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TV Advertising Effectiveness and Profitability

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Re: TV Advertising Effectiveness and Profitability

#141

Post by long_time_gone »

bokstavkjeks wrote: post #121
long_time_gone wrote: post #77

Earlier quoted context omitted.

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,…

==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.==

Goodwill is an asset and we frequently see it monetized. It isn't just a made-up number to make things balance, it is a stand-in for particularly "hard-to-value" assets like perception. Ford famously licensed their logo and built a $1 billion business [0]. Prior to the licensing deal, that value would have only been captured as Goodwill on Ford's balance sheet. It is the value of the blue shield that they have built over decades of company performance and advertising.

==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.==

Goodwill is a combination of many things, one of the largest pieces being brand value. Publicly traded companies generate a Goodwill number each time they release a financial statement.

[0] https://www.forbes.com/sites/dalebuss/2012/05/24/ford-has-bu...)

Re: TV Advertising Effectiveness and Profitability

#142

Post by EForEndeavour »

Niglodonicus wrote: post #65

Imagine how low it would be if all internet users actually employed ad-blocking of some sort. Honestly remarkable how many people, faced with the prospect of sitting through extremely annoying video ads, or having their search results and webpages cluttered with useless ads, do nothing instead of spending one minute to install the appropriate blocker. Obviously not everyone is aware these exist, but you would think t…

In the USA, adblocking penetration has been rising for years, but looks to be plateauing; this estimate says that a bit over a quarter of all internet users block advertising on their connected devices: https://www.statista.com/statistics/804008/ad-blocking-reach...

Re: TV Advertising Effectiveness and Profitability

#143

Post by dudeman13 »

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.

>we have financial methods to account for it.

Could you go over some of them or point to some resource? I'd love to learn more!

Re: TV Advertising Effectiveness and Profitability

#144

Post by solumos »

matsemann wrote: post #128
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 p…

You pay less than your competitors for your branded ads via quality score. But yeah, it gets competitive.

You should see how much PI lawyers pay for AdWords - it's bonkers. Hundreds of dollars per click.

Re: TV Advertising Effectiveness and Profitability

#145

Post by handmodel »

echelon wrote: post #84
handmodel wrote: post #47

Earlier quoted context omitted.

I think its fair to say that the reasons a rocket company does not need to advertise dont apply to companies that people buy weekly/monthly on a grocery store shelf. Besides, the advertising budget of other government contractors/satellite companies is also close to zero. The better question is "If I ran Pepsi today - would I drastically lower the advertising budget". I'm not sure what my move would be but I don't th…

> rocket company does not need to advertise dont apply to companies that people buy weekly/monthly on a grocery store shelf. Starlink? That's consumer-facing.

I think if we get to the point where they are trying to get people to switch their cell phone or internet plans - they will do more traditional tv/online advertising.

That being said - I don't think a successful one-time advertising push by a completely new field speaks to the long-term benefits of it once they (presumably) become established.

Re: TV Advertising Effectiveness and Profitability

#146

Post by dougSF70 »

I have not read the paper but I have done extensive ad effectiveness analysis and the one thing most papers ignore is that having your product listed in a store is a given. More often advertising is protecting your product's listing in a store. Ad spending isn't just about boosting your own sales, but those of the category and adjacent categories. If those 80% of brands stopped advertising to prevent $1mn of negative ROI but then were dropped by the store, causing $100mn of negative ROI.

Re: TV Advertising Effectiveness and Profitability

#147

Post by rangersanger »

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…

Okay, I agree with everything you've said. In a "Data driven" organization, how do you prove that your brand marketing is working in order to protect it? A new leader comes in and says "this isn't adding value, you cant prove it's adding value, I'm cutting it unless you can prove it." What's your response?

Re: TV Advertising Effectiveness and Profitability

#148

Post by zeusk »

scott00 wrote: post #126
long_time_gone wrote: post #59

Earlier quoted context omitted.

==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…

Why not just pare down the assets by $9B to reflect the expenditure of acquisition?

Re: TV Advertising Effectiveness and Profitability

#149

Post by s1artibartfast »

malshe wrote: post #136
s1artibartfast wrote: post #122

Earlier quoted context omitted.

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%

Can you elaborate your calculation more? Are you using $1 from the $2 profit to reinvest in advertising? Also are you getting an 80% return on that $1 meaning getting back $1.8? ($1 investment in advertising + $0.8 profit)

In short, %80 return means that if you spend 1.0, you only get back 0.8. You forever lose the $1 spent, but get more sales and worth $0.8 after costs.

Here are more details (repeated for clarity)

Assumptions: 20% corporate tax rate (assessed on total profit) 80% Marginal rate of return for advertising (next dollar you can spend)

1) You have $2 profit (before taxes). You can take it and pay $0.4 in taxes, leaving $1.6 after taxes.

OR

You have $2 profit (before taxes), You spend an extra $1 on marketing with 80% return. The $1 spent on advertising returns you $0.8. You now have 1.8 total profit. You pay 20% ($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

#150

Post by captaincaveman »

tlogan wrote: post #63
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…

This is exactly the problem: it is impossible to measure how much advertising helps. And maybe there are some measurements but they are not known. You might be right or you might be wrong. For example, I do not see Tesla commercials on TV so I wonder if they will sell more cars in next decade if they advertise as other car companies? Is Tesla making a mistake?

If a competitive alternative cool electric car appears, and they use advertising to steer the opinion of the public of being the best electric cars on the market ... I think Tesla will start advertising!
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