Advertising in Mature Markets: Potentially Persuasive or Repurchase Reminder? Lynne Eagle, Lawrence Rose, Philip J. Kitchen Authors Lynne Eagle, Associate Professor, Department of Commerce, Massey University (Auckland), Private Bag 102 – 904 North Shore Mail Centre, New Zealand. Lawrence C. Rose, Head of Department & Professor of Finance, Department of Commerce, Massey University (Auckland), Private Bag 102 – 904 North Shore Mail Centre, New Zealand. Philip J. Kitchen, Professor of Strategic Marketing, Hull University Business School, Hull , UK. HU6 7RX. Telephone: 64-9-414-0800 ext. 9455 Facsimile: 64-9-441-8177 Email: [email protected][email protected][email protected]
Transcript
Advertising in Mature Markets: Potentially Persuasive or Repurchase Reminder?
Lynne Eagle, Lawrence Rose, Philip J. Kitchen
Authors Lynne Eagle, Associate Professor, Department of Commerce, Massey University (Auckland), Private Bag 102 – 904 North Shore Mail Centre, New Zealand. Lawrence C. Rose, Head of Department & Professor of Finance, Department of Commerce, Massey University (Auckland), Private Bag 102 – 904 North Shore Mail Centre, New Zealand. Philip J. Kitchen, Professor of Strategic Marketing, Hull University Business School, Hull , UK. HU6 7RX. Telephone: 64-9-414-0800 ext. 9455 Facsimile: 64-9-441-8177 Email: [email protected][email protected][email protected]
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Advertising in Mature Markets: Potentially Persuasive or Repurchase Reminder?
Abstract This paper reviews the literature relating to the impact of advertising in mature markets, together with a range of data illustrating the impact of inflation, advertising rate increases and audience fragmentation on the purchasing power of advertisers. We show that substantial reported expenditure increases in advertising expenditure over time mask the struggle that advertisers have to maintain share-of-voice in fragmented and highly competitive markets. In addition, we show that advertising in mature markets is primarily defensive, aimed at protecting existing market share rather than impacting on the overall size of the market. Introduction
“Advertising is in an odd position. Its extreme protagonists claim it has extraordinary powers and its severest critics believe them. Advertising is often effective. But it is not as powerful as is sometimes thought, nor is there any evidence that it actually works by any strong form of persuasion or manipulation”. Ehrenberg (2000: 39).
The advertising industry is somewhat beleaguered, with strident calls for total bans on advertising to children, advertising of liquor and of pharmaceuticals (see, for example, Kedgley, 2000; Toop et al, 2002). The assumption underlying calls for a range of advertising bans is that there is a direct link between advertising and the sales of the advertised products and that therefore a range of societal problems such as obesity, poor diets, or excessive alcohol consumption will be alleviated through the imposition of stringent restrictions or bans on advertising (see, e.g. Higham, 1999). Governments are under pressure to be seen to act on constituents' concerns. Therefore, either restricting or banning advertising may seem an easy way to show that governments take such issues seriously, even though these actions are unlikely to achieve the objectives set by policy makers (Eagle et al, 2003; Young, 2003). However, Eagle and Ambler (2002: 441) note ironically that French research showing that increased alcohol advertising is correlated with reduced sales but that “the policy option that advertising should be increased in order to reduce consumption further does not appear to have been seriously considered by the French Government”1. In addition, high levels of reported advertising expenditure by highly visible advertisers such as many fast food or snack food marketers leads to disbelief, if not outright derision when the industry suggests that advertising has no effect on overall sales levels but rather is intended to compete for, or to protect, market share among existing users of the products (see, for example, Cowell, 2001; Bang, 1998; Ambler, 1996). This paper aims to provide an in-depth analysis of the evidence regarding advertising’s role in mature markets for low involvement products in order to help illuminate and stimulate the discussion on how policy makers and society should identify and address any potential detrimental effects of such advertising. It will show that much of what is perceived to be substantial increases in volume of advertising, as measured by advertising expenditure, merely reflects an attempt to maintain share of voice in highly competitive but fragmented markets, against rate increases that exceed the rate of inflation, and against declining buying efficiency as audiences also fragment across a wide range of entertainment options.
