How Advertising works:
The simplest And best explanation WE’ve ever seen.

Advertising is currently going through an existential crisis. Until recently, the ad industry was very effective at helping companies:

• Differentiate themselves from rivals

• Earn attention

• Be remembered

• Command higher prices

• Sell more

But that’s changed over the last decade. Instead of becoming better and more effective, advertising has actually become less effective. 50% less effective, in fact. While short-term, targeted, direct marketing (performance marketing) has made advertising more efficient, it’s also made it less potent.

Despite the cataclysmic drop in effectiveness, marketers are projected to pump even more money into short-term, online, performance marketing. Crazy, right? Yep, but not unexpected.
From my experience working with Fortune 500 international brands all the way down to regional and local businesses, there’s a simple explanation. Most people in marketing – on the client and agency side - do not really understand how advertising works and a recent study by Ebiquity proves it. When it comes to recommending what’s most effective, most ad agency “experts” get it backasswords in regards to media channels and tactics. That’s why I’m delighted to share with you Les Binet’s definition of how advertising works. Les is the Group Head of Effectiveness at Adam&Eve/DDB, voted “Agency Of The Decade” by Campaign. It’s the most elegantly simple – yet complete – explanation I’ve ever seen.

Here’s how each line of Mr. Binet’s explanation breaks down according to the evidence.

Advertising increases/maintains sales & margins
While no investment is without risk, advertising is a pretty solid bet. In an analysis of their case study database, The World Advertising Research Center (WARC) found that advertising delivers a median profit ROI of 2.06:1. (WARC’s case study database consists of both long and short-term ad campaigns.) Ebiquity and Gain Theory analyzed over 2,000 ad campaigns across 11 categories. In Profit Ability: The Business Case for Advertising, they found that on average, long-term* ad campaigns (campaigns running 6 months – 3 years):

• Deliver an ROI of 3.24:1

• Have a 72% chance of generating profit

*On the other hand, short-term advertising (campaigns running 3 – 6 months), return £1.51 for every pound spent and has a 58% chance of generating profit.

“The key to reducing price sensitivity is brand building. The stronger the brand the more power you have to increase price. This cannot be achieved through short-term activation. In fact, price-based activation often increases price sensitivity…  It is very hard to reduce price sensitivity by rational persuasion. In fact, there are still almost no successful examples of this in the IPA Databank. If you want to make people less price sensitive, you need to engage them emotionally; people are willing to pay more for the brands they love.”
- Les Binet & Peter Field, Effectiveness In Context: A Manual For Brand Building

By slightly increasing chance that people will choose your brand
Advertising is a weak force. It produces a small stimulus to buy in large numbers of people. It can only make brands more noticeable, memorable, appealing and distinctive.

Advertising might make someone choose Brand A over Brand B but rarely makes anyone buy something they don’t want or need in the first place.

By making the brand easy to think of and easy to buy
The primary job of all advertising is to get your brand noticed. The main way brands grow is by expanding their customer base. Without advertising, it’s almost impossible for most brands to gain the awareness they need to do so.

Really good advertising takes things a bit further by making your brand memorable. Online and offline direct marketing make it easy to buy.

And creating positive feelings & associations
Many studies have unequivocally proven that distinctive, engaging and emotional advertising deliver increased effectiveness. It’s a fact humans are hard-wired to seek out the novel, surprising and unexpected. If your ads are familiar, predictable and expected they will be ignored. Just being different isn’t enough. Make sure you have valid insights from qualitative and quantitative research that ID your customers’ true wants and needs. Then execute your message in a completely unexpected way that ties your brand directly to those wants and needs.

Oh, and one more thing. Make people feel something when they see your ads. Research shows humor is a great way to simultaneously grab attention and be more memorable.

Via broad reach ads that people find interesting & enjoyable And targeted activation that they find relevant & useful
Offline (traditional, long-term mass market) advertising is best at generating demand. Online (digital, short-term, performance marketing) is best at fulfilling it. You need both to maximize growth. This is as close as we’ve ever come to a Unified Theory of Advertising. According to the Advertising Research Foundation, the optimal media mix for maximizing advertising effectiveness for most businesses is 78% traditional and 22% online. For targeting Millennials the ratio is only slightly different with 71% traditional and 29% online. 

In Effectiveness In Context, Les Binet and Peter Field present evidence that all brands need brand building and sales activation to maximize growth. Most companies should invest a minimum of 60% of their ad budgets into long-term, mass market, brand building campaigns and no more than 40% into direct, short-term sales activation tactics. However, the average business puts 72% of its advertising in online media – almost the direct opposite of what they should be doing. For companies that sell directly to customers/consumers through their own or third-party e-commerce sites, the above ratios should be even more skewed towards offline, mass media like TV, radio, outdoor, print, etc.

So there you have it. While there’s nothing simple about creating effective advertising, how ads actually work isn’t very complicated at all. Remember that the next time someone tries to sell you on the opposite. In the meantime if you’re interested in finding out how to make your advertising more effective READ “The Biggest Opportunity In Marketing Since Al Gore Invented The Internet”.