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TV Advertising Effectiveness and Profitability
- Animats 5y agoTV ads. Where you can't measure response rate directly.
- jondwillis 5y agoThe editorialized title here should probably be changed...
- ohazi 5y agoAlso where "modern" "smart" platforms decide it's acceptable to chop up a video into a dozen slices and insert the same. exact. ad. in between each segment, causing half the viewers to swear off that brand for life?
- wyldfire 5y agoI don't know if it's for a lack of bidders, or if the ads are that way by design. Some of what you're paying for is brand identification and repetitive commercials are one way to get that. Despite however annoying it might seem. The pool being advertised to will consider the advertised brand when 'Good/Service Need X' arises, whereas they likely would not without the ads.
- lupire 5y ago50% is tiny. I'd estimate most YouTube product ads only sell to <1% of the population.
- 015a 5y agoHulu is one of the worst at this, and it's astounding to me how seemingly willfully dumb advertisers can be. It makes me think that no one in this industry actually cares. You've got marketing and advertising executives commanding eight figure budgets, inventing whatever metrics they need to showcase success and protect their jobs. They pay YouTube, Hulu, Samsung, etc millions, who provide back whatever engineered metrics they need to keep getting those paychecks. You'd think there'd at least be some evidence in mapping advertising spend back to revenue, but I suspect that the platforms who can actually do this (e.g. Etsy) don't last very long or see worse advertising revenue, because it becomes startlingly obvious how poorly advertising works (especially when automated at scale). It's a house of cards, with so many people deeply invested, spending their entire careers justifying their position, that it probably wont ever change.
- sfblah 5y agoThis is exactly the dynamic we see in my company working on search ads.
- stronglikedan 5y agoSimilarly, the only game I play on my phone is a card game, and ever since I visited my company's website to check on something, our Google ad is shown between hands almost 90% of the time. I never click on it, so you'd think they'd stop showing it after the 500th time (it's been weeks since I visited the website). Is that just a ploy by Google to overcharge us for advertising?
- bluGill 5y ago> Where you can't measure response rate directly. You can never measure response rate directly. There will always be people who see your ad and then respond later (possibly by some other ad on a different platform that they wouldn't have responded to in the first place otherwise). This might or might not matter to you. The large companies who buy ads have statistical departments tracking their ad response. They know how well the ads work to close enough for their purposes. Those departments don't need the direct response rate because there are better measures.
- sfblah 5y agoI work for a company involved in search engine advertising. While it's technically possible to track conversions, very very few customers actually do it. Some don't have a great way to track it (health-care products where there's a privacy issue, brand advertising, informational advertising, services where there's no obvious immediate call to action, etc.) Even among those who do track "conversions," I'd say under 10% of them actually define a conversion as something where money is exchanged immediately, which makes it hard to defraud. More than half of the conversion tracking we see just requires the user to spend a certain amount of time on the website, visit a certain number of pages or to provide an email address. Not surprisingly, we see a massive dropoff in conversion percentage when money needs to change hands. It's more than 90%. Also, not surprisingly, when some action is required for conversion, we see more than half of the visitors taking that exact action and nothing more. Our analysis of the above is that more than half of clickers on search ads, and probably more like 80%+ are just bots (or human "bots" in clickfarms) clicking the ads and then pretending to convert. Their incentive is that they are clicking ads on search pages where they get a share of the revenue. Interestingly, when we alert customers to this dynamic and try to get them to shift their ad spend or conversion tracking to prevent this kind of behavior, they actively do not care and prevent us from doing it. Our analysis there is that marketing managers in general know that what they're doing is largely ineffective, but they don't want to admit that to their bosses because then it puts their jobs at risk. So, what we do is help them maximize where we can, without pushing them too hard on the above: "Humankind cannot bear very much reality."
- dec0dedab0de 5y agoHave you considered that the marketing managers are the ones hiring the bots to meet their goals for a bonus?
- sfblah 5y agoI love this idea, but I sincerely doubt it.
- mateo411 5y agoIt's harder to measure than digital ads, but plenty of companies measure the effectiveness of TV ads.
- paxys 5y agoAdvertising is at its core a prisoner's dilemma. If every competitor in a certain space puts in $100 in advertising, they can all expect $0 in returns. However if a single company put in nothing they would be in a worse place because their competitors' returns would automatically become higher.
- handmodel 5y agoI think this still only covers half of it. If neither Pepsi or Coca-Cola advertised I think its plausible their positions in the market relative to each other could be the same proportion they are now. However, it would make it easier for restaurants, grocery stores, etc. to go with non-brand sodas (that also don't advertise).
- Spivak 5y agoI mean a few restaurants in my city are trying the non-Coke/Pepsi thing but after chatting with an owner about it they said it was more expensive because the local brands don’t have the logistics network.
