What do we need – now and in the future – to measure advertising success?

Chisinau, November 7th 2008

Introduction

1973-1988 – Boase Massimi Pollit

1988-1990 – Tilby & Leeves

1990-1993 – Grey

1993-1996 – DDB

1996-2002 – OMD

2002-2007 – Schwarzkopf & Henkel

2007 – OMD Moscow

The following presentation represents a personal point-of-view – but influenced by working both for an advertiser and in agencies. Some ideas, and indeed charts, have been borrowed from colleagues, most notably Tim Broadbent from O&M.

Format

How does advertising work?

How is advertising effectiveness measured?

What’s going to happen?

What measurement will we need in the future?

How does advertising work?

What do we know about Advertising Effectiveness?

“Half the money I spend on advertising is wasted; the trouble is I don't know which half. “

John Wanamaker,US department store merchant (1838 - 1922)

“The only purpose of advertising is to sell.It has no other justification worth mentioning.”Ray Rubicam1893-1978

“Anybody in advertising who doesn’t say his purpose is to sell thatpiece of merchandise is a phoney.”Bill Bernbach1911-1982

“I have seen one mail-order advertisement actually sell, not twice as much, not three times as much, but 19 ½ times as much merchandise as another ad for the same product.

Both advertisements occupied the same space.

Both were run in the same publication.

Both had photographic illustrations.

Both had carefully written copy.

The difference was that one used the right appeal and the other used the wrong appeal”

(John Caples, Tested Advertising Methods, 1931)

“Andrew Ehrenberg has derived from these models of buyer behaviour (NBD/LSD and Dirichlet) a view on advertising for established brands. It mostly serves to publicise the advertised brand, but seldom seems to persuade. Promotions have only a short-term effect , and do not affect a brand's subsequent sales or brand loyalty. The extra buyers during the promotion have been seen almost all to have bought it before the promotion rather than being the hoped for new buyers”

And, advertising normally DOESN’T have much effect on short-term sales

It seems to protect existing loyalty and repeat purchase through LONG-TERM effects

. . . . . and how do we measure the ABSENCE of change?

Short-term or Long-term?

How does advertising work?

Advertising has the objective of increasing sales

Or not (Road Safety, Health, Fire Prevention, Programme trailers, Nutrition Advice, etc.)

Sales when?

Different ads work with different levels of success

Work in different ways

Work in the same way but better or worse

How does advertising work?

Er, we don’t know

It seems pretty certain that different campaigns work in different ways

It seems pretty certain that different ads within campaigns work with varying success – and sometimes work in different ways

It seems pretty certain that long-term effects greatly outweigh short-term effects (N.B. This is normally not true for brand launches and even less true for category launches)

How is advertising effectiveness measured?

The problem with evaluating ads’ effectiveness

“Its a good campaign, if sales go up”

“Its a bad campaign, if sales go down”

“Unfortunately, neither of these statements is always true. They are very often false”(Rosser Reeves, Reality in Advertising, 1961)

“Recently a group of marketing men, almost idly, at a

luncheon table, listed thirty-seven factors, any or all of

which could cause the total sales of a brand to move up

or down.

Advertising was only one of these.

The product may be wrong. Price may be at fault.

Distribution may be poor. The sales force may not be

adequate. Budget may be too low. A better product may

be sweeping the market. A competitor may be outwitting

you with strong deals.

And when a wheel has many spokes, who can say which

spoke is supporting the wheel?”

Rosser Reeves

The problem with evaluating ads’ effectiveness

Advertising Effectiveness Measurement –

The Last 30 Shameful Years

Broadly, the methods for judging advertising success or failure are the same now as they were 30 years ago – only worse (despite around $10 trillion at 2000 prices being spent on advertising in mainstream media, globally, over this period)

Sales (but usually short-term)

Pre- and Post- Awareness, Usage and Attitude

Tracking (more prevalent now)

Econometric Modeling (but almost always based on short-term sales response – sometimes with some lag effects) (more prevalent now)

Etc

Problems with Modeling

Multivariate statistical techniques are being used more and more frequently to evaluate advertising effectiveness (and media mix, regional upweights, etc)

Criterion variable tends to be short-term sales – thus ignoring the main, long-term, contribution made by advertising

The statistical tools tend to be more robust than the data – like using a road drill for dentistry

The tools find relationships within the data – but this merely DESCRIBES the data – it does not necessarily prove CAUSALITY

