What works in Advertising…and What Doesn’t?
Many argue, that nothing matters in business in the short run more than knowing just what persuades in advertising and what doesn’t. I want to show you a number of findings that will help you understand what works in advertising and what doesn’t.
First, I want to start with raw numbers covering almost all industries and professions before talking about the various types of persuasive messages you need to use.
How would you like to know what the research reveals, instead of the company selling the advertising? Where possible I’ll show you the results for Europe as well as the United States.
Across thousands of businesses, services and products, using all kinds of advertising (not including direct mail and Internet) including television commercials, magazine advertising, newspapers and radio. It’s been found that a 1% increase in advertising budget yields a median of 0.1% increase in sales.
If a small business does $500,000 annually in revenue and has a $50,000 advertising budget, then a 1% increase in advertising ($500) would translate to $500 in additional sales. (People new to small business, call this “breaking even” and they are soon out of business.)
The good news? Increased advertising does increase sales overall. The bad news? If products and services have traditional profit margins, a company could easily go broke trying to advertise it’s way to sales. In Europe, the same 1% increase in ad budget gets you 0.2% increase in sales, double of the return in the USA.
KEY POINT: Small businesses (less than 1 million in revenue annually) that attempt to advertise are most likely to go broke using traditional advertising, where large businesses that can reduce cost per unit (or cost per service) on products and services are most likely to benefit from advertising.
Products with large profit margins (beer, alcohol, diamonds, soft drinks) and current wide exposure can boost net profit where those with small margins (restaurants, clothing, books) will on average have to be far more careful advertising.
Advertising messages that are effective on first exposure are likely to be successful for some time before failing.
Advertising that doesn’t succeed on it’s first exposure is almost certain to fail with multiple attempts.
Repetition of multiple exposures increase sales with ads that are effective on their first use. Then, with similar repetition sales will go up with constant repetition before dying out.
KEY POINT: Repetition is a major factor in causing people to switch brands. People that are exposed to a different brand twice, between purchases of the product, are about 5% more likely than those who were not exposed, to switch.
In general, a 1% decline in price is rewarded with a 1.7% increase in sales.
If a product or service sells for $100, and the price is reduce to $80, you could anticipate at 34% increase in sales. (If the audience is unfamiliar with the standard pricing of the product or service the discounting is meaningless.)
But there is a huge difference between what kind of a product or service the price reduction is being used to promote.
The bad news: For durable goods (products that can last 3 years or longer on the shelf or in someone’s home or garage) a 1% decline in price will on average increase sales 0.5%.
The good news: For nondurable goods (products and services with shorter than 3 year “shelf life” do quite well in price reduction promotions, increasing sales by as much as 2.5% on average for a 1% price decline.
More bad news: In Europe reducing price by 1% only gains about 0.6% increase in sale.
Reducing the price of a Lexus or products and services that are “high end” aren’t likely to do as well as something that is going to be “used up.”
Finally, the research shows that price reduction on products at the END of their life cycle (VCR’s in 2005, for example) are benefited most by price reduction.
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