1. Product Life Cycle Theory Ambler (1996) highlights a concept, which appears to present legislators with difficulty - total advertising does not affect total market size in a mature market. This can be readily explained via classic product life cycle theory (PLC), which was first debated in the 1950s. In spite of considerable criticism, particularly in the 1970s and 1980s (see, for example Holak and Tang, 1990; Metzner, Wall & Glucck, 1975), PLC remains a widely used marketing planning tool (Reed, 1997). Many of the criticisms of PLC appear to stem largely from overly prescriptive use rather than its use as a decision-making aid. Reed (1997: 124) suggests that the PLC is most useful “for providing guidelines or the development of objectives and strategies” when product categories rather than individual brand or overall industry level data are considered. The PLC concept views product categories
1 Eagle and Ambler (2002:441) suggest that the reduced sales were due to consumers switching “from cheap generic wines to more expensive branded wines and spirits”.
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or classes as passing through a series of stages during their ‘life’. Sales typically follow an 'S' shaped pattern over time. This is broken into four stages as illustrated by the following:
Source: Guiltinan, Paul and Madden, 1997: Figure 7-2 At the introduction stage, the product is new to the market, there are few competitors - buyers must be educated, through advertising and other marketing communication tools, about what the product does, how it is to be used, whom it is for and where to buy it. At the growth stage, the product is more widely known and sales grow rapidly with new buyers entering the market. Competitors are attracted to enter the growing market. Advertising expenditure also grows, with the emphasis moving from educating consumers about the benefits of the product to promoting the differentiating features between competing brands within the product category. At the maturity stage, sales growth stabilizes. Repeat buying makes up the bulk of sales. Survival of only the strongest competitors characterizes this stage. Advertising becomes intensely competitive and focused primarily on retaining existing customers and / or competing for a share of existing product users. At the product decline phase, there is a gradual falling-off in sales with changing buyer needs or due to competition from new products (Guiltinan et al., 1997: 183). Advertising expenditure declines as some competitors leave the market and the remainder reduce their promotional activity in line with falling revenue streams. Swan and Rink (1982) caution that the ‘S’ shaped curve shown above has many variations across industry types that should be recognized during marketing strategy development and also stress that decline is not inevitable. There is also a considerable body of literature discussing ways of preventing or delaying the decay stage through strategies such as product revitalization or product extensions (see, for example Sullivan, 1992; Reed, 1987). It must be recognized that there will be a substantial difference between the way that consumers view and respond to advertising for high versus low involvement products. High involvement products are those regarded as important to consumers who will therefore invest resources (both time and money) in ensuring that a purchase is optimal for them. Conversely, “in many purchase situations, the consumer could not care less; that is, there is low involvement” (Arnould, Price and Zinkham, 2004: 285). In the latter case, few comparisons are made between brands and decision-making is minimal. 2. Mature Markets: Characteristics The characteristics of mature product categories have not been examined as extensively as new markets in the academic literature, yet as D’Souza and Rao (1995) note, they are the predominant type of advertising-active markets. These authors summarize the available literature and suggest that mature markets have the following characteristics:
a. Most users and / or purchasers will have prior product experience and brand choice for low involvement purchases will be based on inertia, i.e. any perceived benefits from assessing alternative brands, particularly where individual differences between brands may be minor, is outweighed by the cost in time and effort of making the comparison. Consumers therefore continue to buy brands with which they are familiar even if they are aware that some alternatives may be ‘better’. b. There will be high levels of competitive advertising, however, product information needs, from advertising or any other source, will be minimal and product evaluations will be memory based. c. Product categories and the individual products within them operate close to the saturation point on the advertising response curve. This curve plots the incremental effect (in sales, awareness or other measures) of increasing amounts of advertising expenditure and, while its pattern may vary by product category, generally shows initial high returns from advertising, with incremental expenditure returning progressively smaller amounts of incremental returns.
