At the turn of the last century, the retailer John Wanamaker famously said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

In today’s world, his estimate of wasted advertising might exceed 80% in certain economic sectors. If more than $400 billion is spent each year on advertising worldwide, just how much of that money is truly well spent and how much is simply wasted? Which advertising really works to engage and motivate consumers, and which advertising simply becomes background noise?

Going Back to the Future
To start to answer this question, we must go back to the future: Thirty years ago, the average American family had access to only seven different television channels. Television, card games and a ping-pong table in the basement were the popular choices in home entertainment. We watched every TV commercial, and we placed a much greater trust in brands and advertising, principally because it was a one-sided conversation. There weren’t websites with content to challenge the claims businesses were making about their products.

Viewing habits were largely uniform across the country for the same reasons: we didn’t have the expanded choices of multiple cable TV channels, DVRs, the Internet (…not even a home computer), mobile phones, video games and email. With the exception of cable TV, these new communication channels wouldn’t become available until the early 1990s.

In contrast, consumers today live in a world overflowing with a thousand television channels and billions of Internet websites. Despite the proliferation of media choices and increased viewing much of the marketing and media industry still depends on the same basic systems for guiding, buying and selling more traditional forms of advertising that were employed during the early 1990s.

Against this backdrop, it isn’t at all surprising that Chief Marketing Officers will tell us that they are unconvinced that a majority of their advertising is reaching their desired audience. Frequently, CMOs are equally concerned that their messaging is insufficiently engaging to motivate consumer behavior. For all their concerns, CMOs all agree that they have no choice other than to make continued investments to bring faster more accurate information, science and technology to the process of steering marketing expenditures.

A major advancement in answering John Wanamaker’s question
So, why hasn’t the science and technology for guiding marketing dollars kept pace with the media revolution? Today at The Nielsen Company we announced an exciting new joint venture with Catalina Marketing that will give marketers in the consumer packaged goods industry the tools to make marketing significantly more efficient and effective.

Today’s announcement starts to put in place the information and analysis that gets to the heart of uncovering what actually drives consumers, along with an accelerated development of technology, tools and processes to direct the right message to the right audience using the right media at just the right time.

Building on significant investments Nielsen has made over the last several years, this is another major innovation that advances our journey to help our clients navigate today’s marketing landscape and create substantially more impact from their marketing and advertising expenditures.

In a world where overall consumer demand is contracting due to rising unemployment rates, flat incomes and declining access to credit it is even more important to make these investments because it is going to get even harder to motivate consumers who are now saving money again to start spending it on your brands.

The Nielsen Company is committed to helping our clients connect the dots between what consumers are watching, learning and discussing across all media, and how that directly shapes the decisions they make for where they shop and what they buy.

Each year we are all getting closer to answering the biggest enduring marketing question of all time. By improving the science of how these decisions are made, we believe we will create benefits for both marketers and media companies in the coming years.

No one has yet figured out how to fully answer John Wanamaker’s famous question, but today’s announcement of the Nielsen Catalina joint venture brings us closer to a more precise answer than ever before.

A Brief History of Flight

In the mid-1980s, the highly regulated airline industry was relatively unsophisticated about how to price its main product, seats, until Peoples Express burst onto the scene. Peoples’ low fares quickly gained customers and market share. The big airlines took notice and responded in two ways–one obvious and one less so.

American Airlines responded with deep discount “Supersaver” fares, essentially matching Peoples on key routes. This was the obvious response. The less obvious response was the introduction of “yield management,” which gradually brought a level of sophistication and a data-driven pricing model that yielded a 3-8% revenue improvement, according to industry analysts. Yield management quickly spread to the hotel, car rental and other industries.

Yield management is an approach to maximizing revenue when a business has a fixed, perishable resource and can segment customers into groups willing to pay different prices for the same resource. In airlines, a seat is “perishable” as the revenue potential disappears once the flight has flown.

Simply stated, the airlines want to sell the right seat to the right passenger at the right time at the right price. Doing so requires sophisticated algorithms which account for capacity utilization, route scheduling, fuel prices, competitive pricing and the like. All those yield management algorithms are what’s behind the minute-to-minute price changes happening every time you book a flight.

