January 15, 2014
Return On Ignorance
Let's pretend for a minute that we can measure ROI for advertising.
And let's pretend we've measured the ROI for our brand this year and it turned out to be 10%. In other words, for every $1.00 of advertising cost, we got additional sales of $1.10 and, therefore, a return on our investment of 10%.
So the question is, if that is true, why not spend every dollar we have on advertising? I'd be happy to give you every dollar I have if you'll give me $1.10 in return.
The answer is, we don't do it because we intuitively understand that this measurement is bullshit.
Let's say you're the brand manager for Bob-O-Cola. You did a Christmas promotion for Bob-O-Cola during the 4th quarter this year and during the promotional period you spent $10 million on advertising and you did $11 million more in sales. You report to your management that you had a 10% ROI on your advertising expenditure. They applaud and make you C-Something-O and give you a nice fat raise. Seems simple enough, right?
How about the cost of all the advertising you've done over the past 20 years that got you on the shelves in the first place? How about the cost of all the advertising you've done over the years to convince consumers that your brand was made from artisanally curated cola beans? How about the cost of all the advertising you've done to the trade to convince them your displays will earn them more money per square inch of floor space?
In other words, how about all the hundreds of millions in advertising dollars you've spent to get you to the starting line for this promotion that you are not including in your ROI? How do you account for that?
And conversely, how about all the sales you're going to get during the next quarter, when you will not be advertising, that are the residual effect of your Christmas promotion? How do you account for that?
Do you think McDonald's sells a billion burgers every minute because of the Christmas holiday ads you saw? Do you think Coca-Cola is on every shelf in the world because of the advertising it did last quarter? Do you think Nike rules the world because of the website they launched last month?
The total effect of advertising is cumulative, not discrete. These companies have spent billions of dollars on advertising and marketing over the years that have a multiplier effect on the advertising dollars they spend in the short term.
In fact, the billions they've spent over the decades -- that are not being counted in the ROI calculation -- may have far more effect on the outcome of their Christmas promotion than the short-term effect of the recent advertising.
Or it may have no effect at all.
That's what's wonderful and interesting about advertising -- nobody can figure out a fucking thing.
ROI? Just another dubious entry in the encyclopedia of advertising ignorance.