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d. Advertising is aimed at maintaining the status quo, i.e. protecting existing market share rather than generating substantial numbers of new users.
These latter two points suggest a view of the role of advertising that is at odds with the widely accepted notion that advertising is used primarily to persuade. 3. Advertising as a Strongly Persuasive Force The impact of advertising has historically been viewed (Barry, 1987) as following a ‘hierarchy of effects’, a concept that originated a century ago in personal selling literature, in which consumers move through a series of stages from initial awareness of a product (A) through exposure to its advertising, to interest in the product (I), desire for the product (D) and finally action (A) in terms of purchase behaviour (the AIDA model). For an in-depth review of the strengths and weaknesses of such models, see Barry and Howard, 1990. Critics note the legitimization of models such as AIDA through their inclusion in many marketing texts, suggesting that “successive generations of marketing students were seduced by their simplicity” (Shankar: 1999, 2) and that they restrict the basis for applied research into improving or measuring advertising effectiveness. The view of advertising as a strongly persuasive force in all market sectors remains a major theme in both academic and practitioner literature, particularly that originating from the USA. It has maintained its dominance in spite of challenges launched over almost thirty years by a number of, mostly British, academics, most notably Ehrenberg (1974), Ehrenberg, Barnard and Scriven (1997), working primarily, but not exclusively on frequently purchased goods in mature markets2. This lengthy battle to gain acknowledgement that the ‘strong force’ does not apply to all market sectors is well documented by Jones (1990), and Ambler (2000: 299) offers the following wry observation:
“The assumption that advertising equals persuasion is so ingrained in the USA that to challenge it elicits much the same reaction as questioning your partner’s parentage.”
He further notes that traditional strong force persuasion theory appears to be the underpinning model for most of the entries in the most recent UK Advertising Effectiveness Awards. However, he also suggests that the implied dichotomy of strong versus weak force is misleading, asserting instead “each can explain particular situations and no advertising theory can always be right” (Ambler, 2000: 300). Tellis & Weiss (1995) review a number of previous research studies that were based on traditional econometric modeling. They observe that, when using aggregated data, several authors indicate that advertising has positive effects on sales. However, when these findings are contrasted with studies that have drawn on recent real-world disaggregated scanner data, their analysis indicates that advertising effects are weak or non-significant at the household level. Therefore, studies using aggregate time series data may lead to misleading relationships between advertising and sales being identified. 4. Advertising as a Weaker, Primarily Repurchase Reminder, Force Helgesen (1996) notes that the perception of advertising as a consistently strongly persuasive force, although supported by a majority of (Norwegian) advertisers, is not correct and claims that a great deal of advertising has much weaker impact on consumers. Heath (2001) provides an extensive review of the available literature and suggests that, for low involvement products, there is an expectation that familiar brands in a product category will be similar in performance to each other and that there is therefore minimal incentive for consumers to pay attention to advertising for these brands. His views are supported by Ambler (2000) who criticizes both the traditional hierarchy of effects models such as AIDA and more recent variations such as that proposed by Meyers-Levy and Malaviya (1999). His primary criticism is that these models assume that even advertisements that are “virtually unnoticed” (Ambler, 2000: 304) receive low levels of rational conscious processing by viewers. He further criticizes these models for assuming that advertisements that may be perceived as irrelevant are processed in the same way as those that are considered to have some degree of relevance to the receiver. Both Heath and Ambler suggest that advertising passively builds associations between brand names and attributes. These associations may then influence decision making, but at an intuitive rather than conscious level. Their views are supported by Ehrenberg (2001), who asserts that competitive products are seen as substitutable. Indeed, the view is also advanced that consumers frequently are not exclusively loyal to one single brand but
