The business case for advertising now
Matt Chappell, Senior Partner at Gain Theory, outlines four data-driven reasons to invest in advertising now in order to succeed in the future.
The common reaction to the unprecedented situation we have been facing over the last few months is to pull up the drawbridge, adopt defensive positions, and more often than not in the world of marketing, cut, cancel, pause, delay and reduce.
But there are two sides of the coin.
Unfortunately, there are businesses who have had to shut down completely or have experienced a decrease in demand. On the flip side, many in-demand businesses are finding themselves butting up against capacity limits. All of this leads to a reduced demand for advertising, especially if you’re of the school of thought that believes that advertising exists to prompt demand in the here and now.
However, Marketers that can hold their nerve, as well as the nerves of their Finance Director and board, know that advertising has an impact beyond today and will drive profits far beyond this crisis.
With that in mind, here are four data-informed reasons to invest in advertising now in order to succeed in the future. They are:
1. Advertising’s long-term impact
Gain Theory’s Long Term Impact of Advertising analysis from Thinkbox’s report showed that 58% of advertising’s payback came in the long term (in general, 3 months to 3 years) versus 42% in the short term (now to 3 months). This means that even in a world where short term returns are not viable, there is still value over the long term. If your short-term advertising ROI, as measured by econometrics, was £1, then investing now will generate a further £1.38 over the long term, showing that advertising can have a value over and above what it delivers in the present time.
It is this long-term value that informs findings around companies who invest in a recession doing better afterwards.
Here are a few famous examples:
- Consumer Packaged Goods. Post was the category leader but cut advertising spend during the Great Depression. Kellogg’s the younger competitor, doubled spend, and remains to this day the category leader.
- Automotive. During the recession of the early 1970s, triggered by the oil crisis, Toyota maintained advertising spend as part of its long-term strategy, overcoming both Honda and Volkswagen to become the number one imported car brand into the US.
- Quick Service Restaurants. In the recession of 1990-91, McDonalds dropped its advertising budget which allowed competitors Pizza Hut and Taco Bell to increase sales significantly.
2. Great value media
It is not new news that a lot of media is very good value right now, indeed Matt Hill at Thinkbox has already written about this in detail in the WARC article ‘Cleaning up with TV in Lockdown’.
We are hearing about media costs decreasing significantly due to demand for advertising decreasing and supply increasing as locked-in families watch more TV and spend more time online. What this means in practical terms, is that if your ROI from TV was £2 before the crisis, it could now be up to £3 or £4. If your demand has held strong, or even declined slightly (i.e. by less than costs in media have been decreasing) then it makes sense to place a strong bet on media.
3. Running from a walking start vs Running from a standing start
Some of us have taken up running in this lockdown period. As you will know, it’s a lot easier to sprint from a jogging start than it is from standing still. The same is true for media.
Behavioural research shows that consumers often need to see a piece of advertising multiple times before they are in a position to respond. This might be due to a complex message needing multiple views, a big reveal at the end that keeps the brand in suspense, or the fact that most consumers ignore or forget a number of ads to which they’re exposed.
When life goes back to some semblance of normal, most advertisers will want to capitalise on this moment and increase their advertising. Those who do so from a walking start, where consumers have already been exposed to some advertising, will do much better than those who try to start from scratch for the reasons outlined above. In fact, this can be equivalent to a 30-50% differential in a month’s worth of advertising effectiveness.
4. Spreading risk
As mentioned above, most advertisers will want to be present when the economy starts revving up again. But no-one knows exactly when this will be, with guidance on lockdowns and social distance being necessarily flexible and responsive to the latest risk and rate of infection.
Most advertisers will have significant lead times to getting an advert on air, impacted by creating the message, gaining business alignment, or buying the media. We have seen some fantastic examples of flexibility and strong messaging being created quickly but these are well-regarded exceptions and not the norm.
Because of this lead time and the uncertainty over exactly when we will return to normal, sensible businesses will be spreading the risk and reward of their advertising through the summer to ensure they have a presence when this occurs. And because of the above three points, they will also be reaping the benefits of good planning for long term success.
So, there you have it: four solid data-informed reasons to maintain advertising investment through this period. The best Marketers should never waste a crisis.
About Gain Theory
Gain Theory is a global marketing effectiveness consultancy, empowering marketing and insight professionals to create agile, smarter, data-informed cultures using data, technology and advanced analytics.
As an independent practice within WPP, Gain Theory is trusted by clients around the world to enhance business performance in both the short and long-term by improving marketing effectiveness and efficiency, increasing baseline profits, growing market share and driving share price growth.
The global team consists of 200+ consultants, data scientists, mathematicians and marketing technology specialists who operate globally servicing 113 markets worldwide.