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  1. Measuring Ad Effectiveness Lecture 13

  2. Introduction Advertising: the eighth Wonder of the World. Advertising Advertising & Public Relations - Lecture 13

  3. Effectiveness Measurement Tends • Measuring ad effectiveness is a key concern in the advertising industry today • Unprecedented focus on ROI and accountability • Maturing of the advertising industry; pressure on agencies to produce • Cross-industry move to non-commissionable promotion (i.e. Heineken’s abandons tv ads in favor of sales promotion) • Still, most companies don’t measure, or measure very little Advertising & Public Relations - Lecture 13

  4. Why measure effectiveness? • Optimization of current advertising efforts • Attain best performance on key variables of interest • Optimization of future advertising efforts • Learn what works and what doesn’t • Advertising is extremely expensive • Budget Issues • Accountability issues • Changes are more expensive the later they occur • High Cost of Mistakes • Lost Sales • Company Reputation and Standing • Though never easy, measurement is easier than ever before • Advances in information and tracking technology • Development of advanced statistical techniques Advertising & Public Relations - Lecture 13

  5. Why to not measure ad effectiveness? • Creative “history” doesn’t often repeat itself • Cost-benefit analysis is prohibitive • No agreement on what to test • Pre-testing stifles creativity • Results don’t generalize to actual market conditions • Tests can’t account for wearout/repetition effects • Consumer preference/market volatility issues • No clear way to measure the link between cause and effect (did ad really affect sales?) Advertising & Public Relations - Lecture 13

  6. Stages of Effectiveness Measurement • Ad effectiveness can be measured at any stage of execution by various methods • Before Execution (Pre-testing) • During Execution (Concurrent testing) • After Execution (Post-testing) • Allocation of effort is typically determined by cost-benefit analysis or resource constraints. Advertising & Public Relations - Lecture 13

  7. Testing Methods • Before Execution (Pre-testing) • Concept Tests (“Big Idea”) • Messaging Tests • Copy Tests • Source Tests • Media Tests (or Vehicle Tests) • Components Analysis • Emotional Reactions Tests • Physiological Arousal/Reaction Tests • Galvanic Skin Response • Perspiration Tracking • Eye Tracking • EEG (Electroencephalographic meaures of Alpha Waves) • fMRI and other brain imaging techniques Advertising & Public Relations - Lecture 13

  8. Testing Methods • Before Execution (Pre-testing) • Consumer Juries • Portfolio Tests • Theater Tests • Readability Tests (Flesch Formula for readability) • Rough Art (“Thumbnails”) Tests • Comprehension Tests Advertising & Public Relations - Lecture 13

  9. Main Pre-test Metrics • Recall • Recognition • Readability • Comprehension • Preference Change for Brand • Rankings Advertising & Public Relations - Lecture 13

  10. Measurement Methods • During Execution (Concurrent testing) • Purchase Cohort Tracking Studies • Pantry Checks & Consumer Diaries • Day After Recall (DAR) • Test Marketing • Split Run Tests • Wave Analysis (Modification Tests) • Single-Source Tracking Advertising & Public Relations - Lecture 13

  11. Measurement Methods • After Execution (Post-testing) • Memory Tests • Recognition • Recall (Aided vs. Unaided) • Persuasion Tests • Likeability Tests • Call-to-Action/Inquiry Tests • Scanner Panel Data Advertising & Public Relations - Lecture 13

  12. Measurement Methods • Data Collection Vehicles • Surveys (mail, internet, phone, person to person) • Interviews • Direct Observation/Ethnographic Studies • Mall Intercepts • Focus Groups • Sales Data • Primary and Secondary Data Source Compilations • Where to Test • Home • Field • Lab Advertising & Public Relations - Lecture 13

  13. Measurement Method Limitations • What are the major limitations of these testing methods? Advertising & Public Relations - Lecture 13

  14. Sales as a Post-Testing Measure -- Limitations Consider this scenario: • Gateway runs a series of television advertisements for its new personal computer and sees a 15% increase in sales. Can we safely attribute the 15% increase in sales to Gateway’s tv ads? Advertising & Public Relations - Lecture 13

  15. Sales as a Post-Testing Measure -- Limitations • Other factors affect sales besides ads • Consumer inertia • Other concurrent promotions • Past promotions (lag effects) • Competitor efforts • Seasonality effects • Sales measures may neglect “non-consumatory” or longer-term effects of ads Sales are a highly imperfect way to measure ad effectiveness Advertising & Public Relations - Lecture 13

  16. Solutions to the “Sales Problem” • Use sales measures, but control for confounding variables with • Sound experimental (control-test) methodology • Analytical techniques • Use Surrogate Measures Advertising & Public Relations - Lecture 13

