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With the economy in uncharted territory - interest rates at rock-bottom, consumer confidence collapsing and the markets in free-fall – it’s no wonder that the subject of advertising payback has taken centre-stage. Coupled with the rapid evolution of the advertising landscape, there is a greater need than ever for marketers to unravel the impact of their media investments and substantiate their decisions based on solid research and analysis.
In October 2007, PricewaterhouseCoopers, commissioned by Thinkbox, launched the innovative ‘Payback Study’ – an objective analysis of advertising return by media and the impact of investment on consumers’ ‘willingness to pay’ for brands. The study was unprecedented in terms of its scope and approach and examined a whopping 700 brands across seven market categories.
The findings were striking: TV pays back over 4.5 times its advertising investment in increased sales revenue – more than any other medium. In addition, TV was shown to pay back in the long-term. It still affected sales in year 2 almost as strongly as it did in the first year of investment and no other medium came close. TV investment was also demonstrated to be the main driver of brand value – the willingness to pay a relative premium for specific brands over and above the alternate offerings. All in all, the evidence was solid: TV was by far the most reliable driver of large economic returns and brand values across a wide range of product categories.
The Second Phase of Analysis
In August 2008, Thinkbox again commissioned PricewaterhouseCoopers to conduct a second, longitudinal study looking at shifts in brand values in relation to changes in advertising investment across the seven market categories analysed in 2007. They also added three new categories.
In addition, Data2Decisions were appointed to bring together two large datasets. The first was the YouGov Brand Index survey, covering over 1300 brands across 31 product categories and primarily focussing on the elements of ‘brand health’. The second was the media spend across the 7 main advertising channels as measured by AdDynamix. The objective was to unpick the relationship between media spend and brand health across a much larger range of categories and products.
Payback 2 and the Changing Financial Landscape
In the summer of 2007, during the period of the first ProcewaterhouseCoopers analysis, the economic landscape was still fairly stable with consumers still splashing the cash with relative ease. However, by the time of the second study, there was a fundamental shift in the economy and both consumer spending and confidence started to reduce substantially.
This decline was mirrored across each of the original seven markets studied, with brand preferences becoming less distinct and trends towards value and reassurance becoming more evident. However, the brands that appeared to be least affected across each of the categories were those that had build a clear status as brand, or conversely value, leaders.
A good example of this was the cereal market. The importance of the brand name had decreased, although it was still be far the biggest influence in the purchase decision, whereas price sensitivity – and to a lesser degree, size – had moved in the opposite direction, showing a clear trend towards value-for-money.
Conversely, whilst the importance of price had increased for the lower medium car category, the impact that this had on brand preference was negligible. It seems that for the higher price point categories, brand still remained fundamentally important.
The insurance market seemed to buck this trend. The importance of the cost of the annual premium had decreased, however the importance of legal and breakdown cover had grown whilst brand preferences remained stable. This demonstrates a trend towards added extras and reassurance. Given the fragile state of the financial institutions (at the time of the research, several major banks had just been taken into public ownership) and the rapid deterioration or the car market, this is perhaps unsurprising.
Overall, the findings suggest that price sensitivity has increased – as you’d expect in a period of economic instability.
The New Categories & Key Results
In 2007, seven categories were explored, namely: haircare, fruit juices, cereals, motor insurance and three separate car markets (lower medium, upper medium and premium cars). For the second wave of research, three further categories were added - flatscreen TV’s, airlines and pre-pay mobile phones.
For each of the new categories, consumer brand values were estimated and related to the last two years of advertising expenditure on TV. It was found that there was a strong, positive correlation £ for £ between consumers’ willingness to pay for brands and they expenditure that those same brands had invested into TV.
This mirrored the overall finding that TV (even in the current economic downturn) was more strongly correlated with brand value than with levels of advertising investment overall.
The evidence from both waves of the payback research confirms the main finding – that the highest brand values are most strongly correlated with above average use of TV in the media mix.
Advertising During a Downturn: what does the study reveal?
One of the main benefits of reinvestigating payback in 2008 was that it allowed us to track the changes in brand preferences over time and how these changes related to shifts in advertising investment. It also provided strategic insights for advertising during a downturn.
Econometric techniques were employed to statistically test the main drivers of willingness to pay across the 14 moth period. High correlations (of up to 88%) were identified between willingness to pay for brands and their relative spend - or ‘share of voice’ - on television. This highlights the strategic importance of maintaining or increasing media spend in relation to competitor activity.
In the juice category, for example, consumers were less prepared to pay for brand names overall, although the brands in this category that maintained WTP were those that used relatively more TV. Here, WTP was strongly correlated with media investment, with the correlation between WTP and TV being the highest of all media, at 76%. Reductions in share of voice had an adverse affect on willingness to pay.
