What do we need – now and in the future – to measure advertising success?

1. What do we need – now and in the future – to measure advertising success? Chisinau, November 7th 2008

2. Introduction • 1973-1988 – Boase Massimi Pollit • 1988-1990 – Tilby & Leeves • 1990-1993 – Grey • 1993-1996 – DDB • 1996-2002 – OMD • 2002-2007 – Schwarzkopf & Henkel • 2007 – OMD MoscowThe following presentation represents a personal point-of-view – but influenced by working both for an advertiser and in agencies. Some ideas, and indeed charts, have been borrowed from colleagues, most notably Tim Broadbent from O&M.

3. Format • How does advertising work? • How is advertising effectiveness measured? • What’s going to happen? • What measurement will we need in the future?

4. How does advertising work?

7. What do we know about Advertising Effectiveness? • “Half the money I spend on advertising is wasted; • the trouble is I don't know which half. “ • John Wanamaker, • US department store merchant (1838 - 1922)

8. “The only purpose of advertising is to sell. It has no other justification worth mentioning.” Ray Rubicam 1893-1978

9. “Anybody in advertising who doesn’t say his purpose is to sell that piece of merchandise is a phoney.” Bill Bernbach 1911-1982

10. “I have seen one mail-order advertisement actually sell, not twice as much, not three times as much, but 19 ½ times as much merchandise as another ad for the same product. Both advertisements occupied the same space. Both were run in the same publication. Both had photographic illustrations. Both had carefully written copy. The difference was that one used the right appeal and the other used the wrong appeal” (John Caples, Tested Advertising Methods, 1931)

11. Short-term or Long-term? • “Andrew Ehrenberg has derived from these models of buyer behaviour (NBD/LSD and Dirichlet) a view on advertising for established brands. It mostly serves to publicise the advertised brand, but seldom seems to persuade. Promotions have only a short-term effect , and do not affect a brand's subsequent sales or brand loyalty. The extra buyers during the promotion have been seen almost all to have bought it before the promotion rather than being the hoped for new buyers” • And, advertising normally DOESN’T have much effect on short-term sales • It seems to protect existing loyalty and repeat purchase through LONG-TERM effects • . . . . . and how do we measure the ABSENCE of change?

12. How does advertising work? • Advertising has the objective of increasing sales • Or not (Road Safety, Health, Fire Prevention, Programme trailers, Nutrition Advice, etc.) • Sales when? • Different ads work with different levels of success • Work in different ways • Work in the same way but better or worse

13. How does advertising work? • Er, we don’t know • It seems pretty certain that different campaigns work in different ways • It seems pretty certain that different ads within campaigns work with varying success – and sometimes work in different ways • It seems pretty certain that long-term effects greatly outweigh short-term effects (N.B. This is normally not true for brand launches and even less true for category launches)

14. How is advertising effectiveness measured?

15. The problem with evaluating ads’ effectiveness • “Its a good campaign, if sales go up” • “Its a bad campaign, if sales go down” • “Unfortunately, neither of these statements is always true. They are very often false”(Rosser Reeves, Reality in Advertising, 1961)

16. The problem with evaluating ads’ effectiveness “Recently a group of marketing men, almost idly, at a luncheon table, listed thirty-seven factors, any or all of which could cause the total sales of a brand to move up or down. Advertising was only one of these. The product may be wrong. Price may be at fault. Distribution may be poor. The sales force may not be adequate. Budget may be too low. A better product may be sweeping the market. A competitor may be outwitting you with strong deals. And when a wheel has many spokes, who can say which spoke is supporting the wheel?” Rosser Reeves

17. Advertising Effectiveness Measurement – The Last 30 Shameful Years • Broadly, the methods for judging advertising success or failure are the same now as they were 30 years ago – only worse (despite around $10 trillion at 2000 prices being spent on advertising in mainstream media, globally, over this period) • Sales (but usually short-term) • Pre- and Post- Awareness, Usage and Attitude • Tracking (more prevalent now) • Econometric Modeling (but almost always based on short-term sales response – sometimes with some lag effects) (more prevalent now) • Etc

18. Problems with Modeling • Multivariate statistical techniques are being used more and more frequently to evaluate advertising effectiveness (and media mix, regional upweights, etc) • Criterion variable tends to be short-term sales – thus ignoring the main, long-term, contribution made by advertising • The statistical tools tend to be more robust than the data – like using a road drill for dentistry • The tools find relationships within the data – but this merely DESCRIBES the data – it does not necessarily prove CAUSALITY

19. Abusing a Model • Brand X • 30 months, bi-monthly, data, rounded • Advertising, distribution and price

20. 5% 53% 24% 18% Abusing a Model • Sales = 154.0+0.143*Advertising+5.74*Distribution-2.36*Pricing • R2 = 0.81 • Typical Sales Decomposition (Period 15)

21. Abusing a Model • Brand X • 30 months, bi-monthly, data • Advertising, distribution and price AND Factor Y

22. 30% 4% 37% 17% 11% Abusing a Model • Sales = -120.8+0.142*Advertising+4.94*Distribution-2.00*Pricing+2.79*Factor Y • R2 = 0.83 • Typical Sales Decomposition (Period 15)

