IPA study reveals where ad investment should really go

New research examining the business effects of a thousand advertising campaigns from over thirty years of IPA Effectiveness data, due to be published early next year, will challenge the recent trend in advertising to focus on building loyal relationships with customers.

Providing evidence-based recommendations for businesses on how best to approach investment in advertising, the findings from the IPA report, ‘Advertising effectiveness: the long and short of it’, concludes that stirring consumers’ emotions as well as providing highly creative advertising will always bring in the highest profits.

Other key findings and recommendations include:

• Advertisers need to ensure their campaigns strike the right balance between long-term investment in brand-building using mass media, and short-term, direct methods that stimulate sales. Campaigns that use both in harmony are more effective, more efficient and more profitable.
• Long-term (3+ years) investment in advertising delivers double the profit of a short-term approach (less than 1 year), but investing in both delivers even higher returns
• The largest part of an advertising budget should be invested in media with a mass reach and long-term effects, such as TV. At least 60% should be invested in these brand-building media with the remainder spent on shorter-term activation channels to provide a response mechanism to capitalise on the effects of the brand-building activity.

The report warns that although price promotions can maximise customer response rates and stimulate short-term sales, they can also increase price sensitivity and erode long term profits.

“Reaching a mass audience is most effective”

• Tight audience targeting, whilst desirable for activation, does not help long-term success. Campaigns which reach a mass audience of existing and new customers are more efficient.
• Brands which target the whole market achieve 3 times as many large business effects than those that focus on existing customers (effects include increased profit, sales, or market share, and a reduction in price sensitivity).
• Attempting to build deep, loyal relationships with existing customers is less effective than investing in advertising that reaches as wide an audience as possible. Ad campaigns which target new customers report 60% more large sales effects in the first six months alone.
  Because of its relationship with reach, share of voice remains very important, especially over the longer term.

“TV advertising is crucial to long-term profit”

• None of the 1,000 ad campaigns included in the study achieved substantial long-term profit growth without investing in TV advertising and TV advertising remains the most effective way to build a brand and creates larger business effects than other forms of advertising.

• TV advertising is also becoming more effective due to growing synergies with online and increased competition reducing the cost of reaching mass audiences with TV. The report suggests that including TV advertising in a campaign increases the campaign’s efficiency six-fold.

“Creative advertising and scale are crucial”

• Stirring the audience’s emotions with advertising is more effective than using rational messages over all but the shortest of terms. Emotional advertising is twice as efficient as rational, and delivers twice the profit.
• Highly creative advertising is the most effective of all, but even the best creative work will fail if it does not have sufficient scale and is not evaluated over the longer term.

The report was researched and written for the IPA, in association with Thinkbox, by Les Binet, Head of Effectiveness at adam&eve DDB, and Marketing Consultant Peter Field, and is an update on their influential earlier work, ‘Marketing in the era of accountability’, which was published in 2007.

The new report examined the different effects of advertising on business performance across a range of outcomes including profit, sales and price sensitivity, examining 30 years of IPA Effectiveness data, incorporating nearly 1,000 advertising case studies of over 700 brands in 83 different categories.

“These findings contradict some fashionable thinking in modern advertising, where increasing emphasis is placed on nurturing a one-to-one connection with customers,” say the authors. “The truth is that the vast majority of people have better things to do with their lives than to form deep and meaningful relationships with brands.

“Advertisers should not chase loyalty from customers but should speak to as broad an audience as possible and do so over the long term. Obsessing solely about short-term sales is self-defeating; brands must be in it for the long term as that is where the greater success lies. TV is particularly effective for long-term success.”