“Never stop testing, and your advertising will never stop improving.” – David Ogilvy

Global ad spend is expected to reach over $530 billion in 2014. Television advertising still dominates at roughly 58%, but the number of ways people consume that media is exploding. As a result, understanding just what is actually contributing to a company’s bottom line is becoming more difficult to diagnose.

For this reason, validation exercises are important as they do three key things: 1) quantify advertising’s contribution to ROI, 2) confirm the relevant definition of “advertising quality,” and 3) provide a baseline for what we know and do not know about how advertising works.

Ameritest ventured to tell a “big data” story using validation, and to do so using only metrics related to ad quality and publicly-available information. In other words, understand the big picture of what advertising does for sales growth without factoring in spend.

What did we find? Using only four, ad quality related variables, we could explain about half of the change in McDonald’s same-store sales over a 6 ½ year period. Moreover, the research exposed additional key findings, including the notion that without a key strategic message, McDonald’s actually hurt its own sales growth by airing some of its advertising.
So what did we use to predict McDonald’s sales changes?

1)  Sales Momentum – an average of the sales growth for the prior 3 months in each          month’s window
2) Calorie Communication – a dummy variable reflecting when McDonald’s began showing calorie content on its menus
3) Advertising Quality – two variables combining Ameritest’s key research metrics (breakthrough, branding, persuasion) with an ad’s messaging strategy.

Using a linear regression, we were able to show that these four variables predict 48% of the variance in McDonald’s same-store sales from January 2007-May 2013.Blog Pic1

This result was important because it demonstrated the importance of advertising to sales, on both macro- and micro-economic levels. However, it is that Negative Advertising Quality variable that leads to one of the more intriguing findings of this analysis.

When a strong strategic message is absent from McDonald’s advertising (i.e. enjoyable place, good value, great tasting), the consumer will most often default to a message of “convenience” – after all, McDonald’s is nothing but not convenient for the consumer to get to, right? However, this Negative Advertising Quality variable is a combination of key metrics as they relate to the convenience message. When an ad communicates convenience more than any other key message, average ad quality tends to be significantly lower, and the negative beta in front of that variable suggests that sales actually go down when an ad of this nature is shown!

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This validation confirms that advertising quality is an important component to sales growth and that the right message is critical to avoid missteps in airing content. Both of these make research a vital tool in assessing an ad’s performance.

For a copy of the full white paper detailing this research exercise, please visit http://ameritest.net.

Adam Page and Ralph Blessing will also be presenting these findings at the ARF ReThink conference in New York on Tuesday, March 25th, so make sure to attend this discussion to see where research is heading next!