, television advertising's share of voice must be larger than current market share.
- At least three exposures per person are required to make a significant impact.
- More television advertising is better than less.
- Television advertising takes a long time to work.
Lodish tested a variety of common perceptions about television advertising for consumer packaged goods. He found that many of the long-held nostrums about television advertising are not valid, leading him to conclude that all television advertising must be tested constantly to determine as precisely as possible what works and what does not work.
When television advertisements worked, they produced considerable volume effects: a mean increase of 18% in sales. He also found that effective television advertising often had an impact that lasted for more than two years. The impact and effectiveness emerged surprisingly fast, typically within 6 months. Among his most important findings was that brand or copy strategy must change frequently. There is considerable danger in maintaining the status quo: it is how companies lull customers into boredom and complacency.
Frito-Lay put Lodish's model into practice for a single product category. Their results were used to develop "guiding principles" for managing the firm's television advertising program and setting priorities for ad campaigns. The experiments were designed to test the effectiveness of television advertising across brands.
The company found that if an advertisement had a positive effect, it was virtually always noticeable within the first six months and in all but one case, the effect was noticeable within the first three months. The other major finding of Frito-Lay's experiment was that average volume increase with effective ads was a healthy 15%. The company's testing confirmed that when done well, television advertising can be very effective, even for brands that are solidly established in the marketplace.
What Frito-Lay also learned from its experience was the importance of testing "small" versus "big" brands without anything new in the message to differentiate and determine which ads work.
In a follow-up study Lodish found that television advertising that had an impact on sales in one year tended to have an impact that lasted well beyond the time in which the ads were shown. He concluded that if television advertising works short term, it will have a long term impact that approximately doubles the short term impact. On the other hand, if television advertising does not work short term, it will not work long term. The only way to know whether short term advertising is working is to follow Frito-Lay's lead and test constantly. Considering that an effective testing system costs a few hundred thousand dollars, while advertisements can cost millions, the weight is clearly in favor of building into your company's overall television advertising strategy ongoing testing to measure the effectiveness of all advertisements.
Lodish's model provided management at Frito-Lay with a sound and logical way to test and control the enormous costs of television advertising. They are far more confident of the effectiveness of their advertising and how advertising dollars are being spent.
If you approach all of your advertising by constantly questioning all assumptions and testing those assumptions to determine validity, you will be that much more confident of how well your advertising is working. Not all advertising will be effective, but you may be able to modify Wanamaker's plaint and say, "I know that half of my advertising doesn't work, but at least I now know which half."