2 Ehrenberg (1974) proposed an alternative to AIDA and other hierarchy of effects models, suggesting that the sequence is more appropriately viewed as Awareness – Trial – Reinforcement (ATR)
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will usually have repertoires of brands to which they will have split loyalty. In such situations, the role of advertising focuses on: “- reinforcement of existing propensities to buy it as one of several acceptable brands - nudging such consumers to buy it more often” (Barnard and Ehrenberg, 1997: 22). Further support for the concept of a weak force theory of advertising’s influence is provided by Vakratsas and Ambler (1999) who suggest that product preferences are often formed after an initial trial and that, in low involvement purchasing, experience with a product is a stronger influence on future purchasing decisions than is advertising which they regard as primarily reinforcing existing preferences and helping to defend the consumers’ perceptions of a brand. This proposition is extended by Baker and Lutz (2000) who, using a study of university students as a base, distinguish between optimizing choice on the basis of proven brand performance superiority, satisficing with the first ‘acceptable’ brand in a brand repertoire being selected, and indifference. This latter choice mechanism operates in low involvement purchasing when the only search for information undertaken is restricted to identification of a brand. The purchase choice is based on buying the first brand out of a set they like. These authors (p. 2) provide the specific application of an indifference-based brand decision process to fast foods:
“A consumer may believe that there are no substantive differences (e.g. product benefits, location convenience, value) among the fast food hamburger restaurants in his / her consideration set (e.g. McDonald’s, Burger King and Wendy’s) and no meaningful negative consequences of selecting the “wrong restaurant. If so, the consumer is likely to be indifferent and influenced by the approach tendencies created by simple affective reactions to brands.”
5. The Fallacy of Composition Argument Ehrenberg, Barnard and Scriven (1997: 39) provide some insights in terms of competitive effects, noting that:
“If our competitors market aggressively and we do not, they would slowly gain (other things being equal). Hence, advertising has to be mainly for brand maintenance, an insurance to defend our existing levels of sales. Only on occasion will be either gain (as a bonus) or lose (if others gain)”.
Calfee (2000: 170) expands on the somewhat complex economic foundations of this phenomenon, formerly outlined by Caballero (1992), by suggesting:
“It is possible for competing firms – each applying a similar hierarchy-of-effects model based on the same learning so assiduously documented and disseminated in the scholarly literature – simply to offset one another’s efforts, leaving competition at a standstill with little brand switching despite large advertising expenditures. This reasoning applies even if it is assumed that all brand advertising is profitable in the sense of yielding greater sales for each brand than would have occurred without advertising for that particularly brand. It cannot be assumed that if each firm does better with advertising than without, the industry as a whole must do better”.
Thus, advertising in mature markets may be substantial but focused on protecting existing market share or obtaining share from other competitors. Failure to maintain presence in the market and awareness among purchasers may result in a loss of market share to competitors. An increase in advertising relative to competitors may result in increased sales, but at competitors’ expense, i.e. a zero-sum game (Jung and Seldon, 1995). The relationship between advertising expenditure and aggregate demand has been subject to analysis for over sixty years, primarily in relation to alcohol and tobacco products. Eagle and Ambler (2002) provide a useful overview of the principal studies in these areas across several countries. They conclude that advertising appeared to have an impact on sub-markets such as wine, but not on overall alcohol sales. In the tobacco market, they note that findings have been both contradictory and controversial (largely in relation to methodological issues). They observe that, even where a positive relationship between advertising and sales appears to be evident, the magnitude of the relationship shows evidence of declining over time. They assert that this is consistent with a maturing market. Eagle and Ambler (2002) also provide an econometric analysis of the impact of advertising on the size of the chocolate confectionery market in five European countries (Belgium, France, Germany, the Netherlands and the U.K.). They found no significant association, either immediate or lagged, between advertising and market size (sales) in any of the countries studied.
