Does Advertising Work (even though you think it doesn’t)

Nigel Hollis writes

Successful advertising rarely succeeds through argument or calls to action. Instead, it creates positive memories and feelings that influence our behavior over time to encourage us to buy something at a later date. No one likes to think that they are easily influenced. In fact, there is plenty of evidence to suggest that we respond negatively to naked attempts at persuasion.

Instead, the best advertisements are ingenious at leaving impressions.

So advertising works slowly at a time not correlated with seeing the ad. Hmmm, that’s just what advertisers would say if advertising didn’t work at all.

What is Hollis’s evidence that advertising works ?

“I often respond by pointing out that U.S. companies would not invest $70 billion (yes, that’s the size of TV’s ad market) in something they thought didn’t work.”

With the same approach, one could prove that huge compensation packagers for CEOs are in shareholders’ interests. I can think of an explanation based on principal/agent problems for why firms would advertise more than the shareholder value maximizing amount. It is more fun to be the CEO of a very famous firm than to be the CEO of a firm which sells its product because it is cheap. How can we test the shareholder value maximizing theory of advertising against the CEOs ego theory?

OK I admit that Hollis has another bit of evidence — the advertising skeptic who provoked the post remembers brands. I have thought of that. As a matter of principle, I remember funny ads but forget the brand. OK, I admit I remember a few Alka Seltzer ads (never bought the product) and ads for Lavazza, Segafredo and the Y10 (never bought any of the products).

I also remember the slogan “You always get your way at Oursman Chevrolet.” This doesn’t do Mr Oursman any good, because he sells Chevys in the Washington, D.C., area, and I buy Fords in the Rome area. But you can see how it was good for his ego.

It seems to me that there is a whooole lot of advertising which includes the bosses name.

My other claim is pretty much the opposite. I would guess that closely held firms advertise less—that advertising is a kind of managerial slack reduced by close alignment of ownership and control. I don’t live in the USA so I ask for information—has anyone seen a Walmart’s ad?

A natural experiment, what happened to their advertising when investment banks went public?

How about advertising by investment banks when they went public? What happens to advertising when KKR or Bain take over a company?

I sure have a guess.

Now I am not saying that there are no valuable brands (my daughter asked why a sign said coca cola when she was 3).

But it sure seems likely to me that advertising budgets are distorted up (compared to shareholders’ interests) by vain managers.