"Perhaps the most enduring challenge for those involved in the advertising industry is to explain how it actually works ..." (Reed and Ewing, 2002)

"How quickly come the reasons for approving what we like!" (Jane Austen, in Ambler, 2000)

Author Note:

This white paper is a bit long and rather detailed. But sometimes reality is complicated. The thesis will challenge commonly held beliefs with regards to marketing today, in particular the desire for an ironclad ROI calculation. Reality does not always comply with our business imperatives, and to pretend otherwise is potentially disastrous.

Introduction

I watch quite a bit of English Premier League soccer (though I never played the game myself) which is how I learned what "stoppage time" is- the ref will add some time to the clock at the end of the first half and again at the end of the game to make up for time lost to injuries, substitutions and other delays to the game. This is how I discovered that Progressive Insurance often pays to sponsor the stoppage time, with an eminently British announcer stating something like "The Progressive Insurance stoppage time is three minutes." Like all marketing professionals, I have tried (without success) to calculate the ROI on that ad. It must be pretty high, though, because recently GEICO began advertising during the second half of the games. And since there are no commercials in Premier League Soccer, the GEICO ad amounts to a small banner display ad next to the score on the upper left corner of the television screen. Can't even click on it.

Given that a team like Manchester United is the third most valuable sports franchise on the planet, it must certainly cost a fortune to advertise in that spot, and it seems like an awful lot of money to spend when Progressive has no idea what the return is on their investment. Maybe they have a "shrug" emoji they enter into Excel when running the numbers. Not all companies have the same financial resources as Progressive, of course, but even the largest companies are reluctant to waste money. So how do they know this is making a difference in the minds of consumers? And what should the takeaway (and action plan) be for small businesses? To answer the question we need to start with a topic that is strangely absent from marketing blogs and discussion groups - how marketing communication and advertising actually works.

How Marketing Communication Works

The honest answer to how ads work is - it's complicated. And it depends. That's not a dodge, it's actually a remarkably significant (and honest) statement. After over 100 years of research, it appears the academic world has settled on a few schools of thought, with the implicit recognition that no one model seems to fit in all circumstances. Indeed, in a 2016 article, a marketing professor with over 50 years of research and marketing experience noted "This lack of understanding regarding what causes the activation of advertising has resulted in the oft-repeated quote 'I know half my advertising spending is wasted, I just don't know which half' - which is as accurate today as it was a half-century ago when it is said to have been coined" (Schultz 2016, emphasis added). The fact that CEOs and even some CMOs don't want to hear this is, unfortunately, not evidence against it. So if our knowledge isn't perfect, what do we know?

Reach And frequency - The Basis (Still) Of Marketing

We have to start with a look at the human brain, which we know but don't often point out, is where brands live. There are several theories about how our brains work with respect to advertising, but research typically focus in three aspects - memory, affect (which means "liking" or having positive feelings toward something) and cognition, or conscious thinking and information processing.

"To understand from a neuroscience perspective what advertising does for brands, we need to consider three brain functions at three times. Memory, affect, and cognition ... may be involved in (a) processing the original ad, then in (b) how it is stored and finally (c) when the consumer makes brand choices." (Ambler, 2000)

There are three main schools of thought with respect to how advertising works, and all three acknowledge the impact of the three components, but to different degree and with different emphases.

One of the earliest theories of advertising is still widely taught and believed today, despite the fact that most recent research finds limited support for it in typical purchase situations. The sales mantra of AIDA (attention, interest, desire, action) was applied to marketing in the 1890s and is based largely on cognition. It's the one you'll most likely find in a marketing text, but as more recent research has shown, it is also the least likely to represent reality in most purchase situations.

The second school of thought focuses primarily on experience and memory and the associations between memory nodes, and is often associated with the Ehrenberg-Bass school of thought and the excellent book "How Brands Grow" (Sharp, 2010).

Lastly, the third focuses more attention on the interplay of memory and affect, and the power of emotion in purchasing decisions. What's interesting is that the latter two theories have the most empirical support, and both emphasize memory as the critical component. Recent research in neuroscience (including EEG and fMRI studies) emphasize affect and the role of emotion in decisions. Cognition, the idea of the "rational economic actor" receiving and assessing differentiating marketing messages and often thought to be the foundation of marketing, is relegated to second (or third) class status.

Involvement And Relevance

A couple other concepts need to be addressed before digging into the brain. The first is the idea of involvement. Involvement is "... the degree of personal importance ascribed to a product or situation by an individual including the perceived risk involved in the purchase decision." (Reed and Ewing, 2002) We are wired to make the best decision with the least amount of cognitive effort, so much so that we are quite often in the words of Dan Ariely "predictably irrational." We are "satisficers" by nature, meaning we want to achieve a minimum level of satisfaction, but typically do not want to invest the time and energy to weigh all of our options in great detail, unless the decision is of significant importance. So we stop searching once we come to the option that meets that threshold of utility. Readers of Daniel Kahneman's Thinking Fast and Slow will recognize the System 1 side of the brain that makes quick (and sometimes irrational) decisions based on the desire to limit active cognitive processing.

