Monday, May 16, 2011

The Alarming Decline In The Effectiveness of Advertising

Many years ago, a well-connected member of the governing board for the community/destination marketing organization for which I was chief executive at the time, came to a meeting after having been cornered by one or two people in the community who were always complaining around town (but not to me) that we needed to run big advertising campaigns and do less of everything else, forgoing the proven advantage of data-based-decision making.

During the meeting, with a wry smile she suddenly and loudly asked, “why do we have to do all of this marketing, let’s just place some aaayyuddds”  Everybody at the meeting burst out laughing along with her not only because of her delightful accent but because, as it turned out, many knew she wasn’t the first to be cornered.

Before once again going back over the research and marketing intelligence underlying that part of the organization’s marketing blueprint, I tried to break the tension by using the humorous quote attributed to John Wanamaker, who pioneered modern marketing in the late 19th Century, when he said “half the money I spend on advertising is wasted; the trouble is I don’t know which half.”a_decline_in_sales_indicated_by_a_red_down_arrow_and_a_blue_bar_graph_0515-1009-1002-2239_SMU

Today, it’s more like 1%, instead of Wanamaker’ 50%, that is effective according to experts like Seth Godin.

And a study of several decades of advertising by researchers at Southern Methodist and the University of Southern Californian which shows that the ability of a 1% increase in advertising to generate increased sales or market share has now fallen to a median of .5 and an average of .12, down dramatically since 1980.

However, advertising is not only still a very significant element of marketing, it is the engine that subsidizes the creation of and access to a huge amount of valuable content via the Internet and on radio and television and in publications including newspapers.

But determining where and how much to advertise is certainly no slam dunk.  When durable goods like cars and appliances are excluded, the elasticity index even dips into the negative meaning an alarming 43% of all advertising is unproductive.

That’s probably why a recent survey shows that while 55% of small businesses intend to increase marketing, more than any area of expense, only 13% will focus on traditional advertising such as TV, radio, print and billboards, while more than 60% plan to focus on web-based marketing and advertising or a blend.

Even online, frustration with ad clutter not only causes consumers to tune out but studies show that by a 6 to 1 ratio they are likely to view the advertisers less favorably, with nearly a third viewing them much less favorably.

To use an example Godin gives to determine the true cost: consider that someone selling space on an outdoor billboard claims that it will be seen by 100,000 people, it really means that the slightly more than one in ten advertisers who may be interested must divide the cost by the 1,000 people it may impact and then further by the percentage that could be likely prospects.

A recent survey showed that fewer than 1 in 10 North Carolinians make use of ads on outdoor billboards once a week and 7 out 10 never use them and consider them a detraction from their communities and the scenic beauty of the state.  For advertisers is it really worth offending seven potential customers to reach one?

Billboards may not be a good example because they don’t subsidize any value-added content beyond the ads themselves the way advertising does via the Internet, in newspapers and magazines and on television or radio.

A once useful and quaint medium in the early 1900s, billboards, often now referred to as “litter on a stick” have become an obsolete and unnecessarily amplify the ad clutter that is so much a part of why the value of advertising overall is so severely diminished.

Rather than react defensively, for advertising to survive, the vast $300+ billion advertising-industrial complex in this country alone, including agencies and news and information mediums and related associations, need to collectively self-regulate within to:

  • Retire obsolete technologies and those offering little or no content,
  • Reduce advertising clutter,
  • Adopt and self regulate standards requiring ad rates to be quoted per impression and indexed to advertiser target audiences and,
  • Cast out charlatans who publish only as a guise to cram in as many ads as possible at the expense of distribution and content.

2 comments:

AHow said...

Super article, thanks very much. I wondered if you have a link to the report you mention above, "a study of several decades of advertising by researchers at Southern Methodist and the University of Southern Californian"? The link seems to be broken. Fascinating topic and one that remarkably seems to get way less attention than it ought.

Peter Quigley said...

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