The sleight of hand and illusionists tricked out
Mathematical formulas can be used to measure the half-life of advertising—though experts also warn of the danger of an illusion of accuracy
Mathematical formulas can be used to measure the half-life of advertising - but experts also warn of the danger of an accuracy illusionBy Wolfgang Koschnick Today, accountability in advertising is a generally accepted value - like kindness and charity. Everyone is in favor of it. But when it comes down to it, everyone can think of a thousand reasons why this is just not possible in this particular case...
Accountability is not a self-contained concept that you just have to follow to get any advertising campaign calculated. Rather, it's a general appeal: "People, make every step you take in advertising as predictable as possible. Then relatively little can happen."
A detailed formulation of corporate goals is indispensable. This in turn results in the brand and marketing objectives. From these, the goals of market communication. And this is where all accountability efforts come in. There are six groups of corporate goals that market communication should support:
- Sales, revenue or market share gains;- The size and nature of the market response;
- increased value added or higher price so that other activities perform better;
- Employee attitude, performance and motivation;
- broader distribution;
- Introduction of a new product, trial purchases, repurchase rate.
The debate on accountability in advertising (see also WW 18/00) was shaped in Great Britain by marketing consultant Simon Broadbent. It is probably characteristic of his ideas about accountability in advertising that he has not had a career as a market research and advertising consultant.
For the consistent use of as much data as possible
Broadbent is an engineer and PhD in mathematical statistics. He is the founder of the UK Advertising Effectiveness Award and has worked for Leo Burnett for over 30 years. His interest has always focused on the rational use of advertising money. He has written three important books: "Spending Advertising Money," "The Advertising Budget," and finally "Accountable Advertising," the German translation of which, subtitled "Wie sich Werbung rechnet," was published by Econ in 1999 (see box p. 23).
Broadbent's book - and thus his concept for accountability - advocates the consistent use of as much data as possible. Thus, at the beginning of all accountability is a brand audit. This is a systematic and comprehensive review of the entire brand and marketing system of a business enterprise, carried out periodically as part of marketing control. It aims to uncover problem areas and opportunities for development, as well as corrective actions to improve brand performance. There are four main reasons for this:
- One must review the strengths and weaknesses of a brand and formulate the brand essence as a general guideline for management.
- One can determine brand equity, for example, to accurately assess the return on investment of the marketing function.
- One can determine the position of a brand in a product group in a market analysis based on available data.
- You can use the brand as a tool to improve strategies, defense and acquisition by attributing a financial value to it.
The marketing budget can then be calculated on this basis. The difference between sales and variable costs results in the contribution margin I: sales minus variable costs equals contribution margin I.
The higher the marketing costs, the lower the profit
Subtracting the fixed marketing budget from contribution margin I yields contribution margin II: contribution margin I minus marketing budget equals contribution margin II. Then the fixed costs are subtracted to determine the profit: Profit equals contribution margin II minus fixed costs. This calculation also works the other way around: If the fixed costs and other costs are deducted from contribution margin I, the remainder is available for market communication and for profit; because the budget can also be expressed in this way:
- Contribution margin I equal to sales minus variable costs or - Contribution margin I equal to fixed costs plus communication plus profit or
- Sales equal variable costs plus fixed costs plus communication plus profit.
So after that, marketing communication is nothing more than another cost factor. The more one spends on it, the lower the profit. The pursuit of accountability therefore means nothing other than the desire to reduce the costs of marketing communications in order to increase profits.
For this reason, too, it is advisable to calculate the break-even elasticity for both price and communication (advertising). The two break-even elasticities indicate how easy or difficult it is to justify increasing advertising expenditure or prices. Three different methods are now available for assessing the impact of communication measures:
- Simple comparisons through which to examine what would have happened if there had been no communication at all.
- Mathematical models that take into account other factors that may have influenced the outcome. Their impact is assessed as well as what was achieved via communication.
- Tests: Alternative measures are tested.
Simon Broadbent developed a mathematical model of advertising impact that is identified in the Anglo-Saxon world with practically all ideas about accountability in advertising, the so-called adstock model. It dates from 1979, and when Broadbent developed it, there was no talk of accountability - at least not in the advertising industry. The term is an abbreviation for advertising stock and refers to the "current advertising stock". It is the basic and initial term of an econometric advertising impact model and summarizes the totality of past and present advertising impacts.
Half-life of advertising comparable with radioactivity
Adstock is the accumulation of all past and present advertising effects and thus represents the total advertising pressure at a given point in time (usually expressed in GRPs). It is a common measure in econometric advertising research, which also takes into account the decline in advertising impact (advertising wearout or advertising decay rate).
