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TV Advertising Effectiveness and Profitability

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Re: TV Advertising Effectiveness and Profitability

#121

Post by bokstavkjeks »

long_time_gone wrote: post #77
hengri wrote: post #72

Earlier quoted context omitted.

I was under the impression that marketing costs fall under a cost of revenue column and goodwill is just a BS account item to account for differences in money spent and 'market value' during m&a. See https://www.investopedia.com/terms/g/goodwill.asp

The third sentence of your link: "The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and proprietary technology represent some reasons why goodwill exists." The first three are directly tied to advertising and brand-building. You call it "BS" for some reason (you seem not to believe in it), but it is a real thing and we have financial methods to account for it.

> You call it "BS" for some reason (you seem not to believe in it)

The balance sheet is typically abbreviated as BS, so a BS account is a balance sheet account.

It's been a while since I've had anything to do with goodwill, but if I remember correctly it's most commonly the difference in the assets net market value and the purchase price of a company. So if company A buys company B, which has assets of $50 for $100, then they'll add $50 in goodwill to account for the difference.

This is, of course, a simplification as I'm sure goodwill is regulated under GAAP/IFRS. But it does mean that you can't use goodwill to accurately estimate the effects of brand advertising as there could reasons other than brand marketing for a company being traded above its assets' fair market value at the time of the sale.

Re: TV Advertising Effectiveness and Profitability

#122

Post by s1artibartfast »

giantg2 wrote: post #88
s1artibartfast wrote: post #51

Earlier quoted context omitted.

It is not an issue because taxes are on profit, not revenue. Needlessly wasting revenue shrinks profit faster than it shrinks tax liability. e.g. You don't burn a dollar to save 20 cents on income tax because you are still loosing 80 cents.

If they can't get 80% back, that's pretty bad. I was wondering how these marginal net negative numbers worked. If they're saying it's 95% back, then that's still higher than 80%.

Think of this way: You have $2 profit. You can take it paying 0.4 in taxes, leaving 1.6 after taxes.

OR

You have $2, reinvest an extra $1 on marketing with 80% return. You now have 1.8 total profit. You pay 0.36 in taxes, leaving 1.46

You will always loose money if the marketing ROI is less than 100%

Re: TV Advertising Effectiveness and Profitability

#124

Post by malshe »

giantg2 wrote: post #29

How do the tax write-offs factor in? It seems almost impossible that advertising doesn't provide benefit when you consider the money would have otherwise gone to taxes.

This is a great point, and the authors don't take it into account. Expensing advertising certainly provides tax shield and it will make a significant difference at the margin.

Edit: The taxation become relevant while considering expensing vs capitalizing advertising. I am not an accountant but from what I understand, at least in the US, advertising is commonly expensed.

Re: TV Advertising Effectiveness and Profitability

#125

Post by ProfessorLayton »

MuffinFlavored wrote: post #107
slg wrote: post #60

Earlier quoted context omitted.

>Brand advertising, in contrast, works on a spread-out scale of years or decades...The actual effect that a brand advertisement has, is to add PENNIES (not dollars) to their sales every day, for the next 100 YEARS. It's a long-term investment. And for these reasons hard if not impossible to measure or control for confounders - but that doesn't mean it doesn't work!! Car brands are the obvious example of brand adverti…

> Car brands are the obvious example of brand advertising. Car commercials crack me up. Nissan is running commercials lately in the US on how dynamic, sporty, and fun to drive reckless/fast their cars are on TV.

"Boring" utilitarian cars have gotten much, much better over time, and can easily match acceleration times of previous "pony" cars of the 90s and earlier — cars that were once considered fast, sporty, and fun to drive.

They can do it while being much larger and achieving much better MPG, as well as being a lot safer.

Utilitarian electric vehicles are even better, but not quite commonplace yet.

Re: TV Advertising Effectiveness and Profitability

#126

Post by scott00 »

long_time_gone wrote: post #59
andreilys wrote: post #32

Earlier quoted context omitted.

And for these reasons hard if not impossible to measure or control for confounders - but that doesn't mean it doesn't work!! One of the ways that advertisers and marketing people stay employed is they say that the output of their effort and money spent is not quantifiable.

==One of the ways that advertisers and marketing people stay employed is they say that the output of their effort and money spent is not quantifiable.== It gets quantified as "Goodwill" any time a company is valued (acquisition, IPO, investment, etc.) or releases financial statement (it's on the balance sheet). Coca-Cola is coming up a lot in this discussion. They have Goodwill of $17.7 billion, along with additional…

Goodwill only ever shows up as the result of an acquisition. If a company with a book value of $1B gets acquired for $10B, the balance sheet of the acquirer will see its goodwill increase by $9B after the acquisition closes. Nobody's doing a bottom up estimate of brand value to come up with that $9B, it's just the fudge factor double entry accounting needs in order to make the Equity = Assests - Liabilities equation continue to hold.

Re: TV Advertising Effectiveness and Profitability

#127

Post by cbsks »

Here's a link where you can actually view the paper: https://privpapers.ssrn.com/sol3/papers.cfm?abstract_id=3273...

There is also an interactive website where you can play around with some of the data: https://advertising-effects.chicagobooth.edu/

Both are linked from the lead author's website: https://voices.uchicago.edu/bradleyshapiro/

Re: TV Advertising Effectiveness and Profitability

#128

Post by matsemann »

paxys wrote: post #3

Advertising is at its core a prisoner's dilemma. If every competitor in a certain space puts in $100 in advertising, they can all expect $0 in returns. However if a single company put in nothing they would be in a worse place because their competitors' returns would automatically become higher.

A guy doing marketing for a travel company once told me they had to spend an enormous amount of money on Google, for their own brand. People would search "brand cityA cityB", but a competitor would buy the top spot. How much were the competitor willing to spend? Basically their whole margin for that sale, as it was still better than nothing. So this company had to match that.

So in the end Google makes more profit per ticket than the companies delivering the service itself.

Re: TV Advertising Effectiveness and Profitability

#129

Post by avidiax »

floxy wrote: post #74
hammock wrote: post #27

There is a fundamental misunderstanding (intentional or not) with these types of studies and claims. Limited-time promotions, e.g. a 10% off sale, work on short timescales that are easily measured. You can easily say what the ROI is of an advertised promotion, and it is often positive. (Side note, these promotions have a more-difficult-to-measure detrimental effect on your long-term profitability, closely related to…

Thoughts on this take about luxury branding? https://thelastpsychiatrist.com/2011/11/luxury_branding_the_...

Overly long, a bit smarmy. The main points, that the audience for that ad aspires to be old money while at best being nouveau riche, and ads that appear to be for women but are placed in a men's magazine are actually for men both seem accurate to me.

Re: TV Advertising Effectiveness and Profitability

#130

Post by petercooper »

slg wrote: post #60
hammock wrote: post #27

There is a fundamental misunderstanding (intentional or not) with these types of studies and claims. Limited-time promotions, e.g. a 10% off sale, work on short timescales that are easily measured. You can easily say what the ROI is of an advertised promotion, and it is often positive. (Side note, these promotions have a more-difficult-to-measure detrimental effect on your long-term profitability, closely related to…

>Brand advertising, in contrast, works on a spread-out scale of years or decades...The actual effect that a brand advertisement has, is to add PENNIES (not dollars) to their sales every day, for the next 100 YEARS. It's a long-term investment. And for these reasons hard if not impossible to measure or control for confounders - but that doesn't mean it doesn't work!! Car brands are the obvious example of brand adverti…

I love Mercedes, yet what got me to buy two cars in particular were YouTube videos by other owners showing just how fun they were.
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