The Perennial Question (Sort Of Answered): How to Measure Advertising ROI!

In his latest post, B&T’s resident industry contrarian, Robert Strohfeldt, tackles the oft cited “which fifty?” view of marketing. How exactly do you quantify your ad spends…

Ever since John Wannamaker made his famous quote: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half”, people in business have been trying to come up with an accurate measure of return on advertising.

We only have ourselves to blame. When someone within an organisation, often the finance department (and the CEO’s nearly as frequently), go on a cost cutting exercise, the marketing department will pipe up and say advertising is not a cost, but an investment.

“OK, then show us the return on this supposed investment”. The problem is that unlike virtually all other investments, the return is not easily quantifiable.

Advertising is not at all like other “traditional” investments. Shares can be calculated by dividends paid and share price growth. (A very simplistic description.) The financial markets have any number of financial products, many of which are no more than gambling with a sophisticated name e.g. foreign exchange sounds far more impressive than “the pokies”. But like the pokies, win, lose or draw the house gets its cut.

Property has various widely accepted formulas for commercial or residential. Private equity firms live to “do deals”, by the end of which an accurate percentage return can be calculated.

When talking about investments generally, the ROI is measured in per cent value of the return on the investment.

Advertising does not exist in a vacuum; it is an element of marketing. I recently read a report on Marketing Metrics. It was full of buzz words and phrases, stating the bleeding obvious:

“We face an incredible opportunity for marketing to reinvent itself as a core part of the company’s growth engine.”

“Marketers who invest in measuring and managing performance create more value.”

“Data is for delivering insights.”

“Align actions and outcomes that matter the most.”

Blah, blah, blah.

Over half the report rabbited on about the need for marketing (and advertising) to show, by measuring, what it did for the revenue of a business.

No shit Sherlock. Next someone will conclude that the role of sales is to, well, sell stuff. A bit harsh, but surely marketing and advertising have been around long enough and companies have spent shit loads of money that maybe, just maybe, a director or two (those who have their houses on the line) may have asked “So how much of a return do we get for that million bucks we spent on advertising?”

Wannamaker was born in 1838 and went to that big advertising lunch in the sky in 1922. So, for well over a hundred years, people have been trying to calculate “the return on their advertising and/or marketing dollar”.

It may not always be a monetary return that is being sought. A quote from a story in Marketing Week: “If you ask someone ‘tell me a crisp brand’ they are going to say Walkers. We are number one and top of mind far ahead of competitors,” Kahane claims. “We have created great ads that engage the nation [before] but [the challenge is] they have not really made people talk about the brand.”

So, the objective of the advertising in this instance is to get people talking about their crisps. (True. You can’t make this shit up). Not quite sure how you measure that, but it was the stated goal. This marketer went on to state they were not in the business of crisps, no, no, no. They were in the business of enjoyment. (I reckon they may have some stiff competition from the world’s oldest profession.)  No wonder doctors, lawyers and accountants think marketing and advertising people are a bit loopy.

There are marketing effectiveness awards that aim to determine how successful (or not) a marketing campaign was. These awards tend to look at the result of individual campaign.  And a marketing campaign is comprised of several components, of which advertising in only one.  So, the award is for a “sum of the parts”.

It is hard to attribute the success of a marketing campaign solely to the advertising, as distribution and pricing will more than likely have played a role. Plus the winners of significant Effectiveness awards have nearly always used an integrated approach to their advertising.

Recently Tourism Australia won a gold in the US Effie Awards. Without going into detail, the campaign was exactly that, a campaign with three phases, each of which utilised several different communications tools. Success was measured by both research, which could be compared to previous benchmark data and a measurable increase in US tourists heading to Australia.

But this is different to trying to measure how an individual ad, or even advertising campaign, performed.  Not to say it is shooting in the dark, there are a number of methods of determining an ad or ad campaign’s effect. But there is also long-term brand building that advertising contributes to, which would not show up in any immediate measure.

Work from the renowned duo Binet and Field say the optimal split between long term and short activity is 60:40. Advertising effectiveness is always measured over a set period, not a continuum.

There is general agreement today that both distinctiveness and difference are both factors in a brand’s success. The better a brand is known, the better it performs, and brand assets play a major role in this – logos, colours, straplines, symbols and advertising style or look. The Kotler view of the world was a brand’s success was due to difference, where today it is recognised salience is probably even more of a factor in success. (The USP has been consigned to history.)

But this thinking is in fact not new. Back in the 1950’s studies concluded the greatest driver of brand purchase was brand awareness. A good friend and colleague, Professor Stephen Holden, did his Doctoral thesis in 1922 on salience and it well worth reading. 

But of all the techniques being used, attribution is by far the least understood and most widely abused. In the words of one researcher: “Regardless of the touchpoint type, attribution involves the measurement of multiple marketing tactics in an effort to optimize those that are delivering the best results.”

That is a sensible endeavour. But the problem is trying to identify every variable that can influence a sale. This not only varies from one individual to another plus it can vary day to day with the same individual.

Attribution is not new, but it has become fashionable. TW Anderson published the first widely used textbook An Introduction to Multi-Variate Statistical Analysis in 1957, though the maths it is based on was developed in the early 1800s.  In simplistic terms, attribution (some form of multi-variate analysis, or more factor analysis may be more appropriate) is used in science, medicine and more recently in business, to try quantifying the influence each variable has on a particular outcome.

It is difficult to give “folksy analogies” but imagine looking at how rainfall influences a plant’s growth. Too little or too much will kill it. But rainfall is not the only variable that impacts on the plant’s growth. Drainage, sunlight, temperature, different nutrients – there are a huge number of variables that influence the ultimate outcome. The goal is to quantify what percentage each variable contributes to an optimal outcome and identify which variables contribute the most.

But plant growth is very simple compared to human behaviour. (A generalisation. We have all met people who make plants seem intelligent and well- adjusted). Not only are there so many more variable at play, the variables and the impact of each is different for everyone.

So, how do we quantify ROI for advertising? If we are honest, the answer is “there is no one technique that can be applied to all cases”.

It is a case by case situation. I am sure most people have heard the colloquialism “it pays to advertise”. Yep, just about everyone agrees with this, but exactly how much could be described as “anyone’s guess”.