Does Advertising Work? The good, the bad, and the ugly of marketing

Thinking about all the money spent on ads, I was wondering if there's any hard evidence on how effective advertisements are in this day and age. Everyone I know hates advertisements, and I can't remember the last time I bought something because advertisements told me to. —Mark

This question has tormented business moguls since the dawn of commerce. The following formulation will be of no comfort to them, but it’s indisputably true:

  1. Advertising is a complete waste of time and resources.
  2. Except when it works.

The conventional defense of advertising, as expressed by marketing consultant Nigel Hollis in a 2011 Atlantic piece, “Why Good Advertising Works (Even When You Think It Doesn't),” boils down to this: (a) U.S. businesses wouldn’t spend $70 billion annually on TV advertising alone if this stuff didn’t accomplish something, and (b) we can all think of memorable ads and ad campaigns, ranging from the primordial "Cal-l-l for-r-r Phil-lip Mor-ray-issss" TV commercials of the 1950s to the determinedly oddball Old Spice spots of recent years.

What Hollis’s cheery analysis overlooks is the vast dunghill of advertising that didn’t work, or more precisely didn’t do any better than competing advertising. Had the companies that paid for this dreck quietly agreed to keep their money in the till, they’d have maintained market share at no cost to their bottom lines.

The problem, clear to any business exec who’s ever had to allocate an ad budget, is that while it’s reasonably easy to demonstrate that advertising in general works, and that some past campaigns have succeeded, the chances of the campaign you’re now contemplating doing you any good are a complete crapshoot.

This problem hasn’t gotten any less vexing in the age of the Internet, but it’s changed in a fundamental way. Years ago there was considerable truth to the remark commonly attributed to Philadelphia department store magnate John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” In the days when print media dominated, and to a considerable extent after the rise of broadcasting, advertising meant a leap of faith. You spent X amount on advertising and sold Y amount of product, but who knew how much X had to do with Y?

With online advertising, in contrast, it’s all too apparent. People click on your ad or they don’t. Sure, not everybody who clicks buys, and not everybody who doesn’t click doesn’t buy, but the click-through rate gives a rough idea of whether anybody’s paying attention—and mostly nowadays they’re not. Once upon a time a good click-through rate for a banner ad was 5 percent or better; now it’s more like 0.2 to 0.3 percent.

Partly for that reason, even though online advertising is obviously where the world is headed, print despite its steep decline remains the financial mainstay of many old-line publishing companies. Sure, advertisers may suspect that traditional advertising, print ads especially, don’t accomplish much. But the flat-line metrics of many online campaigns remove all doubt.

The evolving challenge of Internet advertising is a column for another day. First, the larger question: While most advertising doesn’t do jack, some succeeds brilliantly. What’s the diff?

For a glimpse of the answer, let’s turn to a remarkable advertising success story—Geico auto insurance. Consider:

  • Insurance is, beyond a doubt, the most boring subject on earth—and Geico, in its early days, was perhaps the world’s most boring insurance company. (Its name stands for “Government Employees Insurance Company,” somebody’s idea of a marketing ploy—the firm has always been a privately owned, for-profit enterprise). Lesson: successful advertising doesn’t require an exciting product.
  • Although the Geico gecko has become iconic, using an animated spokescritter is hardly a groundbreaking notion (remember Tony the Tiger, anyone?). Geico’s slogan, if you can call it that (“Fifteen minutes could save you 15 percent or more on car insurance”) doesn’t rank with “Just do it” for memorability. Lesson number two: you need good but not necessarily genius creative.
  • What put Geico over the top—and this is the most important lesson of all—was its willingness to invest big once it had stumbled on a formula that worked. Geico management turned to animation because of an actors’ strike, and realized it had a winner only when the first gecko ads were followed by a bump in sales.

But opportunity didn’t need to knock twice. Largely at the prodding of the guy who runs its parent company, Warren Buffett, Geico spends more than a billion dollars annually promoting itself in a broad array of media. Geico commercials have been inescapable for going on 20 years.

Has it paid off? Two data points. First, Geico was the number-nine auto insurer before it began its marketing blitz; now it’s number two. Second, when I was in the market for car insurance recently—and I like to think I’m as impervious to advertising as the next guy—I said to Mrs. Adams: we should check out Geico.

In the end we bought elsewhere. But I know why that guy in Omaha always has a little smile. —Cecil Adams

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