Forbes.com

When is advertising a waste of money?

By Eric Almquist and Tamar Dor-Ner

Published on July 03, 2012
min read


With two of the hottest venues for advertising—Facebook and the Super Bowl—taking heat for charging too much and delivering too little, more and more executives are wondering how much advertising really helps to build brands. General Motors expressed such doubts when it recently announced it would not buy advertising for Super Bowl 2013 and was ending a paid ad campaign on Facebook. Ford and Coca-Cola, however, responded that they found value in Facebook advertising, and CBS reported that it has already sold more than half of its ad inventory for the Super Bowl next February—at around $3.75 million for a 30-second spot. While marketers focus on the challenges of automatic ad skipping and diminishing clickthrough rates, there’s a more fundamental question for senior executives: Should you spend your next dollar on making your brand promise by advertising, or keeping your brand promise by ensuring that your products and company deliver what customers want? Some executives have come to realize that the point of a brand, and any advertising supporting it, is not just to generate buzz; instead, brands succeed by shifting customer demand. Well-managed brands shift demand in two ways: by commanding a higher price, or generating more volume, or some of both. Too high a price will dampen demand and reduce revenues, but the stronger a company’s brand, the farther out it can push this intersection of volume and price in order to maximize revenues and profits. And that casts advertising in a different light. For a new product or one that’s not yet distinctive in the minds of consumers, advertising can have substantial value. We’ve all heard of Aflac by now from its squawking duck commercials. But the most effective advertising goes beyond awareness to shift demand by giving consumers a clear reason to buy. Neglecting to provide salience—“here is a clear reason to buy”—is where advertising expenditures often go to waste. For the 2012 Super Bowl, Chrysler spent more than $10 million on a two-minute ad featuring actor and director Clint Eastwood, with the tagline “It’s halftime in America.” Eastwood gave the nation a pep talk about how to survive hard times, yet there was barely a glimpse of Chrysler vehicles. The ad generated only a 15% rise in shopper consideration on the automotive consumer website Edmunds.com during the following week. That was a fraction of the incremental traffic generated by ads from Lexus, Kia, Chevrolet and Fiat. By contrast, Amazon creates tremendous brand salience, not with advertising but through its “price check” mobile application, which lets users scan the bar code of any product on a store shelf, compare prices with providers featured on Amazon and make a purchase on the Amazon mobile website. The application reminds people that they can always shop Amazon, even in a competitor’s store. Brand-enhancing innovations such as the price check are among the many factors that have contributed to Amazon’s 10% compound annual growth in revenue per active customer since 2003. For mature brands, advertising often amounts to an expensive arms race. A brand may have high awareness but if it’s not reinforced by a positive experience with the product and the company, then resources will be better spent improving that experience. In fact, some consumer-oriented companies manage to thrive virtually ad-free. In the clothing retail industry, for instance, Patagonia and Zara spend almost nothing on advertising. They have nonetheless built powerful brands—Patagonia through word of mouth and a commitment to environmental causes, Zara through a powerful in-store experience and lightning-fast production that keeps shelves stocked with the hottest fashions. Both strategies have paid off in strong financial results over many years. So how do Facebook and other social media fit into this demand-led approach to brand strategy? Social networks are relevant less as advertising vehicles than for their ability to amplify or distort brand messages. On the upside, social media can serve to amplify a brand during moments of truth for the customer. For the past couple of years, JetBlue has used Twitter to address customer concerns in real time, like rebooking flights cancelled due to weather. Here’s how one Tweet expressed the outcome during a blizzard in December 2010: “@JetBlue rebooked my snow-cancelled flight via Twitter in less than 20min. (Phone lines are out.) I LOVE JetBlue so very much!” For now, though, social media have greater destructive than creative power, as bad news travels faster and further than good news. Interest groups can turn on a company and accuse it of misdeeds—true or false—garnering media coverage, and customers or ex-employees can trash its products on social networks, where the volume of traffic itself can become newsworthy. Even experienced brand managers such as Procter & Gamble and Netflix have learned the hard way how social media firestorms can quickly erode their reputation. Like millions of other viewers, we’ve enjoyed Super Bowl ads such as the Budweiser bullfrogs and the eTrade baby. But only a demand-led brand strategy will produce the kind of buzz you can take to the bank. Eric Almquist is a Boston-based partner and head of Global Consumer Insights for Bain & Company. Tamar Dor-Ner is a Boston-based partner in Bain’s Private Equity and Retail practices.

