Insights

Does Advertising
Really Work?

Googling an answer to the question generates several contradicting results for and against. The result is confusing for the advertising industry generated, according to Statista, over $540 billion in 2018. Imagine any other industry of same vicinity (e.g., hotel and semiconductor industries) struggling with a doubt should the product work in the first place. Thus, for all you brand owners there, we investigated whether advertising really is effective or not, is it worth using Euros for advertising or should the money be invested elsewhere.

Rolls-Royce set a new all-time record for sales in 2018, Zara outperforms its rival H&M by growing twice as fast, Costco increased its sales by 19% at a time when other retailers are struggling, and Spanx made Sara Blakely a billionaire in 2012. All these companies have two things in common: they are all performing well financially, and none of them advertises. At all.

So, if these companies are doing so well without investing a dime on advertising, why should you? Moreover, there are number of study results showing advertising is not just ineffective but may be even detrimental.

For example, Clancy and Stone (2005) refer to a study which found a whopping 82% of television commercials to generate zero effect or even negative return, while Accenture based team (2011) claims the figures to be even worse: 82% of TV advertisements generate negative return. Other medias have produces same kind of results more recently: Nielsen (2018) found radio advertising generating negative ROI of 0.85, DMA (2016) found only 48% of marketers see a return on investment when using social media, Manta survey in 2015 reveals the majority (59%) of the small business owners do not see positive return from their social media activities, and two years later still 49,7% business owners consider time invested on Facebook to generate negative ROI.

On the other hand, more recent study from Accenture (2017) showed television delivering +83% better ROI than an average return on all media channels and the same company recently presented even more delighting study results (2018) for TV broadcasters by claiming TV “to be highly effective in brand building, generating unique brand-building ROI and engendering a multiplier effect when paired with other channels in the same publisher ecosystem”. In addition, Nielsen (2018) found digital media investments generating ROI of 2.3, and GfK (2013) found magazines, newspapers and online are the best medias with ROI of 1.3, 1.2 and 1.1, respectively.

In the light of these contradictory study results, the famous quota of John Wanamaker appears to be more relevant than ever: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” It appears that advertising can be confirmed as effective or ineffective, depending on the study at hand. The opposing conclusions depend on a study design and the aim of the study. Thus, effectiveness studies conducted without scientific rigour may lead you the opposing conclusion on the same topic.

In science Steinheide trusts

Investigating extremely complex topics, like advertising effectiveness, with multiple variables cannot be comprehensively examined in a single study, but require multiple studies investigating the phenomenon from various standpoints. Furthermore, in the search of the most reliable conclusion the only way to reach the answer is to conduct the experimental research with scientific principles. After all, the science is the source of the most reliable knowledge on this planet for purposely examining the world in a systematic, public and replicable way.

The study has to be based on previous research results and theories in order to form a testable prediction and gathering of data to test the prediction. Reliable research cannot be based on tendentious motives for other scholars would reveal your intensions, poor study designs and misleading results when replicating the study. Moreover, the science does not aim to create hype, advocate any hidden or visible agendas, try quickly get new insights or be “creative” at the expense of systematicity.

Furthermore, the science is after the statistically significant causality (“we found out that X caused Y with xx% certainty”), while in business, the information used for the decision-making is mostly correlation, and too often without statistical analysis (“we did X and Y happened but we don’t know if it’s just a random effect or if something else caused the Y”). As a consequence, the science is largely responsible for the astonishing increase in our understanding of the natural world, resulting innovations and knowledge in the fields of medicine, technology, politics, business, human behaviour and astronomy, to name just few disciplines.

Therefore, based on the scientific approach discussed above, would the science provide knowledge on advertising effectiveness, and either confirm it effective or ineffective? Fortunately, the science has been studying advertising and its effectiveness for decades and published vast amount of study results. These results have been taken together in meta-analysis summarising several individual studies each. In a meta-analysis of 44 of meta-analysis (i.e., meta-meta-analysis) scientists wanted to get an answer to the topic’s question. They included over astonishing 1 700 independent scientific studies with an overall sample size of 2 400 000 people all over the world! The study provided several very interesting findings.

What characteristics influence on effectiveness and how?