  17. Surrogate Measurement Methods • Ad Recall “What do you remember about this ad?” • Attention Draw “Did this ad capture your attention?” • Attention Hold “Did this ad hold your attention?” • Brand Association “What brand was advertised in this ad?” • Main Idea Recall “What was this ad about?” • Likeability “Did you like this ad?” “Did you like the message?” • Relevance “How important is this ad’s message to you?” • Attitude Change “Did this ad change your attitude towards…” • Recognition “Do you recognize having seen this ad?” • Brand Switch “Would you switch brands after seeing this ad?” • Credibility “Do you believe the ad’s claims about the brand?” • Attribute Recall “What aspects of the product do you remember from the ad?” • Emotional Response “How did the ad make you feel?” • Purchase Intention “After seeing this ad, how likely are you to buy?” • Action/Behavioral Click-thrus, calls, website visits, etc. Advertising & Public Relations - Lecture 13

  18. General Principles for Measuring Effectiveness • Use a “portfolio” approach where possible • Test at various stages (pre-, concurrent, post-execution) • Testing conditions should mimic reality to the extent possible • Use good experimental design • Representative samples • Well controlled • Reliability and validity Issues • Use independent observers where possible • Take multiple measures of effectiveness, but focus on key variables of interest • Use appropriate effectiveness benchmarks Advertising & Public Relations - Lecture 13

  19. Advertising Return on Investment (ROI) • A key issue for advertisers and agencies today • Driven by need for financially prudent decision-making and accountability • Used to compare various campaign alternatives or judge a campaign against a benchmark • Much better than Cost or Response per Thousand measures (CPM or RPM) Advertising & Public Relations - Lecture 13

  20. ROI Calculation • Formula: ROI % = (Incremental Contribution from Ad – Ad Cost)/Ad Cost x 100 ROI % = (ICFA – ADCOST)/ADCOST x 100 Contribution = Sales – Variable Costs • Note: Many companies just look at Incremental Sales, even though conceptually incorrect Advertising & Public Relations - Lecture 13

  21. Essentials of Calculating Ad ROI • Choose a timeframe for analysis • Immediate/Short-term • Medium Term • Lifetime • Determine the relevant unit or total contribution margin • May depend on timeframe chosen • May involve some pre-test assumptions about product sales mix • Determine the relevant ad cost • Should be fully loaded (include corporate allocations) • Includes pre-production, production, post-production and media buy costs • Analyze or predict sales data • New buyers (triers, new customers, etc.) • Incremental demand from repeat buyers • Must be consistent with analysis timeframe Advertising & Public Relations - Lecture 13

  22. Simple ROI Calculation Example • Safeway advertises a 10% off coupon for Tropicana Orange Juice in the local newspaper. The total ad project cost is $600. The modified contribution margin per unit of Tropicana OJ given the promotion is $1.50. The analysis timeframe is two weeks from the release of the coupon ad. Suppose Safeway’s Tropicana OJ sales for the two week period total 1,000 units. Scanner data shows that 40% of the Tropicana OJ buys are inertial, 50% are new buyers and the remaining 10% is increased demand from loyal users. Assume no cannibalization of same or other brands. What is Safeway’s ROI for the Tropicana coupon ad? • Answer: [(50% + 10%) x 1,000 units x $1.50/unit) - $600] / $600 = 50% Advertising & Public Relations - Lecture 13

  23. Class Activity You are pre-testing ad copy for one of the following ad campaigns. 1) McDonald’s tv ad introducing a new line of salads. McDonald’s wishes to stimulate demand for these new additions to their menu. 2) A Warner Brothers tv ad for a new action-adventure movie. Warner Brothers wants as large an audience for its new picture as possible. 3) The American Heart Association introduces a “Stop Smoking” ad campaign in television and print aimed at teenagers. The AHA wants to curb teen smoking. 4) Williams Sonoma sends out its newest catalog to opt-in consumers, displaying all the items it carries in its stores. WS wants to increase sales of these items as much as possible. 5) NBC runs an ad for the final exciting episode of its new show “American Inventor”, hoping to gain as large an audience as possible. 6) Zetia, a new cholesterol-lowering drug, launches a tv ad campaign to stimulate interest in the drug. 7) Fiesta runs a 30 minute informercial about its new flagship outdoor grill. 1. Given the ad campaign’s particular goals, which three surrogate measures do you believe are most important in gauging ad effectiveness? Justify your answer. 2. Describe in general terms how you would measure post-execution ROI for the ad campaign. Focus on (1) the timeframe chosen and (2) the relevant measure of incremental contribution and (3) on how you would go about distinguishing incremental “sales” from inertial (baseline) “sales”. Advertising & Public Relations - Lecture 13

  24. Effectiveness Testing Companies • Millward-Brown, Ipsos-ASI: Copy testing • IRI, Ipsos-ASI, MSW, Neilsen: On-air testing • Starch Ad Readership Report: Print Ad Effectiveness (post-tests) • IRI, MarketSource, Nielsen: Single-Source Tracking Systems Advertising & Public Relations - Lecture 13