TV Advertising: The Path To Profitability

October 17th, 2018 | ACA Team, Association of Canadian Advertisers

TV Advertising: The Path To Profitability

Turmoil and changes have defined the media landscape for the past decade or more. With the emergence of new forms of advertising, marketers are left to wonder what are the best channels to grow their brands and drive profitability.

At a recent ACA webinar, results from an extensive study about advertising effectiveness were shared by Kathy Gardner, Vice-President, Media Insights at ThinkTV.

The study, “Profit Ability: The Business Case for Advertising,” by Ebiquity and Gain Theory, was commissioned by Thinkbox, the marketing body for commercial TV in the U.K. The researchers analyzed more than 2,000 campaigns across 10 categories to uncover the impact that advertising has on short-term profit. They also looked at 500 campaigns to understand long-term returns.

The study found that television outperforms all other media. It is the most effective form of advertising in the short term (0-3 months), generating an ROI of £1.73 for every pound invested, compared to £1.51 for all media.

TV creates 62% of short-term advertising-generated profit, followed by print (22%), radio (5%), online video (5%), and out-of-home (3%).

In the long-term, TV ads generate £4.20 for every pound invested compared to £3.24 for all media. TV also generates 71% of advertising-generated profit in the long term, compared to 18% for print, 4% for online video, 3% for out-of-home and 3% for radio.

TV is also the “safest” (lowest risk) advertising investment, with the highest likelihood of profit return.

“TV is able to demand not only consumer attention, but create demand for your products,” said Gardner. “We often hear that TV is viewed as an expensive media. However, dollar per dollar, TV delivers a terrific return for your investment.”

While TV came out on top, the study found that all forms of advertising create profit to varying degrees in both the short and long term. On average, advertising creates a total profit (ROI) of £3.24 per pound spent over three years.

“Advertising does work,” said Gardner. “It delivers tremendous amount of profit for every dollar spent, and responsible ROI does focus on profit.”

Gardner also shared the results from a recent study by the U.K.’s Institute of Practitioners in Advertising (IPA). One key finding is that the optimum balance of brand building and activation expenditure for all purchase categories remains at 60:40. However, there are variations among categories. For example, for purchases with high emotional involvement, such as luxury products or gifting, the allocation of the
communications budget is 65% brand building and 35% activation. For categories with high online research, such as travel, brand building is even more important, at 78%.

“People like to do their own research, but for [consumers] to be enticed to go to that site and explore further, they really to need to be able to connect with the brand,” said Gardner.

The study also found that digital makes mass media advertising more effective, especially TV. “When you pair TV and digital together, the number of very large business effects, including sales and return on investment, has grown significantly,” said Gardner.

The research shows a 54% increase in the average number of very large business effects from adding television and online video together, versus 32% for television only and 25% for online video only.