Abusing a Model

Brand X

30 months, bi-monthly, data, rounded

Advertising, distribution and price

Period Advertising Distribution Price Factor Sales1 0 40 90 1002 250 50 95 3003 0 60 90 3504 0 70 90 3605 250 80 100 4006 0 80 100 3607 0 80 90 3708 300 80 90 4009 0 80 90 39010 0 80 100 37011 0 80 100 36012 300 80 100 42013 0 80 100 41014 0 80 90 40015 300 80 90 46016 0 80 90 440

Abusing a Model

Sales = 154.0+0.143*Advertising+5.74*Distribution-2.36*Pricing

R2 = 0.81

Typical Sales Decomposition (Period 15)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Advertising

Distribution

Price

Residual

5%

53%

24%

18%

Abusing a Model

Brand X

30 months, bi-monthly, data

Advertising, distribution and price AND Factor Y

Period Advertising Distribution Price Factor Factor Y Sales1 0 40 90 100 1002 250 50 95 101 3003 0 60 90 102 3504 0 70 90 103 3605 250 80 100 104 4006 0 80 100 105 3607 0 80 90 106 3708 300 80 90 107 4009 0 80 90 108 39010 0 80 100 109 37011 0 80 100 110 36012 300 80 100 111 42013 0 80 100 112 41014 0 80 90 113 40015 300 80 90 114 46016 0 80 90 115 440

Abusing a Model

Sales = -120.8+0.142*Advertising+4.94*Distribution-2.00*Pricing+2.79*Factor Y

R2 = 0.83

Typical Sales Decomposition (Period 15)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Factor Y

Advertising

Distribution

Price

Residual

4%

37%

17%

11%

30%

What is Factor Y?

My son Tom’s age (expressed in months/2) at the time of the data series (he was 16 at the time)

So what does this mean for media measurement?

We don’t know how advertising works

We do know that different campaigns and even different ads within a campaign work in different ways

We don’t know how to measure its effectiveness

Thus, media measurement (for advertisers) should restrict itself to the measurement of EXPOSURE (as now) rather than other factors (engagement?)

Even exposure is going to be harder to measure – or it will present different challenges – in the changing media landscape

What’s going to happen?

Some Forecasts

“Television will disappear in less than ten years and the internet will be the leading mass medium.”

George Gilder & Nicholas Negroponte

“TV sets across the world will be jettisoned within a decade.”

Sir Christopher Bland, BBC Chairman

30” TV

, 1995

, 1996

Average TV Viewing Time per Day

Source: Television 2006 / Mon- Sun / IP Network / local institutes / TG adults / Ø- time spent viewing / *no panel system

287

280256

255

249235

230

227

226224

219

217216

201

189182

169

166164

162

156

148145

224237

Croatia

Hungary

Greece

Poland

Italy

UK

Belgium South

Spain

Germany

Ø West Europe

France

Portugal

Czech Republic

Netherlands

Irish Republic

Belgium North

Finland

Austria

Norway

Denmark

Sweden

Switzerland

Iceland*

West EuropeCentral & East Europe

Minutes

Average TV Viewing Time per Day in Western Europe

TV viewing has grown (+13% in the last 10 years).

Source: Television 1996-2006 / IP Network / local institutes / EU-15 /TG / whole TV / figures weighted according to country size

198

210

219223 224

1995 2000 2003 2004 2005

Minutes

Average Media Consumption in Hours per Week

TV is still by far the most used medium.

PressInternetTV

TV Consumption in Context in Western Europe

0

1

2

3

4

5

6

7

8

Hours Working Hours watching TV

4.01 billion

TV Consumption in Context in Western Europe

0

1

2

3

4

5

6

7

8

Hours Working Hours watching TV

4.01 billion

7.65 billion

Worldwide advertising Television : end of the hegemony ?

30%

35%

40%

45%

50%

55%

60%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Market share of Television

France

Germany

Italy

Russia

UK

Japan

USA

Spain

Not in Russia

TV – Current Status

“The reports of my death have been greatly exaggerated.”

Mark Twain

We all know what happened…

TV viewing constant or growing

Print still read avidly

Cinema attendances increase

Despite growth of DVD’s and PVR’s plenty of 30” ads

It’s the people spinning the globe.

Not the technology.

Media Consumption

Advertising Revenue

Media Ownership

Media Agency

OwnershipTechnology

ConsumersMedia

Research

Retailing

Atomisation

Consolidation Convergence

Consolidation & concentration everywhere!