With two of the hottest venues for advertising—Facebook and the Super Bowl—taking heat for charging too much and delivering too little, more and more executives are wondering how much advertising really helps to build brands. General Motors expressed such doubts when it recently announced it would not buy advertising for Super Bowl 2013 and was ending a paid ad campaign on Facebook. Ford and Coca-Cola, however, responded that they found value in Facebook advertising, and CBS reported that it has already sold more than half of its ad inventory for the Super Bowl next February—at around $3.75 million for a 30-second spot.

While marketers focus on the challenges of automatic ad skipping and diminishing clickthrough rates, there’s a more fundamental question for senior executives: Should you spend your next dollar on making your brand promise by advertising, or keeping your brand promise by ensuring that your products and company deliver what customers want? Some executives have come to realize that the point of a brand, and any advertising supporting it, is not just to generate buzz; instead, brands succeed by shifting customer demand.

Well-managed brands shift demand in two ways: by commanding a higher price, or generating more volume, or some of both. Too high a price will dampen demand and reduce revenues, but the stronger a company’s brand, the farther out it can push this intersection of volume and price in order to maximize revenues and profits.

And that casts advertising in a different light. For a new product or one that’s not yet distinctive in the minds of consumers, advertising can have substantial value. We’ve all heard of Aflac by now from its squawking duck commercials. But the most effective advertising goes beyond awareness to shift demand by giving consumers a clear reason to buy.

Neglecting to provide salience—“here is a clear reason to buy”—is where advertising expenditures often go to waste. For the 2012 Super Bowl, Chrysler spent more than $10 million on a two-minute ad featuring actor and director Clint Eastwood, with the tagline “It’s halftime in America.” Eastwood gave the nation a pep talk about how to survive hard times, yet there was barely a glimpse of Chrysler vehicles. The ad generated only a 15% rise in shopper consideration on the automotive consumer website Edmunds.com during the following week. That was a fraction of the incremental traffic generated by ads from Lexus, Kia, Chevrolet and Fiat.

By contrast, Amazon creates tremendous brand salience, not with advertising but through its “price check” mobile application, which lets users scan the bar code of any product on a store shelf, compare prices with providers featured on Amazon and make a purchase on the Amazon mobile website. The application reminds people that they can always shop Amazon, even in a competitor’s store. Brand-enhancing innovations such as the price check are among the many factors that have contributed to Amazon’s 10% compound annual growth in revenue per active customer since 2003.

For mature brands, advertising often amounts to an expensive arms race. A brand may have high awareness but if it’s not reinforced by a positive experience with the product and the company, then resources will be better spent improving that experience.

In fact, some consumer-oriented companies manage to thrive virtually ad-free. In the clothing retail industry, for instance, Patagonia and Zara spend almost nothing on advertising. They have nonetheless built powerful brands—Patagonia through word of mouth and a commitment to environmental causes, Zara through a powerful in-store experience and lightning-fast production that keeps shelves stocked with the hottest fashions. Both strategies have paid off in strong financial results over many years.

So how do Facebook and other social media fit into this demand-led approach to brand strategy? Social networks are relevant less as advertising vehicles than for their ability to amplify or distort brand messages. On the upside, social media can serve to amplify a brand during moments of truth for the customer. For the past couple of years, JetBlue has used Twitter to address customer concerns in real time, like rebooking flights cancelled due to weather. Here’s how one Tweet expressed the outcome during a blizzard in December 2010: “@JetBlue rebooked my snow-cancelled flight via Twitter in less than 20min. (Phone lines are out.) I LOVE JetBlue so very much!”

For now, though, social media have greater destructive than creative power, as bad news travels faster and further than good news. Interest groups can turn on a company and accuse it of misdeeds—true or false—garnering media coverage, and customers or ex-employees can trash its products on social networks, where the volume of traffic itself can become newsworthy. Even experienced brand managers such as Procter & Gamble and Netflix have learned the hard way how social media firestorms can quickly erode their reputation.

Like millions of other viewers, we’ve enjoyed Super Bowl ads such as the Budweiser bullfrogs and the eTrade baby. But only a demand-led brand strategy will produce the kind of buzz you can take to the bank.

Eric Almquist is a Boston-based partner and head of Global Consumer Insights for Bain & Company. Tamar Dor-Ner is a Boston-based partner in Bain’s Private Equity and Retail practices.