But there are cases where we are more likely stop and weigh our options more carefully, because there is significant risk (expense, hassle, social status), or there are other individuals that are participating in the decision, or you will have to justify your decision to a superior.

This is the basis of "involvement" and it varies for an individual relative to the decisions that need to be made. You might try a new brand of coffee without much thought, but when it's time to buy a new car you may take more time to ensure your investment makes sense or your social status is not adversely impacted. The Ehrenberg school of thought (discussed below) is a bit more dismissive of the idea of involvement, suggesting that memory and experience (through product trial) are dominant in all purchase decisions, including what would be termed high-involvement.

But most research indicates that evaluating involvement is a critical but often overlooked step in developing marketing programs - you need to ascertain as best as possible the level of involvement your products or services require on the part of your customers. What marketing communication tactics you employ and how you implement them depends to a great extent on the involvement demanded of your customers. We'll return to this idea later.

The second concept is familiar to all marketers, relevance. What is perhaps most interesting in this regard is the lack of data on relevance and how advertising works. The relevance of products or services at the time of ad exposure appears to impact the likelihood of the brain processing and storing the memory (Page, 2007). In the case of direct response it is, of course, a key factor in purchase decisions since the purchase is directly tied to ad exposure. But since most advertising and marketing communications work at some point in the future, relevance can be difficult to assess at the time of exposure. If you're 15, an ad for heart medication will not likely be processed in the same way as an ad for the latest iPhone. But even ads that are not relevant to some demographics are often stored and retrieved by those demographics (my 10 year old knows jingles for ads that are in no way relevant to her). Ultimately, ads for car insurance will still be processed despite the fact that at the moment you're not in the market for insurance, but may be 6 months from now. So the goal is to always be relevant, but the risk is that in an effort to specifically target a currently relevant market you narrow your scope too much and over-segment. (Romaniuk and Sharp, 2017). That it's possible to be too specific with targeting is a subject of some controversy, one we'll return to below.

AIDA And Cognition

Sometimes referred to as "persuasion theories" that follow a "Learn, Feel, Do" process, these theories collectively suggest that the first step in ad processing is cognitive in nature. There are a quite a few theories that focus primarily on cognition, and a comprehensive description of all is beyond the scope of this paper. But they all share the key idea that ads impact individuals through some form of cognitive processing. Note that "cognitive" here does not refer to simple exposure and storage of a memory. Don't confuse "storing a memory" with cognitive processing - cognition is more active thinking, consciously processing data and/or comparing alternatives. The various theories associated with persuasion differ as to the nature and extent of cognitive processing, with some providing for either high level cognitive processing under high involvement situations, or more heuristic processing which involves the use of "deductions or rules of thumb derived from previous experiences." (Ambler 2000)

For example, the Elaboration Likelihood Model (ELM) suggests that individual will receive a communication and process it in one of two ways. The Central route suggests high motivation on the part of the receiver, high involvement, and conscious attention paid to information in the communication. The Peripheral route suggests that the information is processed with the use of guidelines or rules of thumb. That we are able to quickly and accurately categorize previously unknown objects or stimuli is really an amazing feat of processing. The idea is that any communication processed through the central route is more likely to have strong memory associations on the part of the receiver, and will be more impactful at the time of purchase decisions. What's interesting in the cognitive models is the acknowledgement that some processing is "less cognitive" in nature and begins to look a lot like some combination of affect and memory (discussed below).

Memory-Based Theories

A key objection to cognitive models is that a great deal of research suggests that the human brain doesn't work like the computer it's made out to be, and that we are far less likely to engage in as much cognitive processing than supposed. Exposure builds and reinforces memory and associations, and this is why some brands come to mind when we are faced with a need.

"A stark empirical fact is that we know more about the brands we buy, and we buy the brands we know more about. We rarely buy brands we don't know and rarely think about brands we don't buy." (Romaniuk and Sharp, 2016). This sums up what's sometimes referred to as the Ehrenberg-Bass school of thought (sometimes called the "weak" theory) which emphasizes memory over affect and cognition, and notes that quite often advertising reinforces behavior (e.g. product trial), not the other way around. The net result for marketing practitioners is to emphasize the "mental and physical availability" for products and services, building brand associations in consumers' minds through promotional activities. It's marketing at its most basic - get your product in front of category buyers, connect it to a need and make sure they can get it easily. Since we "buy the brands we know" the key issue is "cued retrieval" which means we want our offerings associated with as many purchasing cues as possible ("category entry points" in their terminology).

What's so fascinating about this approach is the substantial empirical research that backs it up. If you think brands are important to sales then you think memory is important to sales, i.e. you recognize the importance of creating and refreshing memory in regards to the creation of a consideration set. And of course, brands exist only in memory. And if memory is important to sales, then things impacting memory (both creating and reinforcing) are crucial for sales. And we know that ads and other marketing communications impact long term memory (if they didn't you could never build a brand!), so what counts is clearly things that build and reinforce memory.

