Academic versus reality – a tale of 2 studies (Part II)
Earlier, we looked at the widely criticized Chicago study featured on Freakonomics, which delivered two main messages: Advertising was often measured inaccurately, and about half of the CPG brands we analyzed didn’t seem to achieve a positive ROI. for their television advertising investment.
Another recent study that has gone viral online is the work titled “When Brands Go Dark” by the Australian Ehrenberg-Bass Institute (EBI). The authors collected a sample of 57 cases of alcoholic beverage brands that turned off advertising and whose sales declined in the years that followed. This was nicely illustrated in the following graphic:
What happened in Adland? The above graphic has been shared widely online, often earning hundreds of likes on LinkedIn posts. It has been interpreted and celebrated as the ultimate proof that brands without advertising are doomed.
Sadly, the devil is in the details again and we have to be careful what conclusions we can draw from them. We can see that there are brands that have not advertised and that these brands – on average – have had declining sales. But ask yourself: what kind of brands stop advertising 1-9 years after advertising before? The majority would have had strategic reasons, in particular brands considered old-fashioned or not showing sufficient potential for success. So there is a (troubled?) Brand that a company has doubts about and they cut advertising to cut losses. In other words, we don’t know what other factors – a bad product, a bad distribution, the actions of competitors, headwinds in the industry, etc. – contributed to the drop in sales. All we see is that advertising has been turned off and sales have declined in the years since. The EBI team points this out in the published academic article and cautions that this is not a causal analysis. It is something that many are happy to overlook. Confirmation bias strikes again.
While the sample may represent a selection of many struggling brands and unique context-specific cases, we must keep in mind that no search is perfect. The EBI research team has done a fantastic job finding cases where we don’t need complex modeling to understand how advertising and sales can be linked. This is a great example of the information you can get by turning channels on and off.
In addition, some of the other analyzes presented by the EBI study seem even more stimulating than the first one above. For example, looking at small, medium and large brands, we find quite different patterns shown in the graphic below:
If we assume that the graph shows a causal relationship, then this analysis suggests that large and mid-sized brands can suspend advertising for 2-3 years without losing a lot of sales (on average). Therefore, while some experts have claimed that the EBI study is proof that Coca-Cola and other brands should not have reduced advertising during the pandemic, the graph above suggests that longer advertising breaks will not harm brands other than the smaller ones.
This finding does not seem specific to CPG brands. When Brad Shapiro (one of the authors of the Chicago study) analyzed what happened after leading health insurance provider UnitedHealthcare stopped advertising for more than 2 years in the US United, he identified only a small and negligible decrease in market share.
The importance of brand size also appears in another analysis of the EBI study (see Figure 3). While the medium to large brands that showed an upward trajectory before stopping advertising continued to grow for two years, the previously growing small brands appear to quickly lose their hard-earned sales once they stop advertising.
What could explain these findings? We can compare the role of advertising to driving a car, advertising can be thought of as an “accelerator” (the accelerator pedal) and our spending is on the gasoline we need to get started. If you are stationary (= small mark) you need a lot of gas and acceleration to start moving and picking up speed. However, once you have some momentum (= big mark), you can take your foot off the gas pedal and continue to ride at roughly the same speed for a while. Of course, you still have to accelerate from time to time so as not to lose all of your momentum. But the way we drive matters a lot for fuel consumption. Some drivers travel the same distance on less gas.
And here we can see that the two studies reviewed – the Chicago one and the EBI one – may not be too different after all, perhaps even telling a similar story in different ways. Advertising typically affects both short and long term sales, but the key question every organization needs to answer is: How much should we spend in each lifecycle of a brand to avoid wasting fuel?
No easy answers are available here and every brand is well advised to test this out for themselves, ideally being brave enough to opt out of the ad in an experimental setting and then see what happens.
Nico Neumann is an assistant professor and researcher at the Center for Business Analytics at the Melbourne Business School.