Transcript Lecture 1

Lecture 1
Myths and Truths about Advertising
AEM 4550: ECONOMICS OF ADVERTISING
Prof. Jura Liaukonyte
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AEM 4550: Economics of Advertising
 All Course materials can be found here:
 http://faculty.cit.cornell.edu/jl2545/teaching.htm
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Laptops, Tablets, Phones, Oh My
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For the fourth straight postseason,
Cleveland's superstar is trying to shield
himself from the outside world…
"I don't have no phones, no social media, I
don't have anything,…
"I don't care about nonsense. There's too
much nonsense out there. Not during this
time, this is when I lock in right now and I
don't need nothing creeping into my mind
that don't need to be there."
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Longhand note-takers perform better when
tested
Mueller and Oppenheimer, Psychological Science 2014
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My Research
 Mostly focusing on quantitative analysis of Advertising
 Experiments manipulating the advertising
 Understanding and quantifying how people watch TV
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My Teaching
 AEM 4160: Strategic Pricing
 AEM 4550: Economics of Advertising
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Myths and Truths about Advertising
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1. Advertising is a powerful force that usually
increases brand and product sales.
MYTH OR TRUTH?
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Mostly Myth
 Advertising successes can be dramatic, but they are
rare.
 Why?
 Noise level from competitors’ campaigns is high.
 Competition for scarce creative talent.
 Successful appeals are quickly copied.
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2. Advertising effects persist for decades.
MYTH OR TRUTH?
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Myth.
 Hysteresis: when the effects of advertising persist long
after the duration of the campaign.
 Hysteresis: extremely rare.
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3. Advertising's effects are instantaneous
MYTH OR TRUTH?
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Myth.
 Advertising carryover: effects of advertising at time t that
are not realized until time t+1 or later.
 Very, very common. Why?
 Takes time to convince; WOM; distribution; shopping trips.
 Carryover tends to be short. Weeks or months, not years.
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Advertising Goodwill
 The effect of advertising on sales is often largely
depreciated within a year (if not less).
 Latest studies: beyond 3 months = miniscule effect
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4. If advertising is not effective right away,
repetition will ensure ultimate success.
MYTH OR TRUTH?
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Myth.
 Advertising is effective either early on, or never.
 Some managers believe that advertising needs time to
work itself into consumers’ subconscious.
 In fact, research shows that if advertising does not
produce any positive results in the short run, it is
unlikely to ever do so.
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5. Effective ads are effective forever.
MYTH OR TRUTH?
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Myth.
 Wearin: the amount of time or the number of exposures
required for consumers to accept and understand an
ad’s message
 Wearout: the amount of time or the number of
exposures before consumers get tired of an ad
 Every ad wears in and wears out
 Wearin tends to be rapid
 Wearout varies across people and ads
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6. Advertising tends to be profitable.
MYTH OR TRUTH?
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Mostly Myth
 Fact: Companies often persist with ineffective ads.
 Research: average sales elasticity of advertising is 0.1
(!!!)
 Why?
 Prisoner’s Dilemma
 Failure to define advertising success
 Difficulty in measuring advertising success
 Agencies’, executives’ incentives
 Other reasons…
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7. The most effective ad appeal is clear
information with strong arguments.
MYTH OR TRUTH?
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Depends.
 Three most common types of ad appeals:
 Arguments (logical appeals)
 Emotion (dramatic appeals)
 Endorsements (associative appeals)
 Emotion tends to be most effective. Why?
 More interesting
 Require less concentration
 More vivid, easily remembered
 Harder to counterargue
 Lead more directly to action
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8. Sex sells
MYTH OR TRUTH?
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Usually true.
 Sex certainly breaks through the clutter.
 Using sex is risky:
 Sex can engender negative reactions in many consumers.
 Risk can be mitigated through effective targeting
 When does sex sell?
 When it’s appropriate to the product or category
 When it helps establish the brand image
 It can help break through the clutter.
 There’s not much good research on sex.
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9. Humor Sells
MYTH OR TRUTH?
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True.
 How does humor help?
 Positive framing lowers resistance
 Distracts an audience from counterarguments
 Helps attract attention
 Combines with nearly every form of persuasion (we’ll get into this
later)
 Quick to the point
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10. For an ad to be really successful, it has
to
be
totally
unique.
MYTH OR TRUTH?
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Myth.
 Research has shown that use of templates in
advertising can be very effective.
 Persuasion is a complex process. Templates have
been developed to maximize consumer acceptance of
a message.
 Ads that break completely with tradition risk ignoring
scientific knowledge about persuasion.
 Uniqueness certainly helps draw attention, but does not
guarantee a successful creative.
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