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6. So Why Spend So Much? Indeed, the debate over ‘how much is enough’ has long occupied marketing communication theorists and practitioners alike, with considerable debate regarding such aspects as the trade-off between reach and frequency (Percy, Rossiter and Elliott, 2001a); exposure distributions (Boivin and Coulombe 1990; Cannon, Leckerby and Abernethy, 2002); continuity (Ephron, 1995); and the use of models to estimate the effectiveness of media schedules (Ha, 1995). Danaher and Rust (1994) note that marketers who view advertising as an investment will spend to the level necessary to maximize the return on investment. Flandin, Martin & Simkin (1992:204) provide an observation with regard to levels of investment that, at first sighting, often causes disbelief:
“The overriding consensus is that there are no willing advertisers. Each time the decision is made to spend money on advertising it is only because the manufacturer or retailer does not know of a more efficient, more economical way of generating sales of his product”
In the case of fast moving consumer goods (fmcg) relying on distribution via major supermarket chains, advertising may be a means by which distribution / shelf space is maintained (Schultz, 2001). An additional factor that impacts on the weight of advertising is the need to keep a presence in the market as brand images and awareness levels decline over time. Burke and Srull (1998) review experimental data and stress that not only do people forget advertising over time, but competitive advertising activity may negatively impact on a brand’s perceptions, although Kent and Allen (1994) indicate that this latter interference may impact less on familiar brands than on unfamiliar brands. D’Souza and Rao (1995) build on this by suggesting that advertising repetition relative to competitive advertising is important, both as a reinforcement of existing brand preferences and also of brand associations being easily recalled at the time of purchase. This is consistent with the growing consumer-based (as opposed to financial-valuation based) brand equity literature (see, for example, Keller, 1987; Keller, 1999). Financial-based brand equity involves the valuation of a brand for accounting purposes such as brand acquisition or divestment. Consumer-based brand equity is:
“the differential effect that consumer knowledge about a brand has on the customer’s response to marketing activity. Positive customer-based brand equity results when consumers respond more favourably to a product, price or communication when the brand is identified than when it is not” (Keller, 1999: 102).
Marketers are, or should be, aware of the implications of excessive spending. Kirmani (1997) suggests that these implications include questions regarding whether advertisements that are frequently repeated send positive signals about product quality and the marketer’s commitment, or negative signals that excessive advertising equates to lower brand quality – or even a sense of desperation to sell the product. We have analyzed a high profile and contentious market, fast food restaurants, a category often demonized (see, for example, McGovern, 2002) for its heavy levels of expenditure and (incorrectly) alleged direct adverse impact on the dietary habits of children (see, for example, Higham, 1999; Cioletti, 2001). In the following section, we analyze (Tables 1 and 2) the reported advertising expenditure for the New Zealand ‘Restaurants and Cafes’ market as defined by ACNielsen’s Nielsen Media Research (2003). We then apply official government Consumer Price Index (CPI) rates as a deflator to show reported expenditure from 1995 – 2002 in 1995 dollars (Table 3). We must acknowledge that advertising expenditure is only a proxy for its effectiveness (see also Eagle and Ambler, 2002). Further, the Nielsen Media Research figures (the only source of individual advertiser expenditure data) overstate actual expenditure as they show all advertising at standard rate card rate and do not include negotiated discounts, bonus airtime etc. The data should be therefore treated as indicative of advertising exposure weight rather than of actual expenditure or of actual exposures against various population segments. An analysis of recorded ‘rate card value’ (via Nielsen Media Services) versus reported actual aggregate expenditure (via the Advertising Standard Authority) is provided in Table 4 to illustrate the magnitude of the variance between the two measures. The contrast between actual advertising rate increase data and industry reported actual aggregate expenditure shows that it is likely that the official Nielsen Media Research data in Tables 1 and 2 considerably overstates real advertising investment levels. Actual expenditure levels appear, from Table 4, to have merely kept pace with inflation. Thus the increase in reported expenditure has been due to increased costs rather than increased volume. Note: the Advertising Standard Authority is unable to provide disaggregated expenditure data.