23. What is Factor Y? • My son Tom’s age (expressed in months/2) at the time of the data series (he was 16 at the time)

24. So what does this mean for media measurement? • We don’t know how advertising works • We do know that different campaigns and even different ads within a campaign work in different ways • We don’t know how to measure its effectiveness • Thus, media measurement (for advertisers) should restrict itself to the measurement of EXPOSURE (as now) rather than other factors (engagement?) • Even exposure is going to be harder to measure – or it will present different challenges – in the changing media landscape

25. What’s going to happen?

26. , 1995 , 1996 30” TV Some Forecasts “Television will disappear in less than ten years and the internet will be the leading mass medium.” George Gilder & Nicholas Negroponte “TV sets across the world will be jettisoned within a decade.” Sir Christopher Bland, BBC Chairman

27. Minutes Croatia Hungary Greece Poland Italy UK Belgium South Spain Germany Ø West Europe France Portugal Czech Republic Netherlands Irish Republic Belgium North Finland Austria Norway Denmark Sweden Switzerland Iceland* West Europe Central & East Europe Average TV Viewing Time per Day Source: Television 2006 / Mon- Sun / IP Network / local institutes / TG adults / Ø- time spent viewing / *no panel system

28. Average TV Viewing Time per Day in Western Europe TV viewing has grown (+13% in the last 10 years). Minutes Source: Television 1996-2006 / IP Network / local institutes / EU-15 /TG / whole TV / figures weighted according to country size

29. Average Media Consumption in Hours per Week TV is still by far the most used medium. TV Internet Press

30. TV Consumption in Context in Western Europe 4.01 billion

31. TV Consumption in Context in Western Europe 7.65 billion 4.01 billion

32. Worldwide advertising Television :end of the hegemony ? Not in Russia

33. TV – Current Status “The reports of my death have been greatly exaggerated.” Mark Twain

34. We all know what happened… • TV viewing constant or growing • Print still read avidly • Cinema attendances increase • Despite growth of DVD’s and PVR’s plenty of 30” ads It’s the people spinning the globe. Not the technology.

35. Atomisation Consolidation Convergence Media Consumption Advertising Revenue Media Ownership Media Agency Ownership Technology Media Research Consumers Retailing

36. Consolidation & concentration everywhere! More power vs. retailers & media owners More resources & synergies for R & D More pressure on advertisers + $9.3 billion $56.8 billion 29,000 people 98,000 people Grocery retail concentration in western Europe Market share by value of the top three retailers in each country 70% 60% 2001 2003 50% 40% 30% 20% 10% 0% UK Italy Spain Ireland Poland Austria France Finland Greece Norway Sweden Belgium Portugal Hungary Denmark Germany Czech Rep Netherlands

37. Retail consolidation – new media force • With impressive retail consolidation comes a newly viable and buyable media phenomena – in-store media • Retailers are now so big that their in-store media can have larger daily reach than TV shows and stations, or press and radio packages • These media will become increasingly important as retailers continue to consolidate, mass media fragments, and usage occasions change to more impulse and channel specific.

38. The importance of In-store Media

39. Media ownership development 1983: • 50 corporations “dominated” mass media • $340 million biggest merger 2000: • Number dominating companies down to six • AOL & Time Warner merger $350 billion – a thousand times larger!

40. One company – endless possibilities Capitalizing of resources and synergies for Harry Potter launch! Editorial coverage in the company’s Time and People magazines, by reviews on CNN and by advertising on the AOL internet service (in fact the company, which plans and buys most of its media in-house, is itself one of America’s largest advertisers).

41. Radio Packaging Television Print Alliances British soap opera awards Outdoor Interactive PR Holistic view of a campaign

42. Media Consumption

43. Average time allocation by Media “Television will disappear in less than ten years and the internet will be the leading mass medium.” George Gilder & Nicholas Negroponte, 1995 Source: Pan-European EIAA Media Consumption Study II Base: Users of each medium

44. Penetration by Media Type TV remains the media of choice for most consumers with 96% of those studied watching something during a typical week Penetration by Media Type Percent Of Respondents In a typical 5 day week, do you watch TV, read a newspaper or surf the internet? (note Magazines and Radio was during a typical 7 day week) Source: Pan-European EIAA Media Consumption Study II

45. Offline Activities Moving Online Approximately 2 in 5 internet users now book tickets online around a third chat to friends via the internet % Book tickets Read newspapers Chat to your friends Shop Listen to music Read magazines Share music Buy music Base: Internet users

46. TV sponsorships Coupons Consumer magazines Displays in shops Info with monthly bill Pester power Sales people Family and colleagues Radio Newspapers Trials Airport ads Friends Helpline/ callcentre TV Outdoor Fragmentation within the media landscape & increasing technological and consumer sophistication Never EASIER to REACH Never HARDER to CONNECT

47. Clutter through Fragmentation - Accelerating Media Complexity

48. Too much advertising “pollutes” Turned off by advertising % agreeing 35 30 % 25 TV ads are annoying Enjoy ads as much as TV 20 programmes 15 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: TGI

49. With increased clutter, it becomes more difficult to break through Ad “Cost per Awareness Point” Index Source: Millward Brown (base 700 spots tested) - Spain

50. Advertising effectiveness is on decline Recognition TV – Example MRF Source: OMD Market Response Finder / Average all campaigns - Germany.