Nearly every research study shows that advertising has a positive impact on sales, but results are mixed when it comes to its effectiveness on stock prices, often an indicator of future sales.
But new paper ‘Advertising Effectiveness: The Moderating Effect of Firm Strategy’ from the Kelley School of Business at Indiana University claims to have the answer.
The study has found companies that set out to differentiate themselves through brand equity, and as a result create intangible company value, often benefit more from advertising than companies who set their sights purely on becoming cost leaders.
“They’re both very valid strategies. Different companies choose different approaches. They both can be very successful for companies,” an assistant professor of marketing at Kelley Niket Jindal said.
“Advertising can increase awareness; it can increase sales regardless. But it’s only for those companies that have a differentiation strategy where advertising’s going to build up brand equity … and shareholder value.
“That’s not to say that it’s wasteful spending for those cost leaders; there’s still value in that it’s increasing their sales. But those kinds of companies shouldn’t expect to see an impact beyond the current year’s sales.”
It makes sense to suggest that companies who are cost leaders are far less visible in consumers’ minds and may include commodities firms, manufacturers and budget retailers that focus on squeezing out costs.
The researchers predicted that companies with a differentiation strategy would disclose costs associated with marketing, because it was “fundamentally central to their strategy”. Obviously, shareholders would be interested in this information as well.
And as it turns out, for firms operating with a cost leadership strategy, shareholders tend to build their intangible market-based assets through mechanisms other than advertising.
“These are not inferior firms by any means. They are really healthy firms, but the role of marketing in these firms is a very different thing,” Jindal said.
For example, business-to-business firms such as aircraft maker Boeing develop such assets through their selling organisations, not advertising. Tech firms develop assets through research and development rather than through advertising.
“We’re not saying that cost leaders are the poor stock performers,” Jindal added. “They can add great stock price. What we’re saying is advertising isn’t going to have any impact on that stock price.”
Leading Australian market research data brand, RDA Research, provides actionable consumer intelligence to help businesses inform decision making and growth strategies. RDA Research wanted to make its unique consumer data available for addressable digital targeting and required a data onboarding partner to help activate their data in an online environment.
Storytelling agency Enthral has appointed Channel 7 reporter and sports presenter Sean Sowerby as its new senior PR and content manager in Melbourne. Sowerby (pictured) started his award-winning career at 3AW before spending more than 15 years in television. Enthral founder and manager director, Cameron Smith, spoke of the significance of Sowerby joining the agency. […]
This week Nova’s Fitzy & Wippa are celebrating 10 years of their iconic radio show and plenty of famous faces have weighed in on the feat! For Fitzy & Wippa’s 10-year anniversary show they were joined by a bunch of special friends who shared their messages and favourite memories over the last decade. The guys […]
Ever since Google first announced it would be getting rid of third-party cookies on Chrome, digital advertising businesses have been actively sharing their plans for life after cookies. And now programmatic advertising company Blis might have come up with the most creative way to get the message across, in a new video which sees company […]
Integrated Melbourne agency Icon has taken top honours in the 2021 SABRE Awards, winning the coveted Australasian Consultancy of the Year for 2021 along with a host of category and craft awards. Icon led a large field of Australian agencies with a total of three major and seven minor awards, including gold in the cause-related […]
Former agency executives Tim O’Neill and Tim Fouhy have launched the auto technology startup Summon. Australia’s first full e-commerce service for prestige cars. O’Neill and Fouhy both founded Reactive, a digital agency, which was bought by Accenture in 2016. Following the deal, O’Neill and Fouhy ended up leading the company’s digital marketing arm, Accenture Interactive before […]