Article by
Ed Rigdon

What is the long-term impact of marketing spending on a firm’s key metrics? According to Dominique M. “Mike” Hanssens, the long-term or total impact is just about twice the short-term impact.

That is the surprisingly simple answer to be drawn from years of research, according to Hanssens, Bud Knapp Professor of Marketing at the UCLA Anderson Graduate School of Management. Hanssens is also the immediate past Executive Director of the Marketing Science Institute, one of the most prestigious sponsors of academic research in marketing.

Business leaders often talk about the merits of focusing on the long term versus a short-sighted focus on the next quarter. Hanssens recently reviewed research on the long-term impact of marketing for members of Georgia State University’s Marketing RoundTable, a group including the senior marketing officers from more than two dozen of the largest Atlanta-based firms.

Hanssens granted that “the long term” has no fixed length. Still, many different studies generally agree that that the impact of single marketing actions, such as a specific advertising campaign, tends to follow a certain course and to have a limited lifetime impact on the firm and the marketplace. In fact, most marketing actions fail to have any lasting impact on the marketplace, leaving the various competitors in a status quo situation once the spending, competitive reaction and consumer response have run their course.

That’s not always true, according to Hanssens. But marketing will only have a permanent effect on a market when it is coupled with some basic change in underlying conditions, as when an important competitor withdraws from the market, or there is a technological innovation, or a