Powered by RTL Group | October 2018
Profit Ability: the Business Case for Advertising

First things first: TV delivers 71% of the total profit generated by advertising, at the greatest efficiency and for the least risk. TV advertising is pre-eminently powerful and cost-effective, as well as being the safest advertising investment a brand can make. That is the conclusion of “Profit Ability: the business case for advertising”, by Ebiquity and Gain Theory.

This alone should make advertisers of all shapes and sizes at least pause for thought – and then, hopefully, grab their media plans and start making changes accordingly. But there is good news for other media in “Profit Ability” too; it isn’t just about TV. The study showed that almost all forms of advertising work when you look at longer-term performance (with the notable exception of online display). The study was commissioned by Thinkbox in response to a worrying climate in advertising: with effectiveness in free-fall driven by increased short-termism; an over emphasis on marketing efficiency; and an over reliance on fast, easily visible metrics to judge performance. This climate was damaging advertising in general, blunting its edge. But it is especially dangerous for brand-building media like TV. So Thinkbox set out to change the conversation about marketing investment, re-focus attention on the value of brand building, and make the case for the long term – although not to the detriment of short-term targets; both are important. Also, alongside the effectiveness crisis is advertising’s long-running problem in the boardroom. The Institute of Practitioners in Advertising (IPA) has identified the need to talk the language of the boardroom better, and we need to have advertising recognised as an investment, not a cost. Ebiquity and Gain Theory were the perfect partners. Their guaranteed impartiality and media neutrality were crucial to the study’s integrity – as was the fact that it was a combined perspective from two normally competing companies. Using their pre-existing databanks of client-funded data, the study analysed over 2,000 advertising campaigns across 11 categories. For the first time, it quantified the impact that different forms of advertising have on the bottom line in both the short and the longer term. Importantly, this comprehensive data provided a view of the average case; there was no cherry-picking of successful campaigns. Category level detail ensured that it was relevant to advertisers’ own businesses. What emerged was a compelling case for re-thinking advertising investment and hard evidence of what businesses can trust to deliver growth. Here’s what Ebiquity and Gain Theory found:

58% of advertising’s profit return is overlooked when ignoring the long term

Less than half of advertising’s profit impact happens in the short term. Businesses optimising their advertising investment based solely on these more easily visible short-term returns are hugely undervaluing the total profitability driven by advertising. They are not maximising the growth and value of the company.

Advertising is a powerful business investment

Looking at total profit ROI over 3 years, the average campaign delivers a profit ROI of £3.24 per pound spent. This varies by channel, but all forms of advertising, except online display, deliver profitable returns when you look at their long-term impact.

Focus on volume and scalability

In the short term, TV is responsible for 62% of all advertising-generated profit at an ROI of £1.73 for every pound spent, the highest of any media. In the longer term, TV advertising creates 71% of total advertising-generated profit at an ROI over 3 years of £4.20 for every pound spent, also the highest of any media.

TV delivers scale of return

TV drives the most profit because its scale and popularity enable it to deliver efficient profit return at high volumes of spend. Businesses can increase investment in TV to a higher level than other media and it will continue to generate a profitable return before diminishing returns kick in.

Advertising can be risk assessed

In the long term, 72% of advertising campaigns create profit. Advertising is a safe business investment. TV is the ‘safest’ medium as it is most likely to create advertising-generated profit, both in the short and long term. In the short term, 70% of TV advertising campaigns deliver a profitable return. During the 3 years after ad campaigns finish, this increases to 86% of TV advertising campaigns delivering a profitable return.

It’s time to reassess the return that advertising can generate

Businesses can now reassess the potential return that can be generated by different forms of advertising. For example, the study concludes that advertisers may be missing out on maximising advertising-generated profit by under-investing in TV. Currently, TV accounts for 54% of advertising spend among Ebiquity’s database, yet it is responsible for 71% of total advertising-generated profit. “Profit Ability” has transformed the conversation about advertising and put it toe-to-toe in the boardroom with other investments. It bridges the gap between the marketing and finance departments with compelling evidence that quantifies advertising’s ability to deliver shareholder value. This unprecedented new study does a powerful, evidence-based job for all forms of advertising, but particularly TV, which emerges as vital to business success. It has thankfully been welcomed across the advertising industry and has armed businesses with benchmarks for what they can trust advertising to deliver. I’ll leave the final words to Alex Hesz, adam&eveDDB’s Chief Strategy Officer: “If TV didn’t exist and something new turned up with these numbers, the industry would abandon everything else (especially online display).”

 

Discover the TV Key Facts publication here