Yield Management… For Marketing?

From an advertiser perspective, yield management is the ideal model:  place the right ad in the right program against the right target at the right price. In concept, it’s the same as selling airline seats, but on the buy side.

Making it Work

What’s required for yield management to work for advertisers?

• Digital – Digital is more easily measurable and therefore more usable in a yield management model.
• Cross-Media Measurement – Marketers must be able to measure viewership across TV, web and mobile to optimize media allocations.
• New Measurement Tools – Marketers must be able to target viewers based on any segmentation dimension, buy media based on ad effectiveness by program, and measure ROI.
• Real Time Data – All three of the above are needed in real time – 24/7/365.
• Accountability – Advertisers must demand greater accountability for every media dollar spent.

For some, the surprising news is that all of the above are either in place or rapidly becoming so. The future is closer than you think.

New Measurement Tools

Two new measurement tools are critical to moving to a real-time Yield Management Marketing Model:

1. TV Program Engagement – TV Program Engagement is a measure of how involved consumers are in a TV program. Is it really a surprise that viewers are more involved in “Desperate Housewives” than “America’s Greatest TV Stars?” Who cares? Marketers should, because TV program engagement is highly positively correlated with ad recall. Higher engagement = higher recall. So, buying ads in high engagement shows instead of low ones is more effective.
2. Advertising Effectiveness – Ads are more relevant to consumers if the equity of the ad fits the TV program they sit within. Is it any doubt that an ad for SlimFast is more effective on the “The Biggest Loser” than a program with different content but similar audience size and demographics? Now advertisers can buy media based on their brands Purchase Intent by program or genre.

Barriers

The advertising and media industry has had decades to build systems and processes to support the traditional media model. The systems for planning, buying and allocating media for brands won’t change overnight. But the trends are there to see, and the Marketing organizations with the most foresight and vision will see that reengineering these will yield great benefits.

So… When Do We Take Off?

There’s no doubt — all of the Yield Management puzzle pieces are now in place. In the future, advertisers will be able to:

• Target the Right Audience – Targeting will move from simple demographics to more sophisticated psychographic and behavioral targeting. And Marketers will be able to drive these segmentation schemes thru most of their marketing contact points.
• Identify the Right Program – Viewership will be supplemented with TV Program Engagement data. Marketers will become more sophisticated in identifying high engagement / high ad recall programs to improve their ad recall effectiveness.
• Match the Right Ad – Marketers will care about and measure the impact of program fit with their brands. This will enable them to match ads to programs based on purchase intent data, for optimal impact.
• At the Right Time – Media planning will move from an annual, exception-driven exercise to a real-time, algorithm driven process, fueled by continuously updated effectiveness metrics.

All of this will be connected to purchase panel data. So all of the buying, planning and allocation decisions will be held to simple question: did I get an acceptable ROI?

This is the coming “seismic” shift in Marketing—real-time ROI Marketing. Those who don’t get on board will be grounded in the new economy.

Recently, a client and I were discussing online advertising metrics, with topics ranging from engagement to awareness to intent, and of course, Return on Investment. It wasn’t until after the meeting when it struck me that not once did click through rates enter into the conversation. My hope is that this, and other similar conversations, is a signal that the online ad world is moving beyond its longtime fascination with the click through — the low-hanging (and sometimes over-ripe) fruit of online ad metrics.

Toward the goal of helping the industry move beyond the click through myopia that had historically characterized online ad measurement, I pulled together some analysis that is pretty interesting.

At Nielsen, we’ve done extensive work, particularly in the consumer packaged goods and retail industries, to help advertisers quantify the effect that online display advertising has on offline purchases. The results are quite positive. Looking at more than 300 campaigns over a span of about 5 years, using the basic formula below, we find the average ROI is a positive 157 percent.

What’s the bottom line for those watching their bottom line? Display advertising — particularly targeted advertising — works.

OK, But What About Those Clicks?
In an effort to measure the relationship between click through rates and ROI, we ran an analysis across 200 of those campaigns. The table below summarizes our findings. On the Y-axis we’ve plotted ROI percent percent and on the X- axis we’ve plotted click through rate.