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In addition to the impact of inflation, a further pressure on advertisers is a decline in buying efficiency over time as audiences fragment across channels and other entertainment options such as the Internet. It should be noted that the largest reported advertiser, McDonald’s, has actually lost ‘share of voice’ over time, against the subcategory of advertisers reported as obtaining more than $2.5 million of ‘rate card value’ media exposure in the 2002 calendar year, and only held its relative share of voice against the total category (Table 1). Expenditure is also being allocated across several media, although for this category television still accounts for some 90% of total reported advertsiing spend (Table 2) Table 1: Reported Rate Card Expenditure. Unadjusted figures, i.e. not including negotiated volume discounts or bonus airtime. 1995 – 2002 Calendar Years. Source: Nielsen Media Research, 2003. Category: Restaurants and Cafes (NZ $ millions) 1995 1996 1997 1998 1999 2000 2001 2002 McDonald’s 12.6 14.3 16.6 20.8 17.0 15.6 21.2 22.3 Burger King 1.0 1.6 2.1 3.9 4.3 6.7 5.5 5.3 KFC 6.8 8.6 11.3 11.5 11.3 10.8 11.7 11.2 Pizza Hut 2.9 5.9 5.0 3.6 3.5 4.6 4.6 5.3 Pizza Haven 0.1 0.5 1.0 1.1 2.0 2.6 2.2 5.1 Wendy’s 0.8 1.3 1.6 1.1 2.2 2.0 2.8 2.6 Subtotal major brands
24.2 32.2 37.6 42.0 40.3 42.3 48.0 51.8
All other brands 7.6 7.8 5.7 6.3 6.8 5.4 4.7 5.4 Total Category 31.8 40.0 43.3 48.3 47.1 47.7 52.7 57.2 McDonald’s 52.0% 44.4% 44.1% 49.5% 42.2% 32.1% 44.1% 43.3% Share of Voice Major Brands McDonald’s 39.6% 35.7% 38.3% 43.0% 36.0% 32.7% 40.2% 38.9% Share of Voice total Category Note: 1995 used as a base year, as it is the current base year for CPI data. Table 2: Percentage of Reported Rate Card Expenditure Budget By Media – All Advertisers in Category. Category: Restaurants and Cafes. Source: Nielsen Media Research, 2003. 1995 1996 1997 1998 1999 2000 2001 2002 Newspaper 1.2 1.2 1.7 0.9 1.2 0.6 1.0 1.2 Magazines 0.1 0.2 0.5 0.4 0.4 0.8 0.6 0.6 Television 95.0 93.4 92.5 93.2 88.2 89.5 90.1 91.4 Radio 3.7 5.2 5.3 4.9 10.1 8.8 7.8 6.5 Cinema 0.0 0.0 0.0 0.6 0.1 0.3 0.5 0.3 Total 100% 100% 100% 100% 100% 100% 100% 100% Table 3 then adjusts the reported data from Table 1 to show all expenditure in 1995 dollars. As can be seen, the impact of inflation substantially decreases the growth in reported advertising spending. Table 3 Reported Rate Card Expenditure Recalculated in 1995 dollars using the NZ Consumer Price Index. 1995 – 2002 Calendar Years. Source: Nielsen Media Services, 2003. Category: Restaurants and Cafes (NZ $ Millions) 1995 1996 1997 1998 1999 2000 2001 2002 McDonald’s 12.6 14.0 16.0 19.8 16.2 14.5 19.2 19.7 Burger King 1.0 1.6 2.0 3.7 4.1 6.2 5.0 4.7 KFC 6.8 8.4 10.9 11.0 10.8 10.0 10.1 9.9 Pizza Hut 2.9 5.8 4.8 3.4 3.3 4.3 4.2 4.7 Pizza Haven 0.1 0.5 1.0 1.0 1.9 2.4 2.0 4.5 Wendy’s 0.8 1.3 1.5 1.0 2.1 1.9 2.5 2.3 Subtotal major brands
24.2 31.6 36.2 39.9 38.4 39.3 43.0 45.8
All other brands 7.6 7.6 5.5 6.0 6.5 5.0 4.3 4.8 Total Category 31.8 39.2 41.7 45.9 44.9 45.3 47.3 50.6 NZ CPI 100 102.28 103.50 104.81 104.69 107.43 110.25 113.20 Note: The CPI decreased slightly between 1998 and 1999. For a discussion of this, see Rankin (1999).
