Introduction
Advertising effectiveness studies are being conducted for a long time. It uses a variety of methods of study, applies various research methods and tools, and the results are interpreted by means of analysis methods borrowed from a variety of disciplines — economics, sociology, psychology. Nevertheless, the result at the moment can be defined as an extensive: instead of clear answer, or at least a well-defined solutions we have only an extremely rich set of various approaches, concepts, points of view, etc. The best we have is more or less correct local solutions of this problem, but there is no common approach to evaluate advertising effectiveness.
The question of evaluating the advertising effectiveness still remains open. An indirect sign of ambiguity and confusion about the advertising effectiveness evaluation is the number of models of its perception by consumers — more than 50 in two and a half hundreds of different books, articles and monographs. For comparison, try to imagine a couple of dozens scientific hypotheses about the Earth appearance.
The most interesting and at the same time negative is that the number of different theories and hypotheses, models, views, etc. continues to grow steadily, more and more confusing question. Every new concept usually explains separate aspects of part of the question and not always develops (as well as not disaffirms) the previous ones.
Absence of defined answer on the question provokes the relevance of researches, because the main requirement for advertising — its effectiveness.
The aim of this work is to study methods of advertising effectiveness evaluation. To achieve the goal the following tasks have to be completed:
1. Identify and analyze some of the existing methods for evaluating the effectiveness of advertising.
2. Make an overall conclusions and recommendations on the evaluation of campaigns effectiveness.
General question about advertising effectiveness
The question of advertising effectiveness is one of the most difficult and the most important issues faced by the advertising specialists. It is a matter of lasting concerns for the creators of advertising.
How to make the most effective advertising campaign? An unequivocal answer on this question cannot be given by any expert, as to identify the net effect produced by advertising is extremely difficult. One of the reasons of this difficulty is that sales of goods/services are affected by, price, distribution, product by itself and the whole system of marketing communications, part of which is advertising.
The problem with the determination of the effect obtained only from advertising is one of the most difficult in the advertising practice for a number of reasons:
1. Advertising is one of the many aspects that affect the final results of marketing; however an important role is played by other elements of the marketing mix.
2. Result is influenced by many factors that are virtually impossible to formalize or successfully simulate, in particular, competitors’ behavior.
3. The complexity of evaluating the impact of advertising is also due to the consumer behavior, which can be compared with a «black box» with its unpredictable processes.
4. Market factors abound with random events that can determine the success or failure of the goods, for example, a great ad campaign coincides with the accidental product failure, leaving all the work goes to waste.
Still we can talk about the effectiveness of individual indicators of the campaign. Campaign effectiveness — is the maximum achievement of the goals and objectives that were set during the planning process.
Objectives of advertising message, and the whole campaign should be clearly established, and necessarily quantified and time-bound.
It is considered that in respect of advertising, there are two components of its effectiveness — the economic and communicative. Advertising budget has to be analyzed within each of the components, as well as the effectiveness of advertising media usage, and created advertising messages at various stages of the process. These components of advertising effectiveness form almost a single process. They follow one another.
First of all, everyone is interested in communication effectiveness of advertising, which is determined by the efficiency of interaction with the consumer. This index is being planned by advertising specialists throughout the process of creation and production of the product. This theoretically computed and built into the original data of the whole campaign efficiency is the basis for further assessment of economic efficiency, i.e., profit effectiveness.
Communicative efficiency of advertising
Communicative advertising efficiency of the advertising campaign represents assessment of its interaction with the consumers. Depending on the media used for realization of the campaign it can be viewers, readers, pedestrians and drivers, shoppers in stores, etc.
Communicative advertising efficiency makes it possible to evaluate:
- The proportion of consumers who communicated with the advertising message;
- The effectiveness of various mass media;
- Which elements of advertising is the most catchy for the consumers;
- Which advertising message was understood by the consumer;
- Strength of interconnection between the advertising message and the advertised brand;
- The level of influence of advertising on sales / consumption of products.
The results of the campaign basically depend on the correct choice of approaches to creating advertising message: its idea and implementation. To avoid mistakes in these matters, advertisers do a great job in defining the optimal parameters of advertising message. With all other things being equal, the effectiveness of advertising at this stage can be evaluated, if it satisfies the following conditions, i.e., the advertising message must be:
- conform to the image which the advertiser wishes to give to the product;
- articulate the ideas inherent in it, addressed to the mind and feelings of the consumer;
- be understandable for the target audience in terms of language, social code and does not contradict with their opinion;
- inspire confidence: do not lie, do not exaggerate; allow the user to check it;
- be original;
- to communicate to the consumer the optimum amount of information;
- have inner integrity and not conflict with other parts of an advertising campaign;
- relevant for a long time that the advertiser has the ability to use a successful advertising idea for a long period of time.
