Advertising's long-term value rediscovered

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By: Wise Marketer Staff |

Posted on July 8, 2009

Advertising's long-term value rediscovered

With the onset of a deep recession, many marketers may have forgotten the long term value of advertising, according to Guy Powell of DemandROMI, who has studied the end result of two oposing strategies: either doubling the advertising budget or cutting it in half.

The question of what the marketing department should do with its advertising budget is not necessarily a question about the long term brand position, or the value proposition, or even the uniqueness of the brand. Instead, Powell argues, it is simply about the long term incremental effect of advertising.

This can, however, be a complex question because the definition of the incremental effect is partially dependent on the advertising industry itself. The definition is also very different for business-to-business (B2B) marketers and business-to-consumer (B2C) marketers. It's also different for one-to-one marketers, big-ticket consumer marketers, and consumer packaged goods (CPG) marketers.

For the purposes of his study, Powell concentrated on consumer marketers (mostly with consumer packaged goods in mind), although many of the concepts apply equally to other marketers. He defines "advertising" as "any message received about a brand or category, regardless of whether it was received directly from the manufacturer through mass media or direct response, or indirectly through the distribution channel, experts, endorsers, other consumers or any other brand information sources".

Advertising has both a short term and a long term impact. Short term advertising effectiveness can be thought of in terms of "last touch attribution", and attributes all revenue to the last touch, regardless of prior or concurrent touches. It generally ignores any past, concurrent or residual effects that accrue to advertising. And these effects are usually not included in most analyses of advertising effects (e.g., marketing mix modeling). They are of course included in brand imagery studies, but are not evaluated for their direct impact on increased or decreased long term revenue.

On the other hand, long term advertising effectiveness can simply be defined as "anything that is not short term advertising effectiveness". Combined with the product concept, product quality, and distribution quality, this is often described as base sales - in other words, what's left after short term advertising effects have been accounted for.

Clearly, some non-short term effects have a medium term effect, while others have a longer term effect, and others have a very long term effect. To differentiate medium term advertising effects from short and long term advertising effects, Powell goes on to define these as "effects that take place within a few months but that last less than a year after a marketing activity".

There are then two dimensions to be considered: the purchase funnel, and the web.

The purchase funnel Individual marketers may choose to define the purchase funnel differently but, when simplified and broken down into four primary levels, the following are the long term effects of advertising:

  1. Awareness Awareness (either aided or unaided) for a brand typically has a medium to long term effect. Awareness decays over time, where a particular consumer is either aware of the brand or unaware of the brand. A consumer can't have partial awareness. The sum of all consumers that are aware is typically what gets reported in a brand imagery study.  
  2. Consideration set Just having consumer awareness of a brand doesn't mean that the brand is in the consumer's consideration set. For a purchase to take place the advertised brand must be considered as one of the choices in the category. For consumers that have never used the product advertising is the only way to keep the brand in the consideration set. If advertising is discontinued, a brand may eventually fall out of the consideration set. This is probably true for categories that are highly considered where the consumer is expecting that the value of their purchase will provide long term benefits, either through a valid warranty or through the brand impact of a purchase among friends. Consideration also decays over time. Just as in the case of awareness, the consumer either holds the brand in the consideration set or not. There is no partial consideration at the consumer level.  
  3. Purchase intent The incremental intent to purchase can be increased through advertising. And it decays over time as well. Purchase intent, however, can be any value and therefore can be either increased, through more advertising, or allowed to decay through the lack of advertising. It is generally higher for those consumers that have purchased a brand in the past (and had a positive experience with the brand) than it is for consumers that have not previously tried the brand.  
  4. Brand imagery Brand imagery represents the attribute association scores measured in many brand health tracking studies. The association scores can be strengthened based on the messages in the creative side. These include attributes such as 'this brand is good value for money', 'this brand is eco-friendly' or 'this is a luxury brand'. They are emotional and driven by both the advertising and prior experience with the brand.

Each of these effects has a natural 'decay rate' so that, if no further messages are received about the brand, the value of these effects will decrease with time. This means that advertising must continue in order to maintain or increase the levels of each of these effects.

The web According to Powell, the web includes the following elements:

  1. Search Search effectiveness is partially made up of the quantity and quality of inbound links to a website. These inbound links take time to build up and could remain forever. Unless these links are purchased, and assuming the brands and their links remain relevant to the reciprocating websites they won't go away for a very long time.  
  2. Social media Social media activities taking place on the web build up based on many factors. The purpose of this document is not to discuss all the factors driving social media, but as these consumers and other interested parties discuss a brand they write positive (and negative) comments that build up over time and may also exist forever. They form a cloud of references to the brand. Advertising (both traditional and non-traditional) belongs to the set of drivers of increased social media activity.

