Companies around the globe spend enormous sums of money on advertising. They have done so for well over a century, and even in today's tighter economy, their spending continues.
Advertising has always been expensive, and there's no sign that it's getting any cheaper. According to Advertising Age, the cost to air a 30-second TV commercial just once in prime time now tops $115,000. The cost for a single commercial on Friends jumped 29% during the past year.
A quick look at just one industry reveals that the five major automobile brands spent a total of about $4 billion on advertising last year -- that works out to more than $350 for each car sold. And Ford recently announced that it would double its already sizeable ad budget in 2003. Clearly, companies such as Ford, Chevrolet, Dodge, Toyota, and Honda believe in the power of advertising.
Companies allocate millions of dollars to advertising in the hopes of building formidable brands. They're also convinced that the equity they build through advertising will yield returns far greater than the cost of the ads.
Accordingly, advertising expenditures have traditionally been positioned and reported as investments in brand building. Few marketers question this role, and few industry observers question the millions of dollars that major advertisers spend each year on media campaigns designed to spread their message to consumers.
The consensus has always been that properly targeted and effectively executed advertising represents a key ingredient in brand marketing. Noted marketing thinkers agree. Berkeley's David Aaker says, "The best brand strategists may be [advertising] agency personnel," while Northwestern's Philip Kotler also contends that advertising is a "potent tool" for building brand awareness, brand image, and even brand preference.
And so, advertising's purported contribution to brand strength has remained largely unchallenged. Statements from John Hancock's chairman, David D'Alessandro -- "a brand has to be given a voice through its advertising"-- and marketing strategist John Mariotti -- "memorable ad campaigns can establish a brand" -- underscore the accepted importance of well-executed mass advertising campaigns in building brand equities. What's more, the proof of this power can supposedly be found in dominant brands ranging from Milky Way to McDonald's, from Coca-Cola to Kodak, and from American Express to Absolut.
Bang for the buck?
Two recent books, however, allege that the awesome power of advertising has been greatly exaggerated. In fact, some observers have gone so far as to suggest that advertising no longer has much of a role in brand building -- if, indeed, it ever did.
Consultants Al and Laura Ries, in their provocatively titled book, The Fall of Advertising and the Rise of PR, contend that "[t]he purpose of advertising is not to build a brand, but to defend a brand once the brand has been built by other means." Furthermore, while many companies may think of advertising as a key marketing weapon for creating better brand perceptions, the father-and-daughter Ries team reviews the evidence and concludes that this simply isn't true.
Another noted consultant, the former Coca-Cola marketing head Sergio Zyman, has issued his own critique of advertising and its inability to build brands and enhance brand relationships. Unlike the Ries team, who maintains that advertising cannot establish brand relationships because it is neither believed nor trusted, Zyman espouses that advertising fails simply because it ignores or neglects its major purpose, which is not to create brand or ad awareness, but to convey a clear and compelling sales message.
As Zyman states in his book, The End of Advertising as We Know It, "advertisers are basically being stripped bare by ad agencies whose ads aren't doing what they're supposed to do: Sell more stuff to more people more often and for more money."
D'Alessandro is equally direct, stating in Brand Warfare: 10 Rules for Building the Killer Brand that "one of the biggest mistakes you can make as a brand builder is to assume that advertising agencies want to help you build your brand and sell your products."
This clarion call has been issued before, although without a great deal of impact. The late David Ogilvy, ad agency founder and member of the Advertising Hall of Fame, stated unequivocally, "[t]he advertising business is going down the drain. It is being pulled down by the people who create it, who don't know how to sell anything, who have never sold anything in their lives."
Are these merely the ruminations of a few curmudgeonly critics, who are really only interested in selling more books with their controversial and contentious arguments? Apparently not.
How far the mighty have fallen
A survey by the American Advertising Foundation (AAF), a trade organization of major company advertising spenders, finds that ad departments (and their agency partners) are not regarded as cornerstones of a company's success; only 10% of the business executives surveyed agreed that ad departments are essential contributors to the company's business performance. That places advertising at a rather distant sixth among company departments, well below product development (29%) and strategic planning (27%), and even below the often-maligned public relations department (16%).
So regardless of statements by leading academics that ad agencies can provide strategic insights, it appears that most companies don't consider advertising a crucial resource for achieving their growth goals. And as Gallup consultants have noted, there are reasons that company leaders are becoming increasingly disenchanted with advertising.
In addition, in spite of projections that total advertising spending may increase 2.9% this year, there is mounting evidence that leading companies may be questioning the role of advertising and the amounts they have been spending on it. Mega-advertiser Philip Morris recently announced that, rather than increase its advertising budget, it would greatly increase its promotional expenditures in the fourth quarter of this year, adding $600-650 million on top of an already announced $350 million targeted for price promotions.
Procter & Gamble, long noted for its marketing and advertising leadership, describes its new brand manager training program as one that now spends "relatively little class time with conventional media advertising" and trumpets the performance of companies such as Starbucks and In-N-Out Burger that "spend practically nothing on marketing."
Advertising's well-publicized woes don't appear to be ending with the threat of budget shifts from advertising to promotions. Witness the continuing disappearance of once-proud multinational ad agencies, such as 96-year-old D'Arcy, which was absorbed into the Publicis Groupe. For additional testimony, review the recent hammering that ad agency holding companies have been suffering on Wall Street. Advertising giant Interpublic has seen its stock dive more than 70% in the past few years, and other traditional agency powerhouses are experiencing precipitous market cap slides as well.
Whistling in the dark
Some observers see these trends as temporary aberrations. But regardless of whether the prognosis is temporary or terminal, it's clear that the news for advertising departments and agencies has not been good.
Is there a solution to these problems? Or does advertising's future inevitably lie in the unrelenting erosion of its apparent role and image as an essential contributor to brand building? We'll tackle these vexing questions next month.
William J. McEwen, Ph.D. is a Global Practice Leader for Gallup’s Brand Performance management practice.
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