Saturday, Wall Street Journal columnist Carl Bialik, The Numbers Guy, addressed the subject of advertising value equivalency (AVE). This is perhaps the first example of a mainstream media publication shining a light of the controversial practice of AVEs. (You can read the story here.)
The primary reason advertising value equivalents exist are because they are perceived to be a way to attribute value to programs that would otherwise be difficult to value directly. They are a path of least resistance approach to return on investment calculations, but not a valid one. Let’s take a deeper dive into the three specific examples in the WSJ story, ask the tough questions and discuss more valid ways to think about value attribution and ROI.
You can enjoy both questionable valuation techniques and hyperbole in this article. American Airlines stands to “make boatloads of cash” and “the airline company could gain as much as $95.9 million of exposure”. Of really, let’s take a closer look.
The most incredible part of this financial calculation is the financial calculation itself. The calculation is apparently based on sign placement within the arena and presumably the ‘impressions’ the brand will receive when people attending the venue see the signage and when TV cameras catch the signs when showing the scoreboard or during the action. This is a very passive form of advertising that should have as its objective either creating top of mind awareness or perhaps creating more brand affinity. Rather than using an advertising equivalency model that has no validity, a true measurement of the value created by naming rights would ask a series of questions designed to determine the actual, tangible (or even intangible) impact on the business:
- Revenue: Can incremental revenue generation in the form of higher passenger miles be directly attributed to the exposure created by the naming rights? Is it possible that incremental revenue would actually be realized on a game by game basis, or would any positive impact be realized over a longer time horizon? Have new customers been created as a direct result of the exposure generated by the naming rights?
- Brand: Can the increased exposure lead to people perceiving the brand differently and can the difference translate into higher transactional revenues generated or increased brand loyalty?
So where exactly are the ‘boatloads of cash’ American Airlines made? Are they hitting the income statement in the form of incremental revenue or enhanced brand loyalty (repeat business)? Are they residing on the balance sheet in terms of brand goodwill? Given that American’s parent company AMR lost $11.5B dollars in the first decade of the 21st century, its last profitable year was 2007 and they are projected to lose money in 2011 and 2012, they could use the cash. Perhaps they could use it to fund a ’bags fly free’ program or for enhancing their Advantage program to create more brand loyalty. I would strongly suspect American’s shareholders would prefer a do-over on the investments made on naming rights to the ‘boatloads of cash’ they are now enjoying from the investment.
Couple Won’t Cash In on Kiss
15 minutes of fame is rarely worth $10 million. In this case, the celebrity agent is suggesting the news value of the coverage generated by the kiss is somehow equivalent to advertising value and assigns what appears to be an arbitrary and ridiculously high value to it. (He later admits he just made the number up.) Just how was the couple going to monetize their 15 minutes of fame? Yes, they turned down a few talk show opportunities and perhaps the National Enquirer would have thrown a few dollars their way for an exclusive, but the assertion that any major brand would have paid them to endorse their product is wildly speculative. I would guess that if you did a survey after the event, a small number of people would remember seeing the coverage, and a very small percentage of the people who did see it would have recalled Scott Jones’ name. So perhaps Mr. Jones walked away from tens of thousands of potential dollars in the short-term, but nowhere near the sensationalized estimate of $10 million. 15 minutes of fame might be worth 10 thousand dollars, but certainly not $10 million.
Obama Enjoys a Guinness
So Guinness is a winner and received $20 million worth of “free publicity”? What was the outcome of the publicity? Again, in order to determine the value of the “free publicity” (this term is despised in the PR industry by the way), Guinness would have to be able to measure incremental revenues directly attributable to the publicity generated. Did sales of Guinness increase as a result? Were new customers created? Did existing customers feel compelled to drink even more? What was the value of the incremental sales? These are much more difficult questions to answer but are the correct ones to ask in order to measure the publicity. Not by focusing on the mythical value of the coverage as measured by flawed advertising equivalency, but measuring the outcome or what happened as a result of the publicity. The assertion that President’s Obama’s image was softened and will help keep him in the public’s favor is highly dubious thinking. Perhaps it helps him in Boston, but in the grand scheme of things, this is a Presidential image non-event.
Beginning last Summer in Barcelona, the public relations industry has come together to publicly state advertising value equivalency is not a valid measure of public relations. The so-called Barcelona Principles are explicit against AVEs and also call for a focus on measuring outcomes and not (just) outputs. While it will take some time for the PR industry to totally leave AVEs behind, there is a lot of momentum right now to make this happen sooner rather than later. No serious measurement effort can use advertising value equivalency to attribute value and be credible.