Another example came from the haircare category. One of the key brands within this set had reduced TV spend and this had a direct on its competitive brand willingness to pay. However, a major competitor had increased its TV share-of-voice and subsequently increased willingness to pay significantly. This market had a very high correlation overall (88%) between brand value and TV investment.
PricewaterhouseCoopers also conducted a brand analysis to further assess the impact of shifts in ad-spend versus willingness to pay. Of the brands studied, 20 had made significant changes to their ad expenditure, enabling them to determine that:
- Raising TV’s share of voice has a 2:1 chance of raising willingness to pay for brands over and above the competitors
- Reducing TV’s share of voice had almost a 3:1 change of reducing willingness to pay versus the competitors
The Data2Decisions Study
The impact of TV advertising on brand equity was supported wholly by an additional analysis that Data2Decsisons conducted onthe YouGov Brand Index and AdDynamix (Nielsen) datasets. By creating a database of over 1100 brands, the links between ad spend and brand health could be quantified (brand health was defined in terms of buzz, general impression, quality, value, satisfaction, recommendation and corporate reputation).
The results tallied wholly with the PricewaterhouseCoopers payback analysis. TV was the main driver of most of the brand health measures, but the impact of other media was also evident. For example, press featured heavily as an active support medium for TV; and online and radio were particularly good at reinforcing value messages.
Category Learnings for TV
The analysis also offered insight into which channel combinations worked best for which categories. Overall, across the various different categories, TV tended to exhibit the strongest correlations with the brand health measures, but online showed strength in categories where consumers use the web to research or purchase brands, such as airlines and retail. The telecoms category also proved interesting. TV shifted brand health measures across the board, but particularly quality and value perceptions. DM also performed well – which is presumably reflective of the competitive offers utilised by telecoms companies in direct mailings.
Other results proved surprising. Often, we expect TV to deliver on messages concerned with quality, but assume other channels to be more efficient at driving value propositions. However, the data suggested that TV was particularly good at supporting perceptions of brand value, especially for higher consideration categories, and that it is possible for TV to deliver against both the quality and value metrics. Nowhere is this more pertinent than for the higher involvement categories where the emotional engagement TV offers mirrors the more engaged nature of the purchasing process.
A great example of this was Lloyds TSB, which had made significant changes to its communications strategy over the 18 months prior to the research, moving away from the black horse to a more emotional, creatively-led strategy. The reassuring, involving messages have helped the organisation ride out the banking ‘trust vacuum’ generated by the credit crunch. A 20% increase in TV investment (when overall budgets had been reduced) helped to instigate positive changes across all of the brand health metrics, but particularly value and quality.
Morrisons made a similar strategic move with TV and succeeded in moving the quality and value metrics significantly, as well as improving overall perceptions of the brand.
TV can deliver across all key brand health measures, including value. Furthermore, TV is able to shift brand perceptions forward in a relatively short space of time – around 12 months or so.
Key Lessons for Advertisers During a Recession
Ultimately, the facts are simple. Competition does not disappear during times of recession. Reducing TV budget versus the competition is going to have a detrimental effect on your brand – even by cutting activity over periods as short as a year. Conversely, by using TV more effectively, brands can become invigorated and strengthened. This is because TV is the main driver of shifts in brand preferences and willingness to pay and has a greater consumer impact in relation to other media. It is also drives the key brand health metrics, including buzz, quality, general impression and has a significant impact on perceptions of value.
Further analysis from D2D revealed that by ‘going dark’ on TV for 1 year, 60% of the ad-generated revenue loss would occur in the first year, but the saving by slashing TV spend in year 1 actually offsets the revenue so that year 2 is where most brands will suffer.
Categories such as FMCG, health and beauty and alcohol were particularly susceptible with many losing up to 85% of ad-generated revenue just but cutting TV spend for a twelve month period.
In short, these are unprecedented times. However, by monitoring share of voice versus the competition, taking advantage of weaker competitor positions, and - where budget cuts are inevitable - shifting budgets smartly to utilise the power of TV, there is good chance brands can emerge from the recession victorious.
Upside to downturn: sharpening your ad payback
In August 2008, we commissioned PricewaterhouseCoopers to repeat and extend the innovative payback analysis from 2007. This study look at shifts in brand values in relation to changes in advertising investment across the seven market categories analysed in 2007, plus three new market categories.
In addition, we also appointed Data2Decisions bring together two large datasets focusing on brand health and media spend. The objective was to unpick the relationship between media spend and brand health across a much larger range of categories and products. Data2Decisions also examined the impact of investing in brands during a recession.