It is based on the insight that advertising is not only effective at the time it is seen. Broadbent assumes that the effect of advertising constantly diminishes over time. Thus, as with radioactive decay, the half-life of advertising is geometric. For each step of the analysis, Broadbent's book offers a wealth of formulas that can be used to calculate advertising impact.
Accountability remains a budgeting approach in spite of everything
The question is permissible, whether a multitude of formulas already makes the very individual case of each concrete advertising campaign really calculable? One should never forget: Accountability in Advertising is first and foremost a budgeting approach. It does not primarily aim at making the entire process of advertising impact thoroughly calculable. It merely aims to formulate criteria for controlling budgets.
Once it is possible to assess which of the possible explanatory factors of advertising impact actually exert an influence, it can be assumed that buyer habits the known effects of previous advertising and the product itself are the most important determinants of brand equity. This can be measured as brand equity. However, it is only when price, promotion and distribution costs are also taken into account that the short-term effects of advertising become clearly apparent.
The next step is to fit a numerical model that corresponds to the mental model. The aim is to find a plausible explanation that satisfactorily demonstrates the extent of effects. Ideally, if there are several possible explanations, all but one can be ruled out. The internal data from cost and activity accounting are integrated into the market model.
Advertising is the "price of admission" for business activities
The decisive revenues and costs are related to the variables of the model, so that the profitability of the respective activities can be estimated. Thus, it is possible to show whether the original objectives have been achieved and what costs have been incurred.
Often enough, this should also show that advertising is simply part of the "entrance fee" for business activities and only "pays off" in this way. In any case, marketing activities are made calculable in this way in the sense of the accountability of advertising.
Warning of a
Accuracy illusion
Broadbent's accountability model represents a noteworthy attempt to get a full handle on the "multizeptive causal felt of advertising impact" - as German market research consultant Peter Beike ironically calls the model - with a set of generally applicable rules of thumb. Insofar as it amounts to a plea to use accurate numbers and data, it is certainly welcome.
Therefore, there seems to be a great danger of creating illusions of accuracy with a multitude of formulas and number tricks, which can almost never be redeemed in reality.
While practical media research initially only provides mediatechnical figures on the contact opportunities of the advertising media, it is the impact opportunities of the advertising media that are the prerequisites for the highest possible returns.
Media weighting can also be dangerous
As long as each individual task in media planning differs from the other and requires an individual solution, the dictum of the Austrian media old-timer Franz Alexander Späth applies: "Accountability is a high, understandable goal of media planning - and in exceptional cases, it may even be achievable. Generalizing media weightings, however, is not only an ineffective therapy, but also dangerous: because it can lead in the wrong direction with the deceptive hope of security."
Accountability is not a self-contained concept that you just have to follow to get any advertising campaign calculated. Rather, it's a general appeal: "People, make every step you take in advertising as predictable as possible. Then relatively little can happen."
A detailed formulation of corporate goals is indispensable. This in turn results in the brand and marketing objectives. From these, the goals of market communication. And this is where all accountability efforts come in. There are six groups of corporate goals that market communication should support:
- Sales, revenue or market share gains;- The size and nature of the market response;
- increased value added or higher price so that other activities perform better;
- Employee attitude, performance and motivation;
- broader distribution;
- Introduction of a new product, trial purchases, repurchase rate.
The debate on accountability in advertising (see also WW 18/00) was shaped in Great Britain by marketing consultant Simon Broadbent. It is probably characteristic of his ideas about accountability in advertising that he has not had a career as a market research and advertising consultant.
For the consistent use of as much data as possible
Broadbent is an engineer and PhD in mathematical statistics. He is the founder of the UK Advertising Effectiveness Award and has worked for Leo Burnett for over 30 years. His interest has always focused on the rational use of advertising money. He has written three important books: "Spending Advertising Money," "The Advertising Budget," and finally "Accountable Advertising," the German translation of which, subtitled "Wie sich Werbung rechnet," was published by Econ in 1999 (see box p. 23).
Broadbent's book - and thus his concept for accountability - advocates the consistent use of as much data as possible. Thus, at the beginning of all accountability is a brand audit. This is a systematic and comprehensive review of the entire brand and marketing system of a business enterprise, carried out periodically as part of marketing control. It aims to uncover problem areas and opportunities for development, as well as corrective actions to improve brand performance. There are four main reasons for this:
- One must review the strengths and weaknesses of a brand and formulate the brand essence as a general guideline for management.
- One can determine brand equity, for example, to accurately assess the return on investment of the marketing function.
- One can determine the position of a brand in a product group in a market analysis based on available data.
- You can use the brand as a tool to improve strategies, defense and acquisition by attributing a financial value to it.
The marketing budget can then be calculated on this basis. The difference between sales and variable costs results in the contribution margin I: sales minus variable costs equals contribution margin I.
