The new research by advertising trade body IPA notes that long-term (three-plus years) investment in advertising delivers double the profit of a short-term approach (less than one year), but investing in both delivers even higher returns.
The study examined the business effects of 1,000 advertising campaigns from over 30 years of IPA Effectiveness data, and assesses the recent trend in advertising to focus on building loyal relationships with customers.
Advertisers need to ensure their campaigns strike the right balance between long-term investment in brand-building using mass media, and short-term, direct methods that stimulate sales. Campaigns that use both in harmony are more effective, more efficient and more profitable, according to the IPA report, entitled Advertising effectiveness: the long and short of it.
The study went on to advise that the largest part of an advertising budget should be invested in media with a mass reach and long-term effects, such as TV. At least 60% should be invested in these brand-building media with the remainder spent on shorter-term activation channels to provide a response mechanism to capitalise on the effects of the brand-building activity.
The report warns that although price promotions can maximise customer response rates and stimulate short-term sales, they can also increase price sensitivity and erode long term profits.
“Tight audience targeting, whilst desirable for activation, does not help long-term success. Campaigns which reach a mass audience of existing and new customers are more efficient,” according to the study.
“Brands which target the whole market achieve three times as many large business effects than those that focus on existing customers (effects include increased profit, sales, or market share, and a reduction in price sensitivity).
“Attempting to build deep, loyal relationships with existing customers is less effective than investing in advertising that reaches as wide an audience as possible. Ad campaigns which target new customers report 60% more large sales effects in the first six months alone.”
The report was researched and written for the IPA – in association with Thinkbox – by Les Binet, head of effectiveness at adam&eve DDB, and marketing consultant Peter Field.
Les Binet and Peter Field, co-authors of the new study, wrote: “These findings contradict some fashionable thinking in modern advertising, where increasing emphasis is placed on nurturing a one-to-one connection with customers. The truth is that the vast majority of people have better things to do with their lives than to form deep and meaningful relationships with brands.
“Advertisers should not chase loyalty from customers but should speak to as broad an audience as possible and do so over the long term. Obsessing solely about short-term sales is self-defeating; brands must be in it for the long term as that is where the greater success lies. TV is particularly effective for long-term success.”