Some critics point to recall studies that show weak recall of ads, but what people don't often realize is that memory is actually quite stable. When over 600 colored pictures were shown to test subjects they could recognize 97 percent afterwards. And after 120 days they still got 58 percent correct. (Bagozzi and Silk, 1983). What can be tricky is that there are two types of recall that researchers have looked at, along with what is termed "recognition." Recall can be either 1) the ability to recall, without any aid, something you saw recently, e.g. "tell me what ads you saw during our test period." And 2) it can also be aided with cues, e.g. "tell me what ads you saw about car insurance in our test period." Lastly, recognition is where the actual ad (or whatever it is they are testing) is shown and the respondent tells whether or not they saw it e.g. "here's a set of ten ads, tell me which of these you saw during our test period." And it's this last one aspect of memory that is both most stable and most important for our purposes. We know that ad impressions and associations are retrieved from long term memory and refreshed when a similar ad (e.g. from the same company) is seen.

"... advertising, direct response apart, only works if it changes long term memory. Where the interval between seeing the ad and any behavioral outcome, such as purchasing, are more than six hours apart, the outcome is beyond the bounds of short term memory. Accordingly, if the ad did not change long term memory, it would have no effect at all." (Ambler, 2000)

This validates the importance of maintaining a core message and similar brand visuals for each ad, and also maintaining sufficiently high levels of frequency. Frequent retrieval and refreshing of memory associations (i.e. recognition) builds familiarity, and familiarity builds trust. And trust, as studies have shown over and over, is an essential element of a purchase decision.

Affect And Emotion

"Far too many marketers have ignored the elephant in the room - the role of unconscious decision making - despite the continually amassing evidence of its importance." (Van Praet, 2012)

One of the most important developments in the last 10-15 years has been the increased use of neuroscience in marketing research. The findings all point to one primary conclusion - we tend to be more receptive to emotional communications, and are far more emotional in our decision making processes than we'd probably like to believe. "The neuroscientist Damasio hypothesizes that all human decision making is rooted in emotion, even though we like to believe that we are 'rational' human beings." (Feldwick, 2016). Furthermore, the argument suggests that mere storage and recall of ads, even if subconscious, are not effective if they are not imbued with some kind of emotional element that helps to evaluate and "rate" the brand.

What's of particular interest is that proponents of the "affect school" suggest that it has impact even in situations of high involvement. For example, the rule of thumb that makes us believe that "expensive" means "high quality" is not a result of deep cognitive assessment, and yet it's likely to be applied to products that could be considered high involvement. Indeed, research in the UK "... found that campaigns with primarily emotional content performed about twice as well as the approaches that focused on rational content. Emotion moves people to buy." (Van Praet, 2012) Ultimately this is the point - "Marketing's goal is to generate strong positive associations." (PlayDevilsAdvocate Blog, 2017)

Even in situations where cognition comes into play, marketing and the associations it creates have built our set of alternatives, our consideration set. And this set is, in all likelihood, not based primarily on cognitive processing. "[This] does not suggest that thinking plays no role, only that it is subsidiary to and less frequent than memory and affect." (Ambler, 2000) At a minimum it strongly suggests what factors you should be considering in your evaluation, it influences what values to prioritize. Thus "...whatever can be easily recalled must be more important than information that is less easily recalled and people tend to weigh judgements towards this more available information." (PlayDevilsAdvocate Blog, 2017)

And it's not just conscious emotional appeals, we are influenced in subconscious ways as well. "The idea that advertising influences us subconsciously has caused alarm - the classic fear of the 'Hidden Persuaders.' But today, evidence from psychology and neuroscience that shows this is how much of advertising works is overwhelming." (Feldwick, 2016) It appears that critical brand associations can "...pass into long term memory without conscious learning taking place..." and these associations are acquired via "low attention processing." And the ease and speed with which we create these associations is quite remarkable. Among all our various cognitive feats "...this ability to automatically associate and categorize a seemingly infinite number of items, which even young children can do, may be the most remarkable." (PlayDevilsAdvocate Blog, 2017)

The implications are significant, not just for advertising, but for customer research as well. "If consumers are making their decisions unconsciously, why do we persist in asking them directly through market research why they do what they do?" (Van Praet, 2012)

Most of us are familiar with the Pepsi challenge, where even loyal Coke drinkers select Pepsi in a blind taste test. What's interesting is that Coke drinkers will point to a logical and rational reason for why they prefer Coke - it tastes better. Yet when tasting blind they tend to go with Pepsi. The point, of course, is that people are buying Coke not for logical reasons like taste, but because they have some emotional attachment or association with the brand. But the issue with consumer research is that people want to believe that they are rational people, and don't want to acknowledge things like emotion or the effects of advertising on their purchase behavior. So to resolve the cognitive dissonance, they come up with a cognition-based reason for their preference - they say it's the taste when the taste tests tell us otherwise. The danger, of course, is this is true when you are doing your customer research and your respondents might very well behave the same way.


Click here to read Part 2
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