Mega-Brands and ROI

Carla Sarett, Ph.D.

Nowadays, there's a lot of talk about measuring ROI on advertising.  Surely, it is argued, one should have an idea of what gets in return for the billions spent on advertising burgers and sneakers – and in a metrics-crazed world, it seems a no-brainer that companies would have standardized ways of measuring what they get for this.  Advertising is, after all, a multi-billion dollar investment which surely has some "return" on spending. 

With direct marketers, the return on campaigns is carefully monitored—and small businesses tally the customers or contacts they receive as a result of ad campaigns.   But when it comes to mega-brands, the picture is different.  After all, shareholders do not accuse management of "over-spending" on advertising and marketing.  In fact, executives are supposed to cut other costs (e.g., production, labor, etc.) so they can invest even more in marketing and advertising.  Advertising is seen an investment, while labor is seen as a pure cost.  Bottom line: no one dumps on executives for over-spending on advertising, so they’re not staying up nights worrying about its return. 
 
This is not to say that accountability is not an issue for ad spending.  Companies have been industriously measuring advertising effects (as opposed to return on investment) for over fifty years—and it's instructive to consider these efforts in light of current ROI debates.  Much advertising research is aimed at proving that ads build awareness and contribute to something known as brand image – when your awareness increases and people think better things about your brand and talk more about it, you have "moved the needle."  

But, when we consider mega-brands, that claim is relatively weak.  TV ad campaigns are terrific at boosting brand awareness, but big brands are already well-known.  Everyone knows Coke and Pepsi and Wal-mart and Microsoft.  That's why they are mega-brands.  So, that potential effect is mostly gone.  All that's left to measure there is awareness of and exposure to the campaign itself.

Moving on, then, an ad campaign should be able to shift brand perceptions – and again, one should be able to measure the impact of the campaign.  But, in order to shift perceptions, ad content matters as much as the size (i.e., amount spent) of the ad campaign.  A bad campaign may stick in your mind, but it won't change your mind even if it's repeated everywhere.  In any event, it's tough to change people's minds about products, services or issues. So, figuring out how much you ought to spend to do that isn’t an easy task either.

The truth is:  a big brand is going to spend on advertising, anyway—so it's not really an extra cost.  

No mega-brand simply "stops" advertising once they have started.  Of course, some big brands built themselves without campaigns—e-Bay comes to mind.  But once a brand gets "hooked" on advertising, especially TV advertising, they almost never consider reducing spending just because sales remain flat after a campaign.  Rather, they create new campaigns or dump their ad agency.  

This sounds irrational, but it's not: companies know they are in the business of creating and maintaining brands – and having a media presence is part of that exercise. Spending to build brands isn't wasteful; building brands is part of "being in business."

And advertising isn't an extra frill in the core business of branding.  Sure, you can shift spending from one platform to another – say, focus more on web than on TV and so forth—as American Express did with Seinfeld web-spots.  But, even this much publicized shift is deceptive:  let's face it, it's hard to imagine American Express having built this campaign without a "branded" TV celebrity.   

Truth it, there's only so much shifting you're going to do if you're a big brand and want to stay that way.  Sure, if you're a niche player-- say an organic foods company-- you can forgo TV advertising; you might argue that you need to forgo TV in order to maintain niche status in the market.  But if you're a mega-brand, you need to display your "mega-brand-ness" by being on TV (just as you might need to display your "cool-ness" by advertising online.)   Major fashion brands "must" advertise in Vogue, a major consumer brand "must" advertise on TV.   If Cheerios didn't advertise on TV, it would just be another tasty cereal – and not a "brand" that competes on its all-American image.

And after you accept that logic, it's easy to understand why companies continue to "over-spend" on network TV.  It's a cliché that advertisers spend far more than they "need to" by allocating dollars to broadcast networks over cable.  Anyone with a calculator can figure out that smaller targeted buys from cable networks achieve the same reach and frequency at a lower cost than the big network shows earn. 

But then, where’s the "mega"? 

The reality is that mega-brands (for better or worse) need big media brands as advertising partners. That's why, the lion's share of advertising dollars looks for big shows, big events.  That's why the Super Bowl still matters.  On the "hard-headed" level, it sounds irrational – but on the "brand-building" level, it makes a good deal of sense.

That's where ROI advertising models implode.  How much should a company spend to build its brand equity?  Surely that depends in part on the kind of brand you're starting with – and what you need to accomplish.  Is it ever too expensive to build a lasting powerful brand that allows you to launch new products, fend off competitors? 

The only time when companies over-spend is when there's little else (aside from advertising) to support the effort.  If you have a rotten product or bad service, you should spend money fixing those problems – but if you have a great product and great service, why not spend as much as you possibly can to build the brand? 

Which brings us back to what ought to be measured as the "return" on advertising of mega-brands.    Market leaders have a position to maintain among consumers, a position that is maintained, in part, by advertising to consumers that they matter and they are connected to consumers' lives.  This form of advertising is a large challenging task, but difficult to measure by  purely quantitative "ROI" type models: estimating the cost of not reinforcing those key perceptions is even tougher.  We quickly realize that the "return" part of the equation is a moving target for any brand with substantial market position.

Despite all of the calls for new ROI advertising models, companies will continue to go with their instinct that they need to be where consumers are – and they will continue to favor big audiences over targeting (despite lip service to the contrary.)    The return on this investment:  maintaining mega-brand status.