Friday, January 23, 2009

Could Advertising Be Part of the Recovery?

As I've noticed shorter and shorter ad breaks on TV and radio over the last month, I've been wondering if lower advertising revenues are having an effect on jobs in the media sector. In some sense I'm glad to have less interruptions during my media consumption, but media, multimedia, graphic design and advertising are popular career choices in Ireland, and it doesn't appeal to think of employment opportunities in this sector of the economy drying up.

Before Christmas, a story emerged that cuts might be made at Irish televisions stations due to lower advertising revenues. After Christmas we heard that Irish advertising spend was down 30 per cent at end of 2008, and is predicted to fall further in 2009. On the other side of the Atlantic, a pay freeze was announced yesterday at Yahoo.

The question arises - could more jobs in media, multimedia, graphic design and advertising be saved if advertising revenues didn't fall so much? Also, is there a commercial imperative for companies (who are in it for the long haul) to keep advertising during the recession (and thereby stimulate employment in some parts of the economy)?

In other words, could advertising be part of the recovery? We mentioned recently that the Economist journal review points to an interesting article from Knowledge@Wharton: "When the going gets tough, the tough don't skimp on their ad budgets". According to the article:
"Research shows that companies that consistently advertise even during recessions perform better in the long run. A McGraw-Hill Research study looking at 600 companies from 1980 to 1985 found that those businesses which chose to maintain or raise their level of advertising expenditures during the 1981 and 1982 recession had significantly higher sales after the economy recovered. Specifically, companies that advertised aggressively during the recession had sales 256% higher than those that did not continue to advertise."

It may not be as simple as simply pouring money into advertising campaigns though. First of all, if cash is scarce, how can campaigns be financed? Maybe a special bond could be set up by IBEC and/or ISME and issued to the Irish public?

Second, while there is evidence that advertising during a recession is beneficial, the extent (or even the existence) of the benefit may depend on the nature of business being conducted. Some very brief google-searching on the topic brings up the Ad Contrarian Blog (run by the CEO of an ad agency). This post on advertsting during a recession, suggests that there are three types of businesses (in relation to advertising), as follows:

* Businesses for whom advertising is essential.
* Businesses for whom advertising is discretionary.
* Businesses that are somewhere in the middle.

According to the post, businesses for whom advertising is essential tend to be in categories that are consumer-oriented and highly responsive to marketing activity. They include fast food, retail, consumer packaged goods, and automotive. This suggests that Irish companies involved in these types of activities should ensure that they do not cut back on advertising during the recession.

Also, according to this post on the same blog, it is better to focus on changing behavior rather then attitudes. Apparently, it is easier to convince someone to eat a Big Mac than to convince them that a Big Mac is a good thing to eat. Also, it is easier to convince someone to go to Las Vegas than to convince them that going to Las Vegas is a smart thing to do.

The question remains though, how can companies test that particular advertising approaches during a recession will be (more or less) successful? We mentioned before (here) that Google has rolled out a tool designed to show how people browsing the web respond to online advertising (Adplanner - see here).

"By comparing the behaviour of people who are exposed to particular adverts with those who are not, the company hopes to give advertisers feedback about which campaigns are are successful." This may be one of the first instances where advertising has been evaluated in the spirit of randomised controlled trials.

3 comments:

Michael Daly said...

I definitely think you're onto something here Martin. There's no end to the car advertising on U.S. radio at the moment. The reiterated message is "There's never been a better time to buy" with sellers offering "zero down" and low interest loans as well as rebates and trade-in discounts. After hearing these several dozen times I believe the advertising starts to have some effect that would be worth evaluating in the manner you described.

Gerard O'Neill said...

One particular factor in the decline in Irish advertising spend has been the decline in public sector advertising - by far the largest category (when you add up the spend by various departments, quangos - including job advertising etc).

The debate about how advertising works is still raging in my industry (market research) and in the marketing services sector in general.

For a good insight into current thinking on how advertising works start with this excellent paper on '50 years using the wrong model of advertising' (pdf): www.admapmagazine.com/pdfs/0307_article.pdf

Martin Ryan said...

Gerard,

Thanks for recommending that paper - it was a very interesting read. For those who haven't read the paper before, it discusses how he information-processing (IP) model (championed by academics for decades) has failed to capture the reality of what happens in advertising. Insights from psychological research have provided evidence against the "fiction of a rational customer". This should sound familiar to anyone who has been following the development of behavioural economics.

Notably, the authors (Heath and Feldwick) mention a very successful ad for a snack food product (in 1999) that "deliberately contains no information, is nonsensical and surreal, and is meant to work by being entertaining and catchy". This sounds like a good strategy when one considers that a lot of prime-time television viewing is comprised of entertainmnet programming. If individuals get irked when their entertainmnet programming is interrupted, it makes sense to ensure that the interruptions are entertaining. This also relates back to the comment in the original post about not trying to change attitudes (a daunting task), but simply behaviour.

Interestingly, the article mentions a study by Kathryn Braun (JCR, 1999) which found that advertising exposed after trial confounded subjects' ability to judge accurately the quality of orange juice, leading to a substandard product being highly rated. This brings to mind the recent article "How Are Preferences Revealed?" by Beshears, Choi, Laibson and Madrian (NBER, 2008). 'Third party marketing' is one factor which these authors suggest may be a barrier to the revelation of true underlying preferences.

Some take-away points from the article are that:

(i) TV advertising is low involvement (compared to press) based on measurement of eye movement in a study by Corke and Heath (2004)

(ii) Where communicating information is priority, print and internet may provide greater value (perhaps also radio - given the amount of detail that Michael has heard on U.S. radio ads)

(iii) The alternative to the IP model is currently being developed; and it is drawing heavily on psychology and neuroscience