The higher the marketing costs, the lower the profit
Subtracting the fixed marketing budget from contribution margin I yields contribution margin II: contribution margin I minus marketing budget equals contribution margin II. Then the fixed costs are subtracted to determine the profit: Profit equals contribution margin II minus fixed costs. This calculation also works the other way around: If the fixed costs and other costs are deducted from contribution margin I, the remainder is available for market communication and for profit; because the budget can also be expressed in this way:
- Contribution margin I equal to sales minus variable costs or - Contribution margin I equal to fixed costs plus communication plus profit or
- Sales equal variable costs plus fixed costs plus communication plus profit.
So after that, marketing communication is nothing more than another cost factor. The more one spends on it, the lower the profit. The pursuit of accountability therefore means nothing other than the desire to reduce the costs of marketing communications in order to increase profits.
For this reason, too, it is advisable to calculate the break-even elasticity for both price and communication (advertising). The two break-even elasticities indicate how easy or difficult it is to justify increasing advertising expenditure or prices. Three different methods are now available for assessing the impact of communication measures:
- Simple comparisons through which to examine what would have happened if there had been no communication at all.
- Mathematical models that take into account other factors that may have influenced the outcome. Their impact is assessed as well as what was achieved via communication.
- Tests: Alternative measures are tested.
Simon Broadbent developed a mathematical model of advertising impact that is identified in the Anglo-Saxon world with practically all ideas about accountability in advertising, the so-called adstock model. It dates from 1979, and when Broadbent developed it, there was no talk of accountability - at least not in the advertising industry. The term is an abbreviation for advertising stock and refers to the "current advertising stock". It is the basic and initial term of an econometric advertising impact model and summarizes the totality of past and present advertising impacts.
Half-life of advertising comparable with radioactivity
Adstock is the accumulation of all past and present advertising effects and thus represents the total advertising pressure at a given point in time (usually expressed in GRPs). It is a common measure in econometric advertising research, which also takes into account the decline in advertising impact (advertising wearout or advertising decay rate).
It is based on the insight that advertising is not only effective at the time it is seen. Broadbent assumes that the effect of advertising constantly diminishes over time. Thus, as with radioactive decay, the half-life of advertising is geometric. For each step of the analysis, Broadbent's book offers a wealth of formulas that can be used to calculate advertising impact.
Accountability remains a budgeting approach in spite of everything
The question is permissible, whether a multitude of formulas already makes the very individual case of each concrete advertising campaign really calculable? One should never forget: Accountability in Advertising is first and foremost a budgeting approach. It does not primarily aim at making the entire process of advertising impact thoroughly calculable. It merely aims to formulate criteria for controlling budgets.
Once it is possible to assess which of the possible explanatory factors of advertising impact actually exert an influence, it can be assumed that buyer habits the known effects of previous advertising and the product itself are the most important determinants of brand equity. This can be measured as brand equity. However, it is only when price, promotion and distribution costs are also taken into account that the short-term effects of advertising become clearly apparent.
The next step is to fit a numerical model that corresponds to the mental model. The aim is to find a plausible explanation that satisfactorily demonstrates the extent of effects. Ideally, if there are several possible explanations, all but one can be ruled out. The internal data from cost and activity accounting are integrated into the market model.
Advertising is the "price of admission" for business activities
The decisive revenues and costs are related to the variables of the model, so that the profitability of the respective activities can be estimated. Thus, it is possible to show whether the original objectives have been achieved and what costs have been incurred.
Often enough, this should also show that advertising is simply part of the "entrance fee" for business activities and only "pays off" in this way. In any case, marketing activities are made calculable in this way in the sense of the accountability of advertising.
Warning of a
Accuracy illusion
Broadbent's accountability model represents a noteworthy attempt to get a full handle on the "multizeptive causal felt of advertising impact" - as German market research consultant Peter Beike ironically calls the model - with a set of generally applicable rules of thumb. Insofar as it amounts to a plea to use accurate numbers and data, it is certainly welcome.
Therefore, there seems to be a great danger of creating illusions of accuracy with a multitude of formulas and number tricks, which can almost never be redeemed in reality.
While practical media research initially only provides mediatechnical figures on the contact opportunities of the advertising media, it is the impact opportunities of the advertising media that are the prerequisites for the highest possible returns.
Media weighting can also be dangerous
As long as each individual task in media planning differs from the other and requires an individual solution, the dictum of the Austrian media old-timer Franz Alexander Späth applies: "Accountability is a high, understandable goal of media planning - and in exceptional cases, it may even be achievable. Generalizing media weightings, however, is not only an ineffective therapy, but also dangerous: because it can lead in the wrong direction with the deceptive hope of security."
