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Why Advertise?

There have been many studies on this issue. Here are the results of two interesting research projects:

• Business and industrial firms that advertise more aggressively than competitors achieve higher profits, according to a study for American companies by Strategic Planning Institute of Cambridge, Massachusetts and the Cahners Publishing Company.
• This study -- the first to provide statistical evidence of the link between advertising and profitability -- is based on the PIMS database. PIMS stands for Profit Impact In Marketing Strategy and is a compilation of detailed records on the marketing and financial activities of 1,500 leading American business and industrial companies.
Here are some of the findings:

Companies that advertised the most attained a 12% higher profit level than companies that had the lowest levels of advertising.

Companies that do more advertising achieve 17% higher ‘perceived quality’ for their products than
companies that did a low level of advertising.

Companies with high levels of advertising were charging about 8% more for their products than competing companies with lower levels.

• The study showed that this perception of quality created by advertising enables companies to charge a higher price for their products.
• Finally, the study showed that companies that do more advertising relative to their competitors tend to achieve a higher return on investment. As the following table shows, there was a 12% increase in profitability for the companies with the highest level of advertising versus those with the lowest level of advertising.

Level of Advertising	Profitability (ROI)
Much Less	20%
Less	19%
Equal	24%
More	25%
Much More	32%

The Seagram-Time Inc. Study

The case for advertising frequency -- and its effects on people’s buying habits -- received a major boost in an exhaustive and groundbreaking study just completed by Jos. E. Seagram & Sons and Time Inc. Among the study’s more surprising findings:

• It is easier to change the consumer’s behavior than their attitudes.

• Recall is a poor indicator of advertising effectiveness.

• Even a single ad can have a major impact on a product’s awareness levels.

• It is much harder to increase a well-known product’s ‘favorable’ rating among consumers through an extended advertising campaign than it is to dramatically increase a favorable rating for a little-known product.

• The impact of advertising continues to grow during an extended advertising campaign and does not necessarily level off or drop during the later weeks of the campaign.

“This study shows that advertising really works,” said Robert Schreiber, director of market planning for Sports Illustrated and one of the principals involved in the study. “It shows what we always believed, but now we have evidence to back it up.”

There was a 35% increase in consumption of the brands advertised among those people who had seen one or two ads in the previous 4 weeks and a 72% increase among those who had seen four ads in that period. Buying habits increased even more dramatically, with 170% more people in the four-ad exposure group saying they had purchased the advertised brand in the last month.

Surprisingly, a change in attitude toward the brand didn’t change along with increased purchases of the brand. Schreiber said, “the findings contradict the long-held belief that first you change people’s attitudes, then you change their buying habits.”