What Every CEO Must Know: More Science in Advertising Can Lift Stock Price 25%+

This is the fifth in a series of posts on the subject of what CEOs and CMOs must do to keep up with the media metamorphosis that has already occurred. The central takeaway is that more science is available than is being applied, and that companies who are first to take advantage of available science in advertising will reap both short and long term advantages over competition. Part of this science is the A/B Test. The A/B test has long been known to be the unquestionable proof of performance of one advertising strategy over another. However, the times past were kinder to sloppy advertising processes, and the costs of A/B testing and the time it took to reach conclusions were both so unfavorable as to allow science to be swept under the rug with impunity.

Now that media and consumers have utterly changed in the space of a few short years, the C Suite must be made aware that their careers could crash and burn if they continue to assume that business as usual is a safe course. Also, cable zone technology has made A/B testing cheap and fast. This combination of red zone threats and at-hand solutions points to a time for bold innovative action.

In the first four posts we looked at four ways to restart the significant growth of mature brands in the U.S., where such growth has recently been deemed impossible: the A/B testing of (a) doing more (not just monetarily) for the internal developing nation of Americans below the poverty line , (b) getting off the addiction to promotion by a shift to loyalty rewards from discounts , (c) a quantum leap in the allocation to owned media , and (d) bold new media mixes. In this post we will look at the single most important element: advertising creative, the very center of the plate of marketing itself. What is communicated in advertising, and how it is communicated on all levels.

TRA and Mars Catalyst have reported that 65% of the ROI increases that science can make in advertising stem from changes to the creative. The same report shows that without creating new commercials but merely by measuring which ones lift sales the most and using those more (plus media changes), Mars brands increased sales 25-35%. Neuro-Insight reported to the ARF that changes to approximately 1-2 seconds of a 30-second commercial increased its sales effect by 25%. IBM is able to link changes in creative to double-digit differences in sales, according to former IBM executive Todd Powers (now consultant to ARF). Based on a five year study by Ameritest, involving the testing of 338 different McDonald’s commercials and 954 competitive commercials among 129,000 consumers, 25% of the variance in the stock price of McDonald’s is accounted for by the quality of the television advertising creative used by McDonald’s at any given point in time.

The proof that advertising creative has a major effect on a company’s success abounds. But what scientific tools exist today that can be used to develop better-selling commercials?

Horace Schwerin in the 1930s created the basic methodology still being used today by most practitioners of advertising pretesting. During the first half century of use of this method, the evidence that it was predictive of actual sales results was sparse. Meg Blair during the 1990s changed all that by beginning the process of scientifically validating the technique against actual sales results, working with the ARF and companies such as Campbell Soup. Today virtually every major company in the field has its body of sales validations. However, using this technique the average improvement made to the shift in competitive brand preference is only around +4%. That is, coming through the mill of this technique of pretesting, the average surviving commercial generates about a +4% improvement to the advertised brand in the attitudinal domain, and a little less than this in the domain of actual buying behavior change.

Is that all there is? Is science unable to make more than this low single digit improvement in the central measure of value creation in the advertising business? No. Not any more. We have reached a new watershed moment in advertising science just in time to deal with the immense seismic shift in the media and culture that has just occurred.

What limited advertising science until recently was its sole dependence upon paper-and-pencil and orally collected verbal responses. As pointed out by Dr. Carl Marci of Innerscope, the parts of the brain involved in language are not directly connected to the parts of the brain involved in emotion, and nonconscious emotional responses are the major force in the advertising effect. Therefore depending only on language to measure ads is the limiting factor causing the low improvement rate of pretesting until recently.

When Drs. Daniel Goleman and Richard Davidson and I began testing brainwave measures in the advertising industry in the early 1980s, we were too far ahead of our time. Today with the help of ARF, brain and other biometric measures have come into increasing use in advertising development, led by companies like Neuro-Insight which focuses on the brain and Innerscope which focuses on emotion biometrics such as heartrate and skin conductance response. We recommend the use of both in order to cover the spectrum of scientific information available. Although all quality research costs in the range of high five to low six figures or more, it is penny wise and pound foolish to eschew these costs while rolling the dice on seven and eight figure media costs to transmit commercials that have not been developed using a combination of all of the best techniques available. And biometrics by themselves lack sufficient power to help understand why certain ad content works or doesn’t, which is the reason that the best of the traditional verbal questions must still be used alongside biometrics.

Another technique effectively used by Ameritest is picture sorting, using drag and drop Internet capabilities to make it easy for respondents to sort visual excerpts of key moments within a commercial. This is a nonlinguistic method and like biometrics circumvents the brain’s inability to make good connections between emotions and words.

The Neuro-Insight method has been independently validated against sales using 20 commercials, 10 of which caused large sales increases and 10 of which were duds. The N-I method correctly identified the group in which to place 19 of the 20 commercials.

Besides the use of the best validated biometric, picture sorting, and verbal methods, is there anything else needed to make advertising creative more reliably economically effective? Yes.

People are not all the same. Advertising research to date has made insufficient use of this insight. Even when the industry attempts to take individual differences into account, the focus has been on gender and age, as if these two variables account for everything, when in fact studies have shown that demographics on average account for only about 11% of brand choice.

In the next post, we’ll examine what is new in the field of psychographic analysis that will enable advertisers and their agencies to better understand how to develop commercials that make an even more positive contribution to shareholder value.

Bill Harvey is a well-known media researcher and inventor who co-founded TRA, Inc. and is itsStrategic Advisor. His nonprofit Human Effectiveness Institute runs his weekly blog on consciousness optimization. Bill can be contacted at bill@billharveyconsulting.com

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