Does Advertising Work?

January 26, 2021 | Alex Porter | Franchise Digital Marketing | General

My mother doesn’t drink alcohol, and I remember having a conversation with her many years ago where she blamed advertising for the amount of beer consumed every year. She would say, “no one would drink beer if it wasn’t for those Clydesdales.” I always countered with the fact that monks have been brewing and drinking beer for centuries before advertising, but in the back of my mind I have always asked myself, how much does advertising influence what we do, buy, drink, eat, drive, etc.?

Full disclosure: I make a living providing digital advertising solutions, so I am certainly biased towards the efficacy of advertising. I believe advertising works!

However – how well does it work? How much money is spent inefficiently? How can we make it work better? All great questions to ask ourselves constantly.

2021 is the year of digital efficiency and accountability. I’ll admit – the ‘year–of‘ statements are obnoxious. The year of mobile, the year of video, the year of voice search. So, is it really the “year of digital accountability?” No, advertising accountability is always important, but due to economic changes in the world over the last 12 months, I am doubling down on the importance of making dollars work.

Marketing budgets are constantly scrutinized for ROI and ROAS but 2021 will see CEOs demanding measurable results and the ability to track performance.

Does advertising actually work? Listen to a couple of great, critical discussions on this point from the Freakonomics Radio podcast. Transcripts are also provided if you prefer reading:

Freakonomics Advertising Part 1

Freakonomics Advertising Part 2

Here is their summary:

“Over these past two episodes, we’ve talked about two of the biggest ad marketplaces: TV and digital. But there are of course many other advertising channels and within all these channels are countless variations. Local ads versus regional or national ads. Calls to action versus brand-building. Ads about price versus ads about quality. Ads for new products or services versus established ones. Ads meant to inspire or entertain versus ads that just deliver information. Personally, those are the ads I respond to most — learning some information I didn’t know, about some product or service that sounds useful or fun for me or my family.

I can think of at least eight or ten things I bought after first learning about them by voicing the advertisements that go on this podcast! Our business partners have told us that one reason the podcast industry has grown so much lately is because advertising is particularly effective on podcasts, given the intimacy of the medium. I have no idea if this is really true. But I want to believe it is. Why wouldn’t I? It’s my livelihood. So, you could say this puts me on both sides of the fence: true believer and skeptic, at the same time. One might say this is a sign of intellectual laziness, a move right out of Upton Sinclair. But I’m going to go with F. Scott Fitzgerald instead. Here’s how he once put it: “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”

My summary –

Digital marketing, though rich with potential for proving its value through advanced targeting capabilities and attribution data analysis, has a long way to go when it comes to transparently demonstrating ROI and ROAS.

And the path has gotten more difficult to navigate in 2021; we are losing a certain amount of targeting and tracking capabilities once useful for showcasing the impact of digital marketing. Digital marketers have long been able to track users across the web, and when a conversion occurred, it could be tied back to an action the user took, an ad the user saw or clicked, etc. Not so much moving forward.

See below:

A Changing Data Environment

Google will end support for third-party cookies by early 2022. Apple’s new iOS 14 privacy policy requires opt-in consent for its Identifier for Advertisers (IDFA). Suffice it to say, the digital advertising landscape is changing. While ad buyers appear prepared, uncertainty persists, especially on retargeting, audience segmentation, addressable marketing, and attribution across devices. Marketing Dive’s analysis of the IAB’s 2021 Marketplace Outlook Survey indicates that 41% of buyers don’t know if their stakeholders understand the ramifications of the changes.

Which means –

The pressure is on to prove that digital ads are working.
The data we had used previously will not be available in the same way. Marketers will need to adapt to these changes as they are happening, find cookie-less alternatives to tracking, and manage/use first-party data in new ways.
We need to educate stakeholders on what to expect.

Ad Fraud

Ok so now we are getting less data to help us understand how our ads are working, and here is the other shoe to drop: a lot of ad spend is wasted on fraud. Rand Fishkin has put together an exhaustive piece on the issues in online advertising, and I suggest you read the whole thing. As for the business of ad efficacy – Fishkin provides numerous examples including the following:

Via Ryan Cooper on Twitter: A headphone retailer dropped their online ad spend from $1200/day to $40/day. Business did not change...

Give it a detailed read. Fishkin reinforces the importance of auditing spend, running tests, and thinking critically before throwing money into ad platforms. Also provided – a bucketed list of where to focus auditing efforts and additional resources to better understand potential wasted ad spend and the auditing process for correcting issues. And he ends with this, “…most advertisers pour money into the ad platforms’ default/suggested channels, haven’t audited their spend, and don’t grasp how relatively straightforward it is to hire an experienced agency or consultant who’ll fix this problem.”

You really should read the entire article.

So what are the biggest technologies in the space doing about it to help us advertisers?

Well mostly fighting and teaming up to protect themselves. Google and Facebook make money through advertising, and it is in their best interest for their ads to “work.” As Fishkin writes, “…they have a similarly strong incentive to hide any data suggesting that organic investments pay off.”

These issues highlight the need for quality partnerships with agencies that understand the industry. As a digital marketer I see firsthand that these platforms do drive incremental revenue for brands when we manage their platforms. Clearly it is particularly important to manage these programs with technology and expertise!

What’s a marketer to do?

As an industry, we’re already on our way. We are adapting. Platforms like CTV, which offer targeting, greater efficiency, and the ability to measure ROI, are expected to get a boost this year as budgets shift away from traditional TV. Vendors are busily rolling out new cookie-less tracking systems. And digital ad spend is expected to increase by 6% this year, which indicates that executives are seeing the value.

The best first step, and this should be ongoing, is to measure everything that is measurable, test and measure, think critically, and use technology to help. Below, I’ve listed a number of resources that can help you approach managing digital ad spend more effectively. Employ an agency to help you! Sleep better at night knowing that the majority of your spend is working to drive your business forward.