Social media and search effects also have some decay rate as other sites and search terms begin to compete with the existing brands. If no further marketing were undertaken the search and social media effects would also decay over time.

Long term advertising effectiveness has three components, and is defined as lasting from about 6 months to up to a few years. It can be interpreted as the residual marketing impact that makes any future advertising more effective.

Brand equity is an emotional consumer element that lasts significantly longer than the purchase intent seen above. It, too, has some decay rate if no further advertising is done. Its impact is also affected by external events. If the brand has high brand equity, the impact on future purchases is present. In a recession, however, the impact is reduced. In uncertain economic times the value of investing in long term brand equity is lower because of potential deleterious effects outside of the control of the brand. Although there may be other drivers of long term brand equity, brand equity also has to do with the intrinsic position a brand has in the marketplace. If, for example, a brand has been built up over many years as the 'all natural' brand it will be very difficult for other brands to succeed at becoming the other 'all natural' brand in a particular category.

Customer equity (also sometimes known as 'brand penetration') can be defined as "all those customers that have tried the brand at some point in the recent past". Because a consumer has used the product or service in the past, less advertising will be required to induce them to use it again (assuming there was no negative customer satisfaction event). Investing in customer acquisition has a higher long term value over just advertising to drive revenue from existing customers. This long term effect may also be slightly different for an initial trial versus continued usage. Just distributing samples to induce brand trial may not have the same customer equity value, though, as a consumer generating interest based on messages received in a new brand or product and actively seeking out the brand to purchase and consume it. This effect, however, applies to categories and products where there is continual purchase (such as CPG). In the case of financial services, however, there may not be much value in selling a second credit card to an existing customer, but there would be value in selling other financial services (e.g. mortgages or car loans) to an existing credit card customer.

Consumer preferences are typically considered very stable over time. But they do change and can be induced to change based on the knowledge that may be imparted to the consumer through advertising. So marketers can educate the consumer as to the value of a particular product attribute and, as the preference for the attribute grows it can help drive incremental sales.

Great creative concepts stay in the mind for a long time. Some advertising campaigns ran many years ago but still linger in the minds of consumers. Although they may have been refreshed at some point, these campaigns probably still deliver some positive value for their brands. If refreshed with the right audiences, they could possibly provide a better return than a completely new campaign.

The one-to-one view One-to-one marketers have a different perspective on the long term value of advertising. In many cases the concept of a trial is very different to a trial with a consumer product because the cost of changing from one provider to another can be quite high. If the competition can reduce the switching costs (both real and perceived), then the current provider must make certain that customer satisfaction with the product remains high. In addition, for one-to-one marketers, customer satisfaction is a key service attribute. If advertising can influence the perception of customer satisfaction, then there is a long term effect to advertising because increased customer satisfaction can increase retention and reduce churn.

According to Powell, there are four key questions to consider when marketers are weighing up the choices about advertising:

  1. For fast moving consumer goods (FMCG) marketers with high penetration and an older brand, how can marketers deliver incremental medium and longer term value to their marketing? Very little marketing will drive increasing customer equity, since the brand already has high penetration although it may mitigate the decline in brand and customer equity. Is there incremental customer equity delivered through a line extension in the form of some new variant or new package with some new (or perceived) attribute, or is advertising all about driving short term purchase? Or should they harvest the brand and reduce advertising to such an extent that market share stays about even?  
  2. For FMCG marketers with a new brand, what is the optimal mix between driving short term sales, brand value (in terms of brand attribute scores and purchase intent), customer equity (in terms of customer acquisition), and customer preference?  
  3. For highly considered products and brands that are purchased infrequently (such as life insurance, or cars), how do these categories differ? Short term advertising may deliver new customers where the customer is already 'in market' (i.e. actively seeking). After all of the previous long term brand building, the consumer is finally ready to purchase and is spurred to purchase the brand due to some short term advertising or promotion, either directly from the manufacturer or indirectly through the dealer, again with some type of promotion.  
  4. How does advertising drive long term value for ubiquitous, global brands such as Coca Cola and Pepsi? They already have an enormous level of brand equity, customer equity and other aspects of the components measured above, yet they are able to show a positive impact on long term value of advertising. Or is their advertising more about maintaining the brand's position because without advertising the brand would start to decay.

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