- DSingularity 5y agoOuch. Never thought of it this way. I know it’s borderline anti-American — but when you have such compelling incentive structures at what point should we demand government regulation? If 80% of advertising is not helping consumers discover products — arguably the primary functional purpose of advertising — then isn’t this in a way an economic sickness wasting the resources and stifling innovation?
- Alexss 5y agoIt's marginal ROI which is negative for 80%. Overall ROI for advertising is negative ROI for 2/3rds of brands (still v. high, obviously).
- lupire 5y agoTitle is critically incorrect. It should be: > The ROI analysis shows negative ROIs at the margin for more than 80% of brands, implying over-investment in advertising by most firms.
- evancox100 5y agoYou are correct, but if you look at total instead of marginal the picture's not much better. While 80% of brands have negative marginal ROI, 67% (2/3) have negative net ROI, and so would presumably be better off with zero advertising.
- singhrac 5y agoNot necessarily. The thing to measure is the marginal ROI at zero advertising spend. Derivatives are not bounded by their average value across a range.
- mlyle 5y agoThe claim was: "67% (2/3) have negative net ROI, and so would presumably be better off with zero advertising." If they truly have negative net ROI, they would be better off with zero spending than their actual spending. The claim holds. > The thing to measure is the marginal ROI at zero advertising spend. Derivatives are not bounded by their average value across a range. OK, so if we're going to get super pedantic... the derivative could be negative at the current value, and at zero, and there could be a positive ROI for some value of spending (between 0 and the amount spent, or even for some value more than what was spent). But it's not really likely, nor relevant to the point the person above made.
- evancox100 5y agoFurthering the pedantry, even assuming monotonically decreasing ROI as ad spending increases, as long as ROI of the first dollar was positive, there would be some optimum between zero and current levels. But my original statement still holds, zero would be preferable to current levels of spending for those brands.
- BeFlatXIII 5y agoThe problem with advertising is that I waste 80% of the budget. The real problem is that you can’t determine which 80%.
- maweki 5y agoReminds me of the John Wanamaker quote: 'Half the money I spend on advertising is wasted; the trouble is I don't know which half.'
- hammock 5y agoThere is a fundamental misunderstanding (intentional or not) with these types of studies and claims. Limited-time promotions, e.g. a 10% off sale, work on short timescales that are easily measured. You can easily say what the ROI is of an advertised promotion, and it is often positive. (Side note, these promotions have a more-difficult-to-measure detrimental effect on your long-term profitability, closely related to the point I am about to make below) Brand advertising, in contrast, works on a spread-out scale of years or decades. When Coca-Cola runs a polar bear ad at Christmastime they don't do it to increase sales of Coke that week, nor should it be measured that way. The actual effect that a brand advertisement has, is to add PENNIES (not dollars) to their sales every day, for the next 100 YEARS. It's a long-term investment. And for these reasons hard if not impossible to measure or control for confounders - but that doesn't mean it doesn't work!! And without that brand investment, their brand value is continuously eroding away, at a rate of pennies (or more) per day. Source: Been on the leading edge of marketing and advertising for over 12 years
- mihaaly 5y agoIf you cannot measure then you are just bluffing that it works! You cannot know yourself for god's sake! "Been on the leading edge of marketing and advertising for over 12 years " Aaaaaah, I see! It is your personal interest to be payed very well for unsubstantiated claims! Fishing in troubled waters. We will consider your !!opinion!! accordingly....
- btilly 5y agoAnd how do you measure the value delivered? If you're not measuring value delivered, how do you know that you're actually delivering value? Remember, you're the person that you can most easily fool. Fields as diverse as active fund management and psychic readings have been filled with practitioners who were wrong about the value that they thought that they were delivering. I have no particular reason to believe that brand management isn't another.
- echelon 5y ago> Source: Been on the leading edge of marketing and advertising for over 12 years Would you say that might be a source of bias? Look at SpaceX and Tesla. They barely advertise and have huge brand recognition. I'd buy Sennheiser over Beats. Krispy Kreme over Dunkin. Costco. My partner loves Zara. I don't have a high opinion of brands that advertise.
- giantg2 5y agoHow do the tax write-offs factor in? It seems almost impossible that advertising doesn't provide benefit when you consider the money would have otherwise gone to taxes.
- s1artibartfast 5y agoIt is not an issue because taxes are on profit, not revenue. Needlessly wasting revenue shrinks profit faster than it shrinks tax liability. e.g. You don't burn a dollar to save 20 cents on income tax because you are still loosing 80 cents.
- giantg2 5y agoIf they can't get 80% back, that's pretty bad. I was wondering how these marginal net negative numbers worked. If they're saying it's 95% back, then that's still higher than 80%.