The most challenging problem with multilateral and complex questions like the one at hand is the number of independent, dependent and extraneous variables[1]. How much did the weather influence on sales, did the competitors have any effect on sales figures, how about the prior experience with the advertised brand or simply the price? In order to overcome this evident challenge, the scholars grouped several independent variables to four variable groups, of which three are under the direct control of the advertiser (Message Source, Message Content and Media Strategy) while the last one is not (Customer). Similarly, dependent variables are various, so they were grouped as follows: Attitudes, Behavior, Cognition, Credibility, Emotion, Memory, and Processing of the advertisement.

Message Source includes characteristics of the object that transmits content and information in advertising, like for example celebrity expertise, source credibility and person gender.

Message Content includes characteristics of the communication content in advertising that is transmitted from the Message Source to the receiver, for example comparisons, colors, typefaces and humor.

Media Strategy includes characteristics of the plan, process, and execution of transmitting the message from the source to the receiver, like for example exposure, repetition, duration and spending.

Customer includes characteristics of the customer who receives an advertising message, for example, prior attitude, motives, feelings, cognitive capability and personality.

[1] The dependent variables represent the outcome, while the independent variables represent causes. For example, in a study measuring the effect of different colors in advertisements on attention towards the advertisement, the color is the independent variable and the amount of attention the dependent variable. Extraneous variables are undesirable variables that may alter the study results although have not been a focus of the study itself and thus have not been controlled.

The analysis revealed that the most influential variable in advertising, perhaps somewhat paradoxically, is not the advertisement, but a receiver, the Customer. The characteristics of the customer, not the advertisement, determine mostly how the advertising will be understood, will it induce any emotion, alter attitudes, and eventually, have any impact on behaviour, most importantly, on actual purchasing. The result is very interesting because usually customers have not been profiled and customer segments are blurry and approximate (e.g., “trendy women between 30-45 years living in a city), and only rarely based on psychological characteristics relevant for advanced segmentation.

Based on the study result, profiling customer and establishing segments on the profiling results should be the most important thing the brand owner should do! Let’s take a simple example. Most of the women use makeups, but they are all different: some are extroverts and others are introverts. Creating a makeup advertisement congruent to a customer’s personality, namely an advertisement portraying a woman partying at a club with her friends, and another advertisement portraying a woman enjoying her time at home, will effect differently on extroverts and introverts: advertisements congruent with a receiver’s personality will increase both conversion rate and ROI with amazing 30-90%.

Attitude is a tendency to respond in a a way as intended by the advertisement (incl. e.g., attitudes, intentions and persuasion).

Behavior is a tendency to behave in a way as intended by the advertisement (incl. e.g., choice, purchase and consumption).

Emotion is a positive or negative affective response toward the advertisement.

 Cognition includes thoughts and cognitive responses toward the advertisement, like for example

Memory is an ability to recover information presented in an advertisement (incl. e.g, top-of-mind recall and brand recognition).

Credibility is a quality of the advertisement message or source of being believable or worthy of trust.

Processing is a stage preceding Cognition, like for example awareness and understanding the message.

Although the most effective variable group is the Customer, the advertiser cannot alter it, only adapt the advertising along the Customer. However, there are three variable groups that are under the control of the advertiser, and the most important group of them is the Message Source. The Message Source refers to characteristics of the object that transmits content and information in advertising, like for example a celebrity and his/her relevance and expertise, credibility of the source or a person’s gender in an advertisement. A right messenger, like Kaepernick in Nike’s campaign in 2018, although controversial, can increase sales, while a bad messenger, like Gillette’s “The best a man can be” -campaign, although on the right cause, can alienate customers. Choosing the right messenger, whether an ordinary person, celebrity, animate or an animal, should be high on priority list.

The next variable group in advertising, having the third highest effect size, is the Message Content. The Message Content refers to characteristics of the communication content in advertising that is communicated to the receiver, including elements like comparisons, humor, images, titles, typefaces, colors, texts etc. The Message Content is not indifferent, even the smallest details may make the difference, not to mention major elements.

For example, humor is a common and prominent element used in advertising. However, a meta-analysis covering 43 independent scientific studies and 369 correlations clearly shows that, although humor in advertising significantly enhances a) attention to advertisement, b) stated purchase intention and c) positive affect, in average, humor has no impact on d) positive or negative cognitions, e) liking of the advertiser, and most of the all, f) actual purchase behavior. Instead, evidence shows that humor g) significantly reduces source credibility.