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The ACNielsen database records total advertising expenditure (across all categories) as having increased 54% from 1995 – 2002, however, an analysis of this in comparison to actual expenditure as recorded by the Advertising Standards Authority indicates that actual expenditure increased only 13% across the same time period – i.e. only keeping pace with inflation (Table 4).Further, fragmentation of television viewing audiences means that a greater investment is required to obtain the same audience ratings. Tables 5 - 7 illustrate the decline in average audience and time spent viewing free-to-air (commercial) television over the period 1991 – 2003. In terms of time spent viewing (Table 7) marked decline is evident with the two major Television New Zealand (government owned) channels, TV-1 and TV-2. Growth in time spent viewing Can West’s TV-3 and TV-4 does not compensate for the decline in Television New Zealand’s performance. The subscription-based channels (Sky TV, with over thirty channels) accounts for the majority of the growth in overall time spent viewing. Table 4: Reported Rate Card Expenditure versus Recorded Actual Expenditure 1995 – 2002 Calendar Years. Source: Total Media, 2003 1995 1996 1997 1998 1999 2000 2001 2002 TV Reported Ratecard $M
885 950 1,028 1,106 1,114 1,177 1,214 1,361
(Source: AC Nielsen) Index 100 107 116 125 126 133 137 154 Actual TV $M 456 476 478 473 487 501 479 516 (Source: ASA using returns from Television Broadcasters Council) Index 100 104 105 104 107 110 105 113 Conversion 51.5% 50.1% 46.5% 42.8% 43.7% 42.6% 39.5% 37.9% Actual vs. Ratecard 1 Average “Discount”
48% 50% 54% 57% 56% 57% 61% 62%
2 Ratecard “Mark Up”
94% 100% 115% 133% 129% 135% 153% 164%
Notes: 1. average discount = 100 minus conversion e.g. 1995 is 100-51.5 = 48 (rounded) i.e. advertisers on average received 48% discount off Ratecard e.g. Ratecard = $885M;48% (48.47) discount = 51.5% Paid = $456M 2. Mark Up = Ratecard divided by actual: e.g. 1995 $885M / $456M = 1.94 = Ratecard @ 194% of actual :94% mark up
Table 5: Average Peak Time (6pm – 10.30pm) Audience Analysis (Percentage): All People aged 5+ years. Source: Nielsen Media Research, 2003. Only main Sky channels shown separately – all others aggregated under Sky Network.
2003 (to August) 89 11 Table 7: Average Time Spent Viewing Per Day (Total 24 hour period): All People Aged 5+ Years. Source: Nielsen Media Research, 2003. Results in hours and minutes per day. Only main Sky channels shown separately –all others aggregated under Sky Network
2003 ytd : Date period is from 1 January to 02 August. "-" represents a zero
It is extremely difficult to obtain industry sales data to match the advertising data due to commercial sensitivity on behalf of individual companies and somewhat idiosyncratic data aggregation in accessible secondary data such as the Department of Statistics. We would expect category sales to show growth in line with the overall total population growth, 11% between the 1991 and 2001 census periods (Statistics NZ, 2003). The data below in Table 8, for the period 1999 – 2002, reveal some interesting trend comparisons. It is extremely difficult to break these data down into categories that can be used for comparison as fish and chips, hamburger and ethnic takeaway foods are aggregated into one category. This is due largely to the difficulty of separating out data from takeaway outlets that offer a range of foods. Even less helpful is the combination of chicken takeaways with icecreams and lunch bars – again, primarily because of multiple food types being sold from individual outlets. These data below capture not only high profile ‘branded’ sales such as McDonald’s and Burger King, but also the full spectrum of takeaway and on-premise consumption such as suburban outlets and shopping mall food hall sales. What can be taken from the data shown below is that a substantial amount of the growth in food sales is not occurring in the categories most frequently demonized by those seeking to blame fast food marketers directly for the growth in obesity rates (see, for example Kedgley, 2000; Toomath, cited in Smith, 2003). These data should also be seen in the context of international reviews such as Buchholz (2003) who cites USDA survey data that indicates that, while hamburgers exceeded official estimates of recommended serving sizes by