If there were a relationship between the two metrics, we’d expect to see a grouping of red dots with an up/rightward inclination (the more clicks, the better the ROI). Instead, what we see is something more like a blob or a swarm. For you quantitative thinkers, the correlation between the two metrics is a negative .07, meaning that there is no relationship whatsoever between the two metrics. More to the point: across the campaigns measured, click through rate was in no way predictive of a campaigns’ overall effectiveness.

Beyond the obvious finding that advertisers should not be overly focused on click through rates, the big idea here is that advertisers should be including online display advertising in their overall marketing mix, increasingly taking advantage of flash/video ad units to reach the consumer, without the hope that the person exposed to the ad will be one of the few that actually click on ads.

Does this mean that display advertising works as well as it could? No, it does not. The online advertising medium is still immature. Great Don Draper-like story- tellers have not yet had their Kodak Carousel moments. While metrics don’t make great creative, in the long run, a focus on the right metrics will ensure that the creative that we consider great creative actually makes money for advertisers.

“Click through” to the comments to add your thoughts.

One might assume that the unemployment rate at a state level would show a strong negative correlation to the likelihood to purchase a vehicle in the next six months, but this doesn’t appear to be the case. Michigan had the highest unemployment rate at 11.6% in January 2009; however, these residents are slightly over-indexing for the likeliness to purchase a vehicle in the next six months. It’s very interesting that Mississippi is the most likely state to purchase a vehicle and Idaho is the least likely, since both states fall in the middle of the heap for unemployment.

January 2009 Unemployment Rate Vs. Likelihood To Purchase A Vehicle

Solely looking at shopping intention by state is too high of a level to glean any actionable insight. However, coupling intention with current vehicle ownership allows for smarter inventory planning and target marketing within each state. Typically, we would be a bit more aggressive and aim to conquest more sales, but in the current economic condition we need to be more cognizant of advertising expenditures and ensure a high ROI.

In 2009 it will be imperative that automakers focus on the total customer experience of existing owners and consider developing loyalty programs. It is much easier and cheaper to retain an owner than it is to make a conquest from a competing brand. Nielsen @Plan data is indicating that Oklahoma residents are the second most likely to purchase a vehicle in the next six months and are also over-indexing on owning a Kia vehicle and Compact Sedans/Coupes. There appears to be an opportunity for Kia to gain additional market share within Oklahoma especially with the Optima and Spectra. Lincoln also has an opportunity in Mississippi with an ownership index of 286, while Chrysler may want to reduce their ad spend in this state and shift focus to areas that have a higher concentration of Chrysler owners such as Iowa, Kentucky and Michigan.

According to research from Nielsen PreView, films featuring actors who are well-liked earned significantly higher revenues at the box office than films headlined by actors with stronger name recognition. 

In 2006 and 2007, comedy films featuring well-liked actors generated an average of $75 million in box office revenues, while those with less-liked actors earned only $44 million, on average.  In contrast, how well the actor is known made little difference at the box office.

The takeaway: films and brands that align with lesser-known, but well-regarded actors with loyal fans may see better returns than those generated by bigger celebrities.

Read Nielsen PreView’s Advertiser Handbook for more insights on entertainment media strategies.

Learn more about other recent Nielsen PreView studies on R-Ratings, 3-D films, and digital streaming video.

According to a new study by Nielsen Games, more than one-third (36%) of gamers bought, talked about, or sought information about a product after seeing it advertised in a video game.

Coke, Nike, Burger King, Axe, Pepsi, and Pontiac were cited by respondents as the most-recalled brands. 

Of the 534 active video game players surveyed by Nielsen, 11% purchased a brand advertised in a game or sought more information about it, 19% talked about a brand after seeing an in-game ad, and 10% recommended the product to a friend. 

Most of the gamers who recalled products featured in games reported that the ads did not detract from their gaming experience.

Results of an initial survey conducted during two weeks in late June show that DMG’s 4,110 multimedia displays on four Shanghai subway lines were viewed by 3,055,000 passengers.

DMG and Nielsen will track multimedia subway display viewership on a regular, long term basis in China.