Does Advertising Pay?

What is the real impact of advertising on profitability? 

If you spend less, how much do you hurt your business? 
If you spend more, is there any real gain?

        These are perennial questions, to be sure. And now some hard answers have come from a comprehensive research program conducted by The Strategic Planning Institute with the Ogilvy Center for Research and Development.

         For more than 15 years, the Institute tracked 700 consumer businesses through good and bad economic cycles, in both North America and Europe. The unique study was called PIMS (Profit Impact of Market Strategy.)

          Using this substantial data base, researchers were able to determine the extent to which the level of advertising influences the "perceived value" of a product, and how this perception affects both the relative market share and the relative market price of the product.

           Measuring these factors against what really happened in the marketplace, scientists were then able to quantify the direct impact of different advertising strategies on profitability and on growth.

Their findings: 
"Firms that advertise much more than their competitors
average returns-on-investment of 32 percent, while firms that advertise much less than their competitors average only 17 percent return-on-investments."

              In other words, it not only pays to advertise - it pays to advertise more.

              In an era when productivity so often is understood only in terms of cutting costs, this research reaffirms the enduring importance of adding the sales value of the products or services you sell.

              And it proves that, even today, there is still no better way to build a consumer perception of added value than through the use of advertising.

The above report was extracted from an article by The Committee on the Value of Advertising, American Association of Advertising Agencies.

              Results may vary according to industry and region. In other words, it isn't what you perceive to be true. It's what the buyers perceive to be true.   And don't think that advertising only means newspaper, radio, tv, or promotional advertising. There are certain retail markets that radio advertising performs better for, such as waterbed sales. Note that the target market, although relatively small, is concentrated to a narrow age group.

              To say that advertising doesn't work, or it only enriches the pockets of the advertising media and their salespeople, is to ignore the research done over an extensive period of time. While the "flush" factor research of the Super Bowl commercials is more widely known, the day to day results delivered by various media is documented by hard numbers.

               Also consider that advertising is only one part of marketing. The overall purpose of a combined  marketing and advertising campaign is to create "word of mouth".  Yes, it does boil down to word of mouth. And the word that is on the lips, is the aim of branding. A company that brands itself properly will achieve "front of the brain" positioning.

               And yes, promotional advertising is only one part of the whole advertising media available.  But where the other media (print, radio, tv, etc)  primarily use the shotgun approach (trying to reach everyone at once and hope you hit the right people), the specialty product can be targeted just like a rifle.  Instead of having to reach the entire population of any group or market, you can target just the potential prospects you choose.

 

 

 

 

 

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