I know traditionally that advertising a product’s positive benefits, or using other tactics like fear and isolation (in vs out-group) can cause people to purchase a product, but nowadays, when it feels like there’s an oversaturation of product advertising, how do companies get returns on the millions that they spend on advertising? Is it subliminal messaging or do people really still see a product advertised and think “Cool I want that”?
In: Economics
One of the main reasons to spend money on advertising is to increase awareness, because if you don’t advertise, then nobody knows about it. That, of course, leads to oversaturation of advertising.
Advertising is just one expense, and not necessarily the largest expense. The largest expense a company must endure is, typically, payroll, which includes research, development, engineering, and all the other employee functions needed to keep the business going. There are manufacturing costs, various certifications for safety, efficacy, reliability, and so on. There’s servicing debt, leasing of capital equipment and buildings. There’s taxes on sales. And there’s advertising. Advertising is just one part of the whole picture.
The basic objective is for sales revenue to exceed the expenses, which results in a positive net income (profit) that can be reported to shareholders. Advertising isn’t the biggest expense.
You asked about return on advertising. This is basically “how much more revenue did we make after the ad campaign, than before the ad campaign?” That difference less the cost of advertising, divided by the cost of advertising, is the return on advertising. If revenue increase exceeded the cost of the ad campaign, it’s a positive return. That return could be anything from a bump in sales after the airing of an ad to a long-term sustained increase in sales.
Bear in mind that promotion doesn’t always mean commercials on TV or ads on the internet. Promotion can be more subtle, like giving a couple of free products to YouTube influencers, or positive press releases about environmental accomplishments to make people think of the company in a good light. The best promotion of all is word-of-mouth by customers, because that costs the company nothing except the expense of producing superior products.
It’s more about establishing familiarity and brand recognition. People will buy from brands that they trust, and they will trust brands that they’ve heard of before. It’s not that they see your advert and go “I must have that!”, it’s that next time they’re in a shop looking for a product, they will see your brand and think “I’ve heard of them before, they must be good”
For the huge ones that are already household names it’s about popularity contests, maintaining that brand recognition so they don’t get forgotten over time, and trying to position themselves to ride waves of popular trends. If you’re a teenager looking at Pepsi and think their branding and advertising looks cooler and more relatable than Coke’s, you might push that idea to your friends, they might push it to their friends, etc etc and before you know it suddenly Coke is considered old fashioned
And then there’s the sort of viral marketing type stuff, trying to drive hype in a specific new product range, like a new meal at McDonald’s or a new flavour of a drink or something like that
Generally, it’s just about making your brand be well-known and thought of positively. That makes people more likely to buy from you
It’s not about making you buy a product you don’t want or haven’t considered purchasing before. It’s about catching your eye on something you are interested in.
An ad for a video game isn’t going to make somebody who doesn’t play video games want it, but if you are a gamer and see an ad for a style of game you do like it just greatly increased the chances of you buying that game. Same for a movie that is already the style of movie you like, or yes even a drug for a condition you actually have.
An ad doesn’t need to interest everyone but if just 1 in 10,000 who see the ad for something that is up thier alley buy it that is a success. Consider that many ads are seen by many millions of people…that’s a lot of sales.
Targeted ads are even more effective. Google and facebook already know what you like by watching everything you do online. They can get that 1 in 10,000 down to 1 in 500 greatly increasing the ads effectiveness. Always remember, when a product is free(facebook, google searches, even reddit) you are the product.
You hear an advertiser’s slogan over and over through advertising:
“Thirsty? Grab a Swamp Water Soda!”
“Thirsty? Grab a Swamp Water Soda!”
“Thirsty? Grab a Swamp Water Soda!”
“Thirsty? Grab a Swamp Water Soda!”
You open the cooler at a convenience store and think, “I’m so thirsty” and you see a bottle of Swamp Water Soda.
The advertisement has introduced you to the brand, and associated it in your mind as a solution to thirst.
That’s enough to get some people to at least try Swamp Water Soda, and some of those people who try it once will become fans.
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