The study of communicational (informational) effectiveness of advertising provides with the opportunity to improve the quality of both content and forms of information presentation.
Cost-effectiveness of advertising
Cost-effectiveness of advertising — is the economic result obtained from the organization of an advertising campaign. The economic efficiency of advertising can be expressed through the promotion cost-effectiveness.
Cost efficiency — the ratio between quantified effected from the advertising and costs caused by this effect. The main part of the problem in assessing the cost-effectiveness of advertising is to determine the numerator.
Sometimes this kind of efficiency is also called sales, trade or business. For advertisers the most basic question is always the issue of increasing the profit received as a result of advertising campaigns. This is the main defining moment in the evaluation of the campaign. That is an attempt to analyze and compare the changes in advertising expenditures and sales.
To consider this issue help such sub-indicators of real trade as:
- The ratio of growth in sales of goods to the sum of the cost of its advertising;
- ratio of growth in profits earned after the campaign, to the amount of advertising costs;
- changes in the level of advertising expenses;
- advertising costs per thousand of consumers influenced by all types of advertising;
- advertising costs per thousand of consumers influenced by a specific form of advertising;
- the number of purchases caused by advertising;
- increase in sales volume during the period after the campaign (you should always keep in mind that often profit is not immediately after the campaign).
The basic material for cost-effectiveness analysis of the promotional activities results are the statistical and accounting data on the growth of trade turnover. Based on these data, you can explore the cost-effectiveness of used type of mass media, advertising campaign and all advertising activities in general.
As mentioned earlier, the measurement of the economic efficiency of advertising is very difficult, as the advertising campaign usually does not affects turnover immediately. Moreover, the increase in turnover is often caused by other (non-advertising) factors, such as changes in purchasing power due to rising prices, etc. Therefore, in order to get results that are close to reality changes in the economic performance of the company under the influence of a campaign should be considered without conducting other promotional events at the same time.
Methods of evaluation advertising cost effectiveness
Cost-effectiveness of advertising can be measured with the following methods and formulas.
1. The method of comparison of turnover before and after advertising campaign.
In this method, the economic efficiency of advertising is determined either by comparing the turnover for a certain period of the year during which the product was being promoted, with data for the same period of last year when the product was not been advertised, or by comparing the daily turnover before and after promotion in the current period time.
The second method is more appropriate in our circumstances of constant rise in prices due to inflation, which makes the comparison of data for long periods of time is very difficult.
Final conclusions about the cost-effectiveness of advertising are obtained by comparing the profits earned as a result of advertising, with the costs of its realization.
1.1. Calculation of the additional turnover caused by advertising activity:
where,
— Additional turnover caused by promotional activities, expressed in the budget;
— The average daily turnover before the promotional period, expressed in the budget;
I — increase in the average daily turnover for the promotional period compared with pre advertising period, %;
P — Number of days of tracking the turnover during promotional activities.
1.2. Calculation the advertising economic effect, i.e. the difference between the profits from additional turnover caused by promotional activities and advertising and the cost of them.
To measure advertising economic effect can be used a formula:
, where
— Advertising economic effect, budget;
- Additional turnover caused by promotional activities, expressed in the budget;
— Mercantile addition to price per unit of product, %;
- Cost of advertising, budget;
— Additional expenses caused by increased turnover, budget.
1.3 The economic effect of long-term promotional activities should be determined by the formula:
— Turnover, budget;
— Index of advertising, which can be defined as the ratio of the index of turnover of the advertised product to the index of commodity turnover mapped object is not exposed to advertising;
— Growth of the index of the average annual turnover due to promotion;
— the average annual turnover during the period before advertising, budget;
— Mercantile addition to price in pre and post advertising periods, %;
— Cost of advertising, budget.
2. Calculation of the advertising effect at the sales promotion of goods
, where
— Gain from the sales during the period of an advertising campaign, budget;
Economic effect of advertising can be positive — when advertising cost are lower than additional profit; negative — when advertising costs are higher that additional profit; neutral — when advertising costs are equal to additional proft.
3. Evaluation of the profitability of advertising:
, where
— Profitability, %
— additional profit caused by advertising, budget;
— overall expenses, (
).
4. Method of alternatives.
Cost-effectiveness of advertising can be determined by comparing planned and actual performance, estimated as a result of investing in an advertising campaign:
, where
— the level of achievement of the planned level of profit, %;
— actual amount of income during advertising campaign, budget;
— planned amount of income during advertising campaign, budget.