This is partly due twice as strong effect size on attention to advertisement, in comparison to attention to the advertised brand. In average, humor promotes the advertisement itself, not the brand as it should. We all have asked or been asked if we had seen that funny advertisement, without a clue what the advertisement promoted.

Although in average humor in the advertisements generates more negative outcomes than positive, without any effect on purchase, a clever and professional AD investigates preconditions and requisites for using humor successfully. And that is where the science comes along; Like with almost every aspect in advertising, the science has revealed conditions for using the humor in order to generate positive ROI, as well as conditions which will lead to negative ROI.

The least effective variable group is the Media Strategy, almost equally important to the Message Content. The Media Strategy refers to characteristics of the plan, process, and execution of transmitting the message from the source to the receiver, including characteristics like exposures, intensity, repetition, duration, media, spending etc. For example, yet another meta-analysis of 37 independent scientific studies found a clear inverted U-shaped course of advertising exposure effects: too few exposures is not enough for maximum effect, yet too many repetitions level off generating negative ROI. Moreover, the number of repetitions is not a universal fact but depends on contingent factors: moderator variables may enable maximum response with fewer repetitions or postpone a start of the leveling off.

Final result, effect size and explained variance

First the good news. The meta-meta-analysis based on over 1 700 scientific studies conducted globally with a sample of over 2 400 000 people concluded, with over 95% confidence, that advertising in general is effective. The advertising professionals and the entire half a trillion dollar industry can argue proudly that what they indeed can influence on peoples’ attitudes, behaviour, emotions, cognitions, memories and information processing.

Then the bad news. Although advertising indeed is effective, its effect size is only 0.2, which is a low value. As a matter of fact, the meta-meta-analysis revealed that advertising explains only between 0.3% and 8.2% of the variance in attitudes, behaviour, emotions, cognitions, memories and information processing, therefore leaving whopping 91.8% – 99.7% for other variables. Thus, although effective, one could ask if the advertising is worth it?

And back to the realism. Let’s be honest, it’s not exactly a state secret that undisputed majority of advertising is not based on facts and science, but unlike many other disciplines in business, advertising is created more on feelings and experience instead. Therefore, should the unscientific approach result such a low effect size, imagine what kind of effectiveness those advertisers would reach if they would base their advertising on scientific facts?

In statistics, an effect size is a quantitative measure of the magnitude of a phenomenon. Examples of effect sizes are the correlation between two variables, the regression coefficient in a regression, the mean difference, or even the risk with which something happens, such as how many people survive after a heart attack for every one person that does not survive. For most types of effect size, a larger absolute value always indicates a stronger effect.

Adopted from Wikipedia March 2nd 2019

In the defence of advertising industry; In addition to advertising, naturally there are number of things influencing on dependent groups of variables like for example, pricing strategy, weather, competitors’ actions, prior experiences and friends’ recommendations. Thus, the small effect size can be partly explained with these extraneous variables. Nevertheless, the advertising industry cannot outsource a blame that belongs to their own backyard. Base your work only on “art”, and you will find hard time explaining to your supervisor or customer why the advertising ROI is negative. On the other hand, merge science with your experiences and artistic vision, and you can claim your advertising will have a desired effect with over 95% confidence. An easy decision for most of us.

Takeaways

1.

Based on over 1 700 scientific studies conducted globally with a sample of over 2 400 000 people, one can claim with over 95% confidence that advertising is effective.

2.

However, the effect size is only small, allowing huge improvement for advertising effectiveness for those who want to harness the science for their (and their clients) good.

3.

The art of advertising and the science with revealed conditions under which the advertising effectiveness can be drastically increase does not need to be opposed. The art and the science do not need to confront each other, but instead be merged.

4.

The most important thing in advertising is the Customer, thus applying psychological profiling will make a huge impact.

References

DMA Insight: Social data Integration report 2016

Accenture 2017 TELEVISION TURNS THE CHANNEL ON BRAND ROI

Accenture 2018 Turning tv advertising back on

Manta 2015 Small business insights – social media.

Manta 2017 poll of 4712 small business owners.

SmartInsights 2017 Digital marketing activities rated by ROI

Nielsen 2018 Media Roi Benchmarks

GfK 2013 NDP Nieuwsmedia the Netherlands