Does advertising work?

One of the most discussed questions in all of business, especially in marketing, is whether advertising works. Companies in the U.S. spend over $250 billion a year trying to persuade consumers to buy their products and services. There is an adage that says half the money spent on advertising is wasted; the trouble is no one knows which half. Conventional wisdom says that advertising must work or companies would not spend all that money on creating and buying advertising. One of the ironies of advertising is that ads consumers find entertaining do not always sell products. Advertising history is replete with examples of advertising that won awards for creativity but the agencies that created them were fired for not increasing sales. Good ads need to accomplish two goals that are not always compatible. First, they need to be entertaining enough to cut through the clutter of all the competing advertising. Second, they must provide enough information to convince consumers to buy their product. This is a difficult balance to achieve. Recent academic studies suggest that product advertising may not be as effective in generating sales as businesses expect. It is difficult to measure the effectiveness of advertising because there are so many different types of ads and different variables that can affect sales. Companies are not keen on providing information about their advertising and sales results to academic studies. Researchers at the University of Chicago and Northwestern University measured the effect of television advertising on sales for 280 of the top 500 consumer packaged-goods brands, such as Coca-Cola, Folgers and Bud Light. The results were not very encouraging. Doubling the amount spent on advertising resulted in an increase of only a 1% increase in sales on average. The study also suggests that companies are not earning the return on investment they hoped for when buying ads. The researchers stated, "We find that almost all brands seem to be over-advertising, and that they are earning a negative R.O.I. (return on investment) from advertising in an average week." Digital is a growing medium for advertising. Web sites, social media and blogs all present additional opportunities for organizations to promote products. Studies of advertising results for online are mixed and difficult to track. Larry Schmidbauer, owner of Professional Hearing Care in Tiffin said he uses advertising to educate his patients. "I want the person seeing my ad to realize again, or maybe for the first time, that hearing is vital and should be prioritized in their approach to their own health care." It is even more difficult to measure the effectiveness of local advertising because each local market is different and has different media available to it. Newspapers, radio and outdoor advertising such as billboards are the media most used by local retailers. Perry Haan is Professor of Marketing and Entrepreneurship at Tiffin University. He can be contacted at haanpc@tiffin.edu.