+$56.8 billion

98,000 people$9.3 billion29,000 people

More power vs. retailers & media ownersMore resources & synergies for R & DMore pressure on advertisers

Grocery retail concentration in western EuropeMarket share by value of the top three retailers in each country

0%

10%

20%

30%

40%

50%

60%

70%

Den

mar

k

Sw

eden

Aus

tria

Fin

land

Fra

nce

UK

Net

herla

nds

Bel

gium

Spa

in

Por

tuga

l

Ger

man

y

Irel

and

Gre

ece

Italy

Nor

way

Hun

gary

Cze

ch R

ep

Pol

and

2001 2003

Retail consolidation – new media force

With impressive retail consolidation comes a newly viable and buyable media phenomena – in-store media

Retailers are now so big that their in-store media can have larger daily reach than TV shows and stations, or press and radio packages

These media will become increasingly important as retailers continue to consolidate, mass media fragments, and usage occasions change to more impulse and channel specific.

The importance of In-store Media

Media ownership development

1983:

50 corporations “dominated” mass media

$340 million biggest merger

2000:

Number dominating companies down to six

AOL & Time Warner merger $350 billion – a thousand times larger!

One company – endless possibilities

Capitalizing of resources and synergies for Harry Potter launch!Editorial coverage in the company’s Time and People magazines, by reviews on CNN and by advertising on the AOL internet service (in fact the company, which plans and buys most of its media in-house, is itself one of America’s largest advertisers).

Holistic view of a campaign

Television

AlliancesBritish soap opera awards

Outdoor

Print

Radio

Interactive

PR

Packaging

Media Consumption

Average time allocation by Media

TV33%

Newspapers10%Magazines

8%

Radio29%

Internet20%

Source: Pan-European EIAA Media Consumption Study IIBase: Users of each medium

“Television will disappear in less than ten years and the internet will be the leading mass medium.”

George Gilder & Nicholas Negroponte, 1995

Penetration by Media Type

4854

7779

96

0

20

40

60

80

100

120

PercentOf

Respondents

TV remains the media of choice for most consumers with 96% of those studied watching something during a typical week

Penetration by Media Type

In a typical 5 day week, do you watch TV, read a newspaper or surf the internet? (note Magazines and Radio was during a typical 7 day week)

Source: Pan-European EIAA Media Consumption Study II

Offline Activities Moving Online

Book tickets

Read newspapers

Chat to your friends

Shop

Listen to music

Read magazines

Share music

Buy music

45

37

35

31

27

23

17

16

%

Base: Internet users

Approximately 2 in 5 internet users now book tickets online around a third chat to friends via the internet

Airport ads

TV sponsorships

Info withmonthly bill

Consumermagazines

Displays in shops

Friends

Family andcolleagues

Pester power

Trials

Sales people

Helpline/callcentreTV

Newspapers

Radio

Coupons

Outdoor

Fragmentation within the media landscape & increasing

technological and consumer sophistication

Never EASIER to REACH

Never HARDER to CONNECT

Clutter through Fragmentation - Accelerating Media Complexity

Too much advertising “pollutes”

Turned off by advertising% agreeing

Source: TGI

15

20

25

30

35

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

%

TV ads are annoying

Enjoy ads as much as TVprogrammes

With increased clutter, it becomes more difficult to break through

YEAR

Aided awareness showing

ad

   

Doesn’t identify

any brand

Identifycorrectbrand

Identify wrongbrand

2000 52 47 14 39

2001 50 49 13 38

2002 49 48 13 39

2003 47 51 13 36

2004 46 51 13 37

Source: Millward Brown (base 700 spots tested) - Spain

Ad “Cost per Awareness Point” Index

100

110

120

130

140

150

160

170

180

0 2 4 6 8 10 12 14 16 18 20

Campaign-Contacts

Inde

x R

ecog

nitio

n TV

1998

1999

2000

2001

2002

2003

Advertising effectiveness is on decline Recognition TV – Example MRF

Source: OMD Market Response Finder / Average all campaigns - Germany.

Technology

Converging technologies, e-merging contents.

The Convergence PrizeThe Convergence Prize

PC Heritage TV Heritage

Console HeritagePortable/Device

Heritage

True convergent device

What measurement will we need in the future?

Some, Tentative, ConclusionsMedia research should restrict itself to determining levels of exposure for advertising

With increasing amounts of media transmitted via the internet and via different platforms, should we maintain current research methodologies? Are peoplemeters dead?

The reports of the death of TV have been greatly exaggerated.

The store is becoming a significant medium

Development of multi-channel communication plans – from multi-channel media owners – and the importance of holistic research for planning and evaluation

Project Apollo may finally provide a plausible explanation of advertising effects?

The consumer has never been easier to reach but never harder to connect or involve – and advertising has never been less involving

TV advertising has reduced power – owing to clutter – or poor creative?

Спасибо