But we can’t tell you how or why or give you any evidence for it.” Today, on Freakonomics Radio: a hard look at the hard-to-find evidence around digital advertising. With so many advertisers spending so many billions, they must be getting a healthy return on their investment, right? So, digital advertising must be effective, right? More than 80 percent of Google’s revenue comes from advertising more than 98 percent of Facebook’s revenue comes from advertising. That’s how Facebook and Alphabet, the parent company of Google, have become two of the most valuable companies in the world. Last year, advertisers spent $123 billion on internet ads in the U.S., just less than half the total ad spending across all media. The internet has made it almost too easy to sell to us. The thinking behind advertising has changed radically with the arrival of digital and data. You also tell them where you live what you wear and listen to and eat what kind of people you hang out with which God, if any, you believe in which political party you hate less than the other. WEED: The more relevant you are to the audience, the more interested they’ll be in your message, and the more interested they’ll be in your message, the more likely they are to buy your product.Īnd thanks to the cookies on your phone or computer - such a cute name for such a powerful tracking device - you are constantly telling the companies who installed those cookies exactly what you are interested in. That’s the former chief marketing officer of Unilever, Keith Weed. Keith WEED: At the end of the day, everything around marketing strategy is around segmentation. What we do know is that people are spending more time online than ever before, and that digital advertising holds the promise of matching advertisers precisely to the people who want their products.
Was TV advertising always so inefficient - or did it lose its luster recently with the arrival of digital giants like Google and Facebook? We don’t know the answer to that question. Or the game-theory aspect - that is, if you don’t advertise your product and your rivals do, where does that leave you? Still, any company that spends even thousands of dollars on TV ads, much less millions or billions, would have to be sobered by Anna Tuchman’s findings. For instance, they’ll point to the brand-building aspect of advertising: “It’s not just about short-term sales,” they’ll say. There are, not surprisingly, objections to this research. Stephen DUBNER: So, your research argues that TV advertising is about 15 to 20 times less effective than the conventional wisdom says, yes? She’s a marketing professor at Northwestern University, and she recently co-authored a massive study on the efficacy of TV advertising:Īnna TUCHMAN: This means that doubling the amount of advertising would lead to about a 1 percent increase in sales. Here’s what we heard last week from Anna Tuchman. the Super Bowl alone brings in more than $300 million.Īnd how effective is all that TV advertising? I mean, how good is it at actually selling the products it’s telling you to buy? The conventional wisdom says it’s got to be effective why else would companies spend so much money on it? But the data tell a different story. But TV still accounts for roughly a third of ad spending in the U.S. Because of the digital revolution, television advertising has lost some of its primacy.
That’s more than half a trillion dollars - on advertising. Globally, the figure is nearly $600 billion. In our previous episode, we learned that more than $250 billion a year is spent in the U.S.
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