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“Half the money I spend on advertising is wasted. The trouble is, I don't know which half.”
The familiar aphorism is borne out too often in an era of media fragmentation and increasingly diverse television viewing habits: a careless company can easily waste a large chunk of its advertising budget. So how should brands address the challenge of media allocation across a constantly expanding range of channels?
Traditionally, the objective in media planning was to minimise wasted advertising by reducing the quantity sent to consumers who were not interested in the product category. For example, media buying in the US beer market used to mean maximising the amount of advertising sent to adult males and minimising the amount sent elsewhere. The objectives for media buyers were typically met through the heavy buying of sportsprogramming.
While this strategy meant that many adult males were exposed to beer advertising, so too were many adult females and under-age individuals; sports programming is also popular with other segments. With traditional methods, a significant amount of advertising is wasted on consumers who lie outside the targetedsegment.
This suggests that targeting should reduce advertising spending, since waste can be eliminated. However, advertising is a relatively blunt instrument without targeting, so many companies spend less than they ought to - simply because they have not seen results for the money they have invested. But assuming the right segments are targeted and the right channels are used to reach those segments, targeting has the potential to make advertising much more effective.
Today, media buying is a complex process and planning entails detailed objectives with narrower consumer segments. Consider the media strategies of Miller Lite and Coors Light, two key competitors in the US “diet beer” market. Miller Lite has been aimed at male beer drinkers in their mid-to-late thirties who are concerned about their waistline. In contrast, Coors Light has targeted young and relatively new beer drinkers (men and women in their early twenties).
However, a substantial proportion of light beer consumption resides in the intermediate segment - young adults in their late twenties to early thirties, who are less committed in their brand preferences.
A critical question for brands such as Coors Light and Miller Lite is how to allocate media budgets between contrasting segments - those in which they have a strong following and those whose members are less committed in their preferences. With the variety of media channels and programming available, companies need to weigh the consequences of targeting carefully and make tough decisions.
When consumers get information about a company's products through mass-media advertising, they generally do not get information about competing products (except when advertising is comparative). As a result, advertising creates different groups of consumers based on the advertising they have seen.
The fact that some consumers have limited information about the alternatives in a category works in the advertiser's favour; when purchasers make fewer comparisons, prices stay high.
In fact, the heterogeneity created by advertising can generate significant profits for competitors within a category. This is particularly the case in markets where the products or services are undifferentiated, such as yoghurt, bottled water and mainstream beer.
As recent research has shown, an interesting side effect of targeted advertising is that companies can use it to reduce price competition. A company within a category can use advertising to create differentiation by targeting consumers who are strongly predisposed to buy its product. Consumers who have a strong pre-disposition towards a specific product are almost certain to choose that product and aregenerally willing to pay a high price for it. Less committed consumers, on the other hand, are likely to see price as a more significant factor.
The targeting of media spending to create differentiation can be beneficial for all concerned because it allows companies to reduce the degree to which they compete with each other. This contrasts with most other marketing initiatives, such as internet distribution, better after-sales service and additional product features, which only provide temporary advantages within a market. Once the competition adopts similar strategies, there is no longer a competitive advantage - only an increased cost of doing business as a result of the initiative.
Two key factors affect the way in which companies allocate their advertising budgets: television audiences are fragmenting away from prime-time networks; and media are now sold in a different way. In the past, the majority of a media budget was used to purchase spots on prime-time network TV. While these still play a critical role in the execution of many media plans, a growing proportion of campaigns is now being allocated to other media, such as sponsorship, signage, billboards, product placements, supers (in sports scoreboards, for example) and credits (at the beginning and the end of media properties). This is especially true in the case of major sporting and cultural events, such as the Olympics, Euro 2004 or the Tour de France.
For example, an advertising sponsor for Passport to Skiing, a weekly programme broadcast on the Canadian sports channel TSN, obtained exclusivity for its category; two 30-second spots during each programme; signage that was visible during the filming of the programme; visibility and sampling during several events; and logo identification on brochures that were widely distributed to ski resorts.
Major sporting or cultural events often boost awareness for official sponsors, and companies will bid substantial sums to be the official or exclusive product of a media property. Here, exclusivity leads to greater heterogeneity. This means the groups of consumers that are being informed of competing brands are independent and overlap less. Many advertisers lament the high cost of media in today's marketplace, yet new methods for selling media (such as exclusivity) suggest media can be significantly more effective than in the past.
Formerly, 30-second spots were purchased at rates that were based on the demand for media and audience demographics. Marketers could compare the performance of a plan proposed by their advertising agency to industry norms. Nowadays media packages are more complex, and while the individual components clearly have value, a challenge for marketers is to figure out how much they are worth.
To evaluate the attractiveness of a media package such as Passport to Skiing, a marketing professional must be able to place a value on each component. Values for media packages that have been incorrectly estimated will lead to under-bidding or over-bidding for media properties, and this can be deadly in a tough market.
The changes cited above certainly bring benefits to consumers and companies, but marketing professionals must exercise care with their newly found capabilities. Because tremendous quantities of information are used and processed as part of these campaigns, it comes as little surprise that the public is concerned about the invasion of privacy through the unsolicited exchange or analysis of data. Misuse of information, such as the resale by marketers of customer lists, can infuriate customers and sometimes lead to legal action.
Further, many electronic services make it possible for companies to monitor the behaviour of consumers without their consent. The industry must learn how to use consumer-specific information to deliver high value to consumers without violating their privacy. Advertisers' power must be balanced by ethical concerns for protecting consumers from activities that are intrusive, overly aggressive or even fraudulent.
In the past 10 years, viewing habits have shifted, marketers have gained access to better information and are able to process that information more efficiently to control marketing activity. Such changes give marketers an opportunity to develop more effective media strategies. But using targeting is a difficult process, and requires an understanding of the link between consumer behaviour and media habits. Moreover, a marketer who fails in this area will find that performance deteriorates more quickly than it did in the past.
In the early 20th century, the successful marketer was someone who had a “gut feel” for the customer. By the end of the century, they could draw on more sophisticated segment-level information; today, they have the ability to target media on a customer-specific basis. The rationale for marketers to complain that half of their advertising is wasted is now much weaker.
David Soberman is an assistant professor of marketing at Insead.
Background information and support for the ideas presented in this article can be found in:
Iyer, G.K., D.A. Soberman and J.M. Villas-Boas (2004), “The Targeting of Advertising”, INSEAD Working Paper, Fontainebleau, France.
Soberman, D.A. (2003), “The Role of Differentiation in Markets Driven by Advertising”, California Management Review, Vol. 45, No. 3 (spring), 1-17.
Soberman, D.A. (2003), “Media Experts: Helping Competitive Firms Reduce Wasted Advertising”, INSEAD Working Paper, Fontainebleau, France.
“Competition: A Whole New Ball Game in Beer’’, Fortune, September 19, 1994, p. 79.
Lee, Thomas, “Miller’s Time May Be Running Out: Brewer’s Sales Remain Flat Amid Talk That Philip Morris Will Sell to Foreign Firm’’, St. Louis Post-Dispatch, March 10, 2002, p.E1.
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