RCTs in advertising - a worthwhile experiment

Business decision-makers often face the dilemma of the extent to which sales will increase with the increase in the advertising budget, as well as where to direct said budget in terms of traditional and digital media. The answer to this matters, especially when companies need to redirect budgets to keep the business afloat.

Prof Waldo Krugell

In his book, Principles of Marketing, marketing guru Philip Kotler describes how advertising is one of the most important elements of integrated marketing communications to ensure customers are alerted to the products of the business. For dealers, this means spreading their automotive advertising campaigns among both traditional and digital channels.

Recent research by AC Nielsen shows that advertising spend is down by 20% and it is likely that it will continue to fall. As the lockdown kept people in their homes, the out-of-home category of advertising became almost redundant. Yet, screen time has increased, and even though people are spending less, they are still shopping, and advertising is still one of the best ways to strengthen your brand and communicate your offering.

The Financial Mail reports that customers want simple business updates as regulations keep evolving, advice on dealing with the crisis, and products and services that may be useful. They also want stories of innovation and inspiring ideas, as well as how companies are making a difference to the lives of the broader community, including their employees.

According to Prof Waldo Krugell of the School for Economics at the North-West University, people want connection, and branding is about connecting with people and building trust.

“Knowing that Facebook has the most users, Instagram has been growing, or that TikTok is a growing social media platform in South Africa, does not solve the causality problem of whether increased advertising spending causes increased sales,” Prof Krugell told Dealerfloor. “You might end up paying a brand ambassador, but never know if he or she is making the difference.”

Prof Krugell believes that randomised control trial (RTC) experiments, together with software platforms that help you track and manage the work of “influencers, could have real benefits”.

“Economists have been using RCTs for a while in micro-development policy. For example, they look at questions like ‘do giving laptops to kids, improve learning’ or ‘should aid agencies give mosquito nets away, or sell them at a very low price’,” he said. “The key is to figure out what the baseline, or ‘control’ is and to then carefully add a ‘treatment’ and measure the effect.”

He explains that for a business that wants to try out a new advertising campaign or a promotion, the key is to design the roll-out in a way that one can learn something. “For example, advertise or change prices in randomly selected areas and not in others and try to measure the difference. Setting up a good experiment is hard, but can be very profitable,” he concludes.

It seems that traditional advertising is no longer a rule of thumb, but rather part of something bigger, something more integrated. Without a proper integrated marketing communication strategy, dealerships will struggle to get customers, prospects, leads and consumers.

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