Ads are a gambler’s investment

Despite vehement denials, advertising is all too often regarded as a bit of a flutter and not as an investment. But then again, every investment a company makes is a bit of a gamble. To clarify the situation, ad campaigns must be regarded in t

Speaking at last week’s IPA “It pays to advertise” conference, Brian Carlisle, managing director of Kraft Jacobs Suchard, made the following intriguing suggestion: think of your brand as a racehorse. “Advertising,” he said, “bears many of the same features of investing in racehorses. Like horse racing, advertising is capable of stimulating extraordinary emotion, an enduring passion in those that are involved in it, and offers disproportionate returns for the investment when done brilliantly.”

Carlisle went out of his way to stress that his racehorse analogy was all about investing, not gambling. He told a story about a friend who went to Ireland to buy a racehorse and told the breeder he had 20,000 to spend. To which the reply came: “Tell me sir, were you thinking of racing it or eating it?” Carlisle said in conclusion, “All our horses are either for racing or for eating”.

Whether you think his analogy is enlightening is up to you. But what was particularly illuminating was Carlisle’s slip of the pen the paragraph before. His script read: “But if you decide to go for it, put a decently sized bet behind your horse. The returns can be remarkable, so give it a chance to work.” On the day, he wisely changed the word “bet” to “investment”. But there you have it – even among the most senior, experienced and enthusiastic supporters of the advertising cause, it appears that somewhere in the back of their minds, despite their most strenuous assertions, they can’t help seeing advertising as a bit of a flutter.

To marketers’ endless chagrin, that attitude has so far proved impossible to eradicate. Thus, speaking at a VIP breakfast before Carlisle’s IPA speech, Bozell UK chairman Winston Fletcher felt the need to remind his audience that “advertising is an investment, not a bet”. The IPA’s effectiveness awards would pass their sell-by date, he continued, unless they shifted their focus from the betting mode of win or lose, effective or not, to investment mode: how well the ads worked in terms of profit generation. Intriguingly, so far only six per cent of the accumulated 600-plus award entries even mention profitability in their analyses, he pointed out.

As of this month, a new book by the guru of advertising accountability Leo Burnett Brand Consultancy’s Simon Broadbent shifts the ground even further. Only one to two per cent of current UK campaigns are actually accountable, he claims. But, “the majority could be”, and, especially in data-rich packaged-goods firms, there are no longer any excuses for their not being made so.

According to Broadbent, the current norms of advertising evaluation – which depend on qualitative measures such as image and awareness – are extremely damaging. They measure means to ends and not ends, and because of that they “cannot be taken to the bank by the finance director”, says Broadbent. That, in turn, explains why “most marketing departments are outmanoeuvred in the battle for budgets”.

His book, Accountable Advertising, sets out in painstaking detail why and how advertising can be taken to the bank. Among the core steps are: advertising has to meet business objectives, not just communications objectives. These objectives must be agreed by all parties, including the brand owner and the purse holder as well as the campaign owner – the marketing department. They must also find a consensus as to why they believe this particular advertising investment will meet these objectives.

And these objectives must be ruthlessly analysed. Are we seeking pure sales effects or a profitable market effect? If so, is it wishful thinking? Very often in today’s markets neither is possible. Practically, the key objective should be to prevent brand decay.

Either way, a rigorous model needs to be constructed to explain how the category and its market works and how different factors within it interact, so that the size of each can be estimated. For example, many realistic models will show that price, not communications, has the biggest single effect on sales. But only when the model has been made explicit, and the effects of each factor (and its costs) are quantified, can communications’ own role be appraised.

The trouble with all this, as Broadbent admits, is it “involves serious work” when, in fact, “most people do not want to be made accountable. They believe they may not have made the right decisions and they are terrified of being found out”.

But that only makes the core of Broadbent’s crusade all the more important: that advertising investment should be made using the same criteria and “as soundly argued and trusted as much” as any other investment. As he writes: “It should not be permitted as an indulgent exception in the boardroom.”

Just one caveat. What, exactly, does “as soundly argued and trusted as much” actually mean? The danger is that the quest for “accountable” advertising becomes a doomed search for an illusory target of precision and certainty that has never existed and never will.

Anyone who tries to understand the secrets of successful business decisions soon sees that they are little more than what Carlisle in his moment of indiscretion admitted and what Fletcher took pains to deny – they are bets. Bets on the impact of changing technologies, shifting consumer attitudes, competitor reactions, senior appointments, and so on. As Broadbent points out in his book, in fact, “communications should be easier to make more accountable than many other activities”.

Likewise, anyone who delves into the niceties of financial accounting quickly sees that most of its reassuringly precise numbers rest on layers and layers of subjective judge- ment. Accountants are just far more adept at hiding it.

So yes, it is urgent that marketers start to treat their advertising ruthlessly, as no better and no worse than any other investment. But beware of setting unachievable targets by assuming that other investment appraisals are more “scientific” than they are. While marketers need to work a lot harder to embrace the hard financial aspects of their discipline, accountants also need to be brought down a peg or two. But that’s a different story.

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