- s1artibartfast 5y agoThink of this way: You have $2 profit. You can take it paying 0.4 in taxes, leaving 1.6 after taxes. OR You have $2, reinvest an extra $1 on marketing with 80% return. You now have 1.8 total profit. You pay 0.36 in taxes, leaving 1.46 You will always loose money if the marketing ROI is less than 100%
- malshe 5y agoCan you elaborate your calculation more? Are you using $1 from the $2 profit to reinvest in advertising? Also are you getting an 80% return on that $1 meaning getting back $1.8? ($1 investment in advertising + $0.8 profit)
- s1artibartfast 5y agoIn short, %80 return means that if you spend 1.0, you only get back 0.8. You forever lose the $1 spent, but get more sales and worth $0.8 after costs. Here are more details (repeated for clarity) Assumptions: 20% corporate tax rate (assessed on total profit) 80% Marginal rate of return for advertising (next dollar you can spend) 1) You have $2 profit (before taxes). You can take it and pay $0.4 in taxes, leaving $1.6 after taxes. OR You have $2 profit (before taxes), You spend an extra $1 on marketing with 80% return. The $1 spent on advertising returns you $0.8. You now have 1.8 total profit. You pay 20% ($0.36) in taxes, leaving 1.46 You will always loose money if the marketing ROI is less than 100%
- Niglodonicus 5y agoImagine how low it would be if all internet users actually employed ad-blocking of some sort. Honestly remarkable how many people, faced with the prospect of sitting through extremely annoying video ads, or having their search results and webpages cluttered with useless ads, do nothing instead of spending one minute to install the appropriate blocker. Obviously not everyone is aware these exist, but you would think their curiosity would lead them to find out once they get fed up with having their time wasted by having their activities interrupted constantly and having manure shoved down their throat.
- EForEndeavour 5y agoIn the USA, adblocking penetration has been rising for years, but looks to be plateauing; this estimate says that a bit over a quarter of all internet users block advertising on their connected devices: https://www.statista.com/statistics/804008/ad-blocking-reach-usage-us/ https://www.statista.com/statistics/804008/ad-blocking-reach...
- whoisjuan 5y agoIsn’t Credit Karma’s accelerated growth attributed to TV Ads? I wonder why something like CK can benefit so drastically from TV Ads while others are not even close to breaking even on that investment. Is it the quality of the ads or the nature of the product?
- captaincaveman 5y agoCertain demographics are cheaper, less demand high supply, daytime TV audiences ... so yeah maybe a sweet spot!
- modzu 5y agoanother effective means of increasing sales is to threaten people with violence if they dont purchase your products. of course these days thats not really tolerated. im not sure when, but i hope some day we stop tolerating the pollution of modern advertising
- cbsks 5y agoHere's a link where you can actually view the paper: https://privpapers.ssrn.com/sol3/papers.cfm?abstract_id=3273476 https://privpapers.ssrn.com/sol3/papers.cfm?abstract_id=3273... There is also an interactive website where you can play around with some of the data: https://advertising-effects.chicagobooth.edu/ https://advertising-effects.chicagobooth.edu/ Both are linked from the lead author's website: https://voices.uchicago.edu/bradleyshapiro/ https://voices.uchicago.edu/bradleyshapiro/
- human 5y agoI am the marketing director at a professional service firm. We started advertising on radio and tv about 7 years ago. The first campaign we did generated clients at a cost of about $10,000 each. That was very expensive and we were disappointed. We kept going and we’ve seen the cost per acquisition go lower every year. After 7 years we are around 750$. Brand advertising is like a flywheel: you keep fueling it and it takes a while before it’s actually spinning. I really don’t think you can measure ROI. Especially since it helps your business in other ways too. Since we have been advertising it’s actually been easier for us to attract talent. Having a known brand is immensely powerful.
- dougSF70 5y agoI have not read the paper but I have done extensive ad effectiveness analysis and the one thing most papers ignore is that having your product listed in a store is a given. More often advertising is protecting your product's listing in a store. Ad spending isn't just about boosting your own sales, but those of the category and adjacent categories. If those 80% of brands stopped advertising to prevent $1mn of negative ROI but then were dropped by the store, causing $100mn of negative ROI.
- midasuni 5y agoI bought some woodstain the other week. I chose to seals quick drying woodstain because it’s woodstain that’s quick drying and from ronseals. It does exactly what it says on the tin The only reason I chose this was because of the pervasive tv adverts in the 1990s when I was a teenager. Back then I had no need for woodstain, and very limited idea on what I would want it for, I didn’t buy any until 15 years after I stopped watching live tv (and thus tv adverts). First place I’m going to look for a new sofa would be DFS, again because of the adverts, again from the 90s. How do studies catch the roi over decades?
- sheepybloke 5y agoFreakonomics has an episode that talks with one of the authors and summarizes a lot of the discourse that's happening on this thread [1]. Note that it's a two parter, one for TV and one for digital. It does a good job grabbing the economist's view trying to measure the ROI and the advertiser's view, as discussed by hammock. [1] https://freakonomics.com/podcast/advertising-part-1/ https://freakonomics.com/podcast/advertising-part-1/