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112 percent, pasta portions exceeded official estimates by 333 per cent and muffins by 480 per cent. Sales data alone reveals nothing about serving sizes or nutritional content (readily provided by chains such as McDonald’s, but not by most ‘unbranded’ retail outlets). Table 8: Sales Trend Data: Takeaway, Cafes and Restaurants Categories: 1999 – 2002. Source: Statistics NZ. Category Sales Growth Fish and Chips / Hamburgers / Ethnic Takeaways 12% Pizza Takeaways 30% Chicken / Ice Creams / Lunch bars 14% Average Growth across all Takeaways 15% Cafes and Restaurants 25% Average growth across all Categories (takeaways and cafes / restaurants)
23%
7. A Further Barrier to Persuasion: Consumer Skepticism Regarding Advertising Calfee and Ringold (1994) review six decades of (primarily American) research into consumer beliefs about advertising and conclude that beliefs about advertising have held constant over time. They note (p.229) that constant levels of skepticism over this period have been maintained despite “great surges and declines” in the strength of advertising regulation. They stress, however, that, while some 70% of consumers believe that advertising is prone to exaggeration, they also believe that its benefits outweigh its disadvantages in terms of providing information that consumers value, a view supported by Percy, Rossiter and Elliott (2001b) who add the observation that most advertising is actually responsible and that any marginal claims or images that may appear will inevitably receive harsh treatment from competitors. They further observe that proven cases of misleading advertising in the USA have seen a loss in stock market value for the offender. O’Donohoe (2001) cautions that prior research regarding attitudes to advertising have often centered on a single medium (television) and attempts to generalize results across all countries. She stresses that there are substantial differences across countries, with attitudes to advertising being more negative in the USA (see, for example Mittal, 1994) compared to Britain.Further, she suggests that attitudes towards advertising should be viewed as multi-dimensional – with reported unfavorable beliefs tending to focus on specific elements of advertising. Pollay and Mittal (1993) also distinguish between personal benefits from advertising, such as information and image, and perceived societal effects. The latter is seen as both positive, in terms of its impact on the economy and potentially negative in terms of reinforcing materialism. 8. Discussion The over-reporting of individual advertisers’ estimated expenditure must be recognized in any analysis using the ACNielsen database figures, simply because the current system has no way of determining the actual buying efficiency of any expenditure. Thus, appropriate deflators should be considered to ensure that trend data provide realistic reflections of real market conditions. What may appear from reported rate-card-based data to be substantial increases in advertising expenditure over time is in reality primarily an attempt to maintain the status quo. Inflation, advertising rate increases and media fragmentation mean that advertisers are forced to make annual increases to their mass media budgets merely to maintain a consistent presence with consumers relative to their competitors and to counter the inflationary pressure on advertising rates. Audience fragmentation presents an additional challenge to marketers, with free-to-air channels losing ground to subscription-based channels. This fragmentation can be expected to accelerate as the impact of new media technologies such as digital and interactive television become more widely distributed. In addition, we have shown that advertising is unlikely to be a strongly persuasive force in many markets. Consumer skepticism of advertising messages and the relative strength of previous experience with products means that the impact of advertising on immediate sales is likely to be weaker than many critics appear to assume. Advertising in mature markets is largely a zero-sum game, with any impact from variations in levels of advertising largely impacting on market shares and not on the overall size of the market. References Ambler, T. (1996). "Can Alcohol Misuse Be Reduced By Banning Advertising?" International Journal of Advertising, 15 (2), pp.167 - 174.
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