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Measuring Ad Effectiveness Lecture 13 Introduction Advertising: the eighth Wonder of the World. Advertising 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13 Why measure effectiveness? Optimization of current advertising efforts Optimization of future advertising efforts Attain best performance on key variables of interest 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 5/23/2017 Advertising & Public Relations - Lecture 13 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?) 5/23/2017 Advertising & Public Relations - Lecture 13 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. 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Galvanic Skin Response Perspiration Tracking Eye Tracking EEG (Electroencephalographic meaures of Alpha Waves) fMRI and other brain imaging techniques Advertising & Public Relations - Lecture 13 Testing Methods Before Execution (Pre-testing) Consumer Juries Portfolio Tests Theater Tests Readability Tests (Flesch Formula for readability) Rough Art (“Thumbnails”) Tests Comprehension Tests 5/23/2017 Advertising & Public Relations - Lecture 13 Main Pre-test Metrics Recall Recognition Readability Comprehension Preference Change for Brand Rankings 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13 Measurement Method Limitations What are the major limitations of these testing methods? 5/23/2017 Advertising & Public Relations - Lecture 13 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? 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13 Solutions to the “Sales Problem” Use sales measures, but control for confounding variables with Sound experimental (control-test) methodology Analytical techniques Use Surrogate Measures 5/23/2017 Advertising & Public Relations - Lecture 13 Surrogate Measurement Methods Ad Recall Attention Draw Attention Hold Brand Association Main Idea Recall Likeability Relevance Attitude Change Recognition Brand Switch Credibility Attribute Recall Emotional Response Purchase Intention Action/Behavioral 5/23/2017 “What do you remember about this ad?” “Did this ad capture your attention?” “Did this ad hold your attention?” “What brand was advertised in this ad?” “What was this ad about?” “Did you like this ad?” “Did you like the message?” “How important is this ad’s message to you?” “Did this ad change your attitude towards…” “Do you recognize having seen this ad?” “Would you switch brands after seeing this ad?” “Do you believe the ad’s claims about the brand?” “What aspects of the product do you remember from the ad?” “How did the ad make you feel?” “After seeing this ad, how likely are you to buy?” Click-thrus, calls, website visits, etc. Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13 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) 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 New buyers (triers, new customers, etc.) Incremental demand from repeat buyers Must be consistent with analysis timeframe Advertising & Public Relations - Lecture 13 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% 5/23/2017 Advertising & Public Relations - Lecture 13 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”. 5/23/2017 Advertising & Public Relations - Lecture 13 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 5/23/2017 Advertising & Public Relations - Lecture 13