5. Evaluation of the effectiveness of advertising costs as a form of investment by ROI.
Direct analysis of the cost of advertising as a form of expenditures exists in two forms. Depending on the particular problem we can evaluate:
1. The proportion of advertising expenditure in the revenue (turnover)
2. The ratio of advertising expenses to net profit
The essence of advertising as a form of investment in the simplest case can be viewed as an investment in the promotion of goods or services for profit or other benefits. From this point of view it is possible to analyze the effectiveness of advertising investments by a financial indicator of ROI (Return of Investment). How to do it?
1. Let the initial stage be
, characterized by the total sales of a product or service 
, measured in real terms. At the same point, we have P — the unit price of the goods or services. Then, the current volume of selling goods or services in terms of value is 
.
2. Through q denote specific profit — the amount received from the sale of one unit of a product or service. Knowing q, we can find comprehensive income Z, resulting from the sale of goods or services — 
.
3. At the time of 
launch an advertising campaign with the cost I. We believe that after a certain time (at the time 
), will get changed sales measured in volume 
or value
terms.
If everything goes right, and the resulting
is higher than starting
, then there is a positive difference, which can be described as the main criterion of the effectiveness of advertising. The higher Z, the more successful advertising campaign was held. And the less the costs I, the more effective it is done. Accordingly, the formula for determining the effectiveness will look like as the ratio of profit growth and investments in promotion, i.e., ROI. Seeking efficiency, expressed as the
:
, where
1. EROI < 0 indicates that the sales after the campaign fell below its original level. It shows absolute ineffectiveness of advertising.
2. 0 < EROI < 1 — increase in sales did not justify the costs of advertising if it is not pursue any other goals (for example, economic, and communication). Therefore, from a financial point of view campaign is considered ineffective.
3. It turns out that the effective value of 
lies in
.
Is it necessary to evaluate the effectiveness of advertising?
Control of the advertising campaign, the analysis of its current results and an assessment of their effectiveness — is an integral stage of the planning process of promotional activities. Prior to the launch of an advertising campaign advertiser usually do not have anything, and the plan is only a suggestion about how ads should work. Specialists would want to test this hypothesis by conducting a research during and after the campaign. Of course, the easiest way to check the advertisements, after which begins the direct fulfillment of its objectives (the rapid growth of sales and consumer activity). It is much harder to keep track of marketing communications, including sponsorship, publicity, conducting any activities, etc.
Control of the advertising campaign is not a mandatory procedure, and in most cases, companies do not control the process of its realization. Instead, managers analyze product sales performance before and during the whole campaign, and then conclude that advertising works or not.
However, it should be noted that the sales volume is not «pure» measure of the effectiveness of advertising, since the sales directly affects a fairly large number of factors, such as price, distribution, service, availability of service and so forth.
Before taking a decision on whether or not to evaluate the advertising, you need to understand what it does for business. Not all companies at the moment threat it as the most important task.
As the market grows, it is better to spend time and money to capture the largest possible share of the market. Evaluation and improvement of the effectiveness can be made when the rate of market growth will decline.
Large firms monitor and evaluate their campaigns, even when all market factors suggest that advertising (incentives, complex intense marketing communications) reaches sales goals. Heads of advertising and marketing departments who interested in the success, should always be sure that the sales of products is the result of an advertisement and not other factors of marketing, like mistakes of competitors or the market itself (changing general economic conditions).
But if the evaluation of the effectiveness of advertising is still needed, why it does not always made by even those companies for which it is important? There is hardly a head of the company, who during looking at the advertising budget would not think about whether to spend so much on advertising or not and which results it would bring.
Tracking campaign requires a significant amount of funds. It has to be started with the pretesting. Then, during the campaign realization, carried out one or more «waves» of researches, the results of which are compared with a first one, prepared before the start.
Therefore, good planning and management of advertising involves an assessment of its effectiveness.
Conclusions and recommendations
1. It is necessary to assess the degree of risk, which would entail the rejection of research and testing of the various elements of the plan.
2. Conduct research makes more sense in cases where the cost of implementing an advertising campaign is very high.
3. It is necessary to evaluate the performance of the overall campaign goals and objectives in the field of tactical tools.
4. It is necessary to use the knowledge gained from the evaluation of efficiency when working on a plan for next year.
5. It is much more convenient to split the advertising effect on the individual stages and evaluate each stage separately.
6. You can use the study to identify the causes of quantitative changes in sales volumes, the level of awareness, attitudes and behaviors.
7. When planning the campaign should be offered assessment methods for each indicator.
8. It is important to collect statistics on the intermediate stages of the campaign (not just sales).
9. Data has to be kept in a format suitable for use in planning future campaigns.
10. To increase the accuracy of the evaluation of advertising, you can implement systems to collect information about the purchases of individual customers (personal discount cards, customer databases, etc.).
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