The Decision Strategist

Seth Godin has this post on cheap media advertising that got me thinking. Basically he says that companies don’t make smart decisions with respect to advertising, because they will spend millions for a superbowl ad spot and then spend millions on the ad. The superbowl ad only runs once, but they will only spend a tiny amount on banner ads or AM radio ads, which are very cheap.

I can see two sides here. First is that Seth is right and the companies are falling prey to the framing and endowment effects, discussed on the Decision Making Errors page. Since they shell out millions for the ad spot, companies mistakenly think that spending millions is justified, and vice-versa for the cheap ads. We see this in all consumer goods, where a higher price gives the impression of quality, though there may be no actual difference.

On the other hand, it could be the case that the super bowl is an effective way of reaching millions of people at the same time. If considered in terms of dollars per person viewing the ad, I wonder if it’s still so much more expensive. Also consider the target market. Budweiser probably sees much more success from a super bowl ad than they would from web-banners or AM radio.

I was going to break down the numbers to see super bowl advertising was cost-effective, but turns out several people have already done that. XTVWorld assumes a $4 million cost per :30 ad, with a view rate of 80-85%. Roughly 42 million households watch the super bowl, up to 100 million people. This article quotes a media expert as saying an add for the same rating show would normally cost about $840,000. That means the super bowl is roughly four times as expensive as it should be. And yet clearly something is causing executives to buy the ads and shell out the cash for expensive production.

To be honest, I think it is a little of both. Advertising is more about establishing a brand name than actually getting people to buy something. If you’re Budweiser, you just want the next person who wants to buy beer to pick Budweiser. This won’t happen if they don’t recognize your brand (on the other hand, microbreweries depend on word of mouth to spread their brand). How much would it cost Budweiser for people to see a Pabst Blue Ribbon commercial instead? At the same time, I’m sure that ego comes into play more than a little bit.

-zot

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This entry was posted on Monday, August 20th, 2007 at 9:54 am and is filed under Consumerism, Decision Making.