Market View: Can You Prove Advertising Sells Anything?

March 26, 2019
Advertising: Is it an expense or an investment? Marketing expert John Stanton talks about advertising and its importance toward brand equity.

One question I am often asked, especially by production people, is “Does advertising really work?” My answer usually is “At what?” They ask whether advertising really “causes” sales or is just entertainment.

I remember a Nissan commercial that was the poster child for ads as entertainment. When the company introduced the Infiniti, they showed a serene picture of a leaf falling from a tree into a pond. As the concentric circles emanated, a calm male voice talked about the Infiniti as he might talk about life. While the ad failed to sell cars, it is rumored that 200,000 people converted to Zen Buddhism.

Saying "advertising causes sales” is demeaning to all the other departments that also have a responsibility to generate sales. When someone says, “Our new advertising campaign is creating new sales,” it sounds to the rest of the company like, “Our new advertising campaign is working and everybody else in the company is doing nothing for us.” If your only demand on advertising is to generate sales, then why do you have all the other departments?

Advertising must do much more than just generate sales in the time period that the money is spent. If you define marketing as “making what people want to buy, not making people buy what you want to make,” then every entity within the firm is responsible to see that this is accomplished. Everyone contributes to sales in some direct or indirect way. This is the difference between a sales-oriented company and a marketing-oriented company. 

Accountants are one likely cause of this naïve perception of advertising. I would say naïve accountants, but that would be redundant. In this country, advertising is viewed as an expense. That is, if you spend a million dollars on advertising in 2019, your budget is charged the entire amount in 2019. Machinery, however, is an investment. If you buy a machine for a million dollars you are entitled to depreciate its value for years. The accountants say, “It continues to be productive for years after it is purchased.”

Aren’t advertisements still working years after they are shown? Some advertising research has shown that some commercials are recalled by consumers years after they have been taken off the air.

The concept of brand equity is essential to advertising. Some advertising (but not all advertising) helps build future sales long after the advertisement is shown. It can also pave the way for the salesperson to make a sale. This ability of advertising to create equity is recognized by accountants only one time in the life of a brand or company. That time is when a company or brand is sold. The accountants call it “good will.” The real name should have been “We failed to account for how important our brand really was over the life of the brand, so now that we are selling it, we need some way to reflect all this equity we have.” I think this definition was rejected over “good will” because it implied the accountants didn’t know what they were doing. 

Now I have a number of friends who are accountants and they tell me the problem is that they really don’t know how much value advertising contributes to the brand versus just sales. So rather than taking a guess, they just ignore it until the company is sold. This may seem innocuous, but profit-hungry executives will cut advertising budgets so as not to have the charge against profits, since they get no positive budget impact except for sales.

I am not arguing that all advertising is good or builds equity. There is in my opinion, considerably more bad advertising than good, equity-building advertising. I also recognize that for a variety of product groups, such as beer or colas, it is really difficult to deliver complicated messages that include a differential selling proposition. In most cases companies are just trying to keep the name fresh in the mind of the consumer, building brand awareness.

Consumers make decisions in a variety of ways and these can be different for different food categories. However, consumers really need and want information about all the products out there. They want information to help make better decisions or to confirm decisions that have already been made. They want help sorting through the myriad of new products and to better understand existing products.

Advertising helps consumers in making the best decisions. Does it sell? Does it still work after the ads are shown? Yes, to both! It is a capital investment no matter what others think.

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