The Enduring Value of Advertising: How Different Channels Build Brand Equity

Remember those old-school Coke commercials? You know, the ones with polar bears or heartwarming jingles? They might seem like a relic of the past in our age of TikTok and Instagram ads, but their impact on building the Coca-Cola brand is undeniable. This brings us to a crucial question in today’s ever-evolving advertising landscape: how do different advertising channels contribute to a brand’s long-term value?

It’s no secret that the advertising world has gone through a seismic shift. We’ve gone from shouting our messages from billboards and TV screens to strategically whispering them through targeted online campaigns. While this digital revolution has given marketers a whole new set of tools, it’s also made it trickier to measure the real, lasting impact of advertising on a brand’s worth.

Here’s the catch: while companies are pouring money into both traditional and digital advertising, there’s a surprising lack of research on how these different approaches actually contribute to building a brand’s value over the long haul. Why? Well, it’s partly because companies have been kinda’ hush-hush about sharing their advertising data – making it difficult for researchers to connect the dots between ad spending and long-term brand growth. But fear not, insightful minds are on the case!

A Deep Dive into the Data

Enter Scarlett Song, an assistant professor of accounting at the University of New Hampshire, who’s like a detective for deciphering the mysteries of advertising’s impact. In her recent study published in Management Science, Song dug deep into the world of advertising data to uncover how different channels influence something called “brand asset recognition.”

Think of brand asset recognition as that “aha!” moment when someone sees your logo or hears your slogan and instantly knows who you are and what you stand for. It’s that intangible but oh-so-valuable connection that separates brands from generic products.

Song’s research focused on three main categories of advertising:

• Paid Search: You know those ads that magically appear at the top of your Google search results? That’s paid search – it’s all about instant visibility and driving immediate purchases.
• Online Display: Think banner ads, those tempting visuals in the sidebars of websites, and those auto-play videos that make you jump a mile – that’s online display working its magic to build brand familiarity and associations.
• Traditional Media: Ah, the classics! We’re talking TV commercials (both those jingles and those super dramatic ones), print ads in your favorite magazines, and those radio spots that get stuck in your head – these are all about reaching a broad audience and solidifying a brand’s image.

Beyond the Sales Spike: Uncovering Advertising’s Long Game

Now, here’s where Song’s research gets really interesting. She found that while all advertising can boost sales, traditional media and online display advertising pack a secret weapon: they’re like the marathon runners of the advertising world, steadily building brand value over the long haul.

Businesses that invested more in these channels saw a fascinating trend:

• Greater Brand Asset Recognition During Mergers and Acquisitions: When it came time to buy or sell a company, those brands that had consistently shown up in traditional and online display formats were more likely to be recognized and valued for their strong brand equity. They were like the popular kids in school that everyone wanted on their team.
• Higher Brand Valuation in M&A Deals: Remember those companies that invested in building long-term brand recognition? They didn’t just get noticed – they got paid! Their brand value shot up during mergers and acquisitions, proving that investing in brand building through these channels can lead to serious financial gains down the line.

On the flip side, paid search advertising, while effective for driving those immediate click-throughs and purchases, showed a stronger link to short-term sales rather than long-term brand value creation. Think of it as the sprinter of the advertising world – great for a quick burst of speed, but not necessarily building the same lasting brand muscle.

Decoding the Investor Mindset: Why Brand Value Matters

So, we’ve established that traditional and online display advertising can seriously boost a brand’s value in the eyes of potential buyers, but what about those holding the purse strings – the investors? Turns out, they’re paying attention too.

Song’s research revealed that investors, those savvy folks always on the lookout for a good return, react super positively to companies with strong brand recognition, especially those built through good ol’ traditional and online display advertising. It’s like a flashing neon sign saying, “Hey, this brand is legit, and people love it – let’s invest!”

This positive investor sentiment translates into higher stock prices, more favorable lending terms, and a greater willingness to back these companies for future growth. It’s a win-win situation – strong brands attract investors, and investors fuel further brand building.

The M&A Advantage: Why Mergers and Acquisitions Reveal Advertising’s True Worth

You might be thinking, “Okay, but how do we really measure the long-term value of something as intangible as a brand?” Well, Song argues that mergers and acquisitions (M&A) offer a sneak peek behind the curtain of traditional accounting practices.

See, here’s the thing: current U.S. accounting standards, those rule books that dictate how companies report their finances, treat advertising as an expense. Yeah, you read that right – all those clever jingles and eye-catching visuals are basically seen as money going out the door, not as investments building valuable assets.

But hold up – when companies merge or one swoops in to acquire another, something magical happens. Suddenly, they have to put a price tag on all those intangible assets, including brand equity. It’s like trying to put a value on your grandma’s secret cookie recipe – it’s not just about the ingredients; it’s about the love, history, and reputation baked into every bite.

This is where Song’s research drops a truth bomb: by analyzing the brand valuations during M&A deals, we can finally see the real impact of years of strategic advertising. It’s like those before-and-after photos that show the amazing transformation after a serious glow-up – except in this case, it’s a brand’s value that’s shining through.

Crunching the Numbers: Quantifying Advertising’s Impact on Brand Value

Okay, time to get down to brass tacks – what did Song’s research actually find when she crunched the numbers? She analyzed a massive dataset of advertising expenditures across various media from 2010 to 2019, focusing on 287 mergers and acquisitions involving publicly traded U.S. companies. Talk about a data deep dive!

Here are some of the key takeaways that’ll make you want to grab your calculator:

• Traditional Advertising Packs a Punch: A tiny 0.1% increase in traditional advertising spending (as a percentage of total sales) correlated with a whopping 17% increase in the probability of brand recognition during M&A. That’s like turning a small investment into a brand recognition jackpot!
• Online Display Holds Its Own: Not to be outdone, a similar increase in online display advertising spending led to a remarkable 41% jump in the likelihood of brand recognition. Clearly, those strategic banner ads and engaging videos are making a lasting impression.
• Brand Value Gets Real: Remember how traditional accounting treats advertising as an expense? Well, Song’s research flipped the script. A 1% increase in traditional advertising spending (relative to total sales) was linked to a solid 0.3% increase in brand value (as a percentage of sales) during M&A. That’s right – traditional advertising is adding real, quantifiable value to a brand’s bottom line.
• Online Display Shines Again: Online display advertising wasn’t far behind, with a 1% increase in spending (relative to total sales) associated with a noteworthy 0.7% increase in brand value (as a percentage of sales) during M&A. It seems those targeted online campaigns are paying off big time in the brand value department.

These findings are like music to the ears of marketers and brand builders everywhere – they provide concrete evidence that investing in traditional and online display advertising isn’t just about generating buzz; it’s about building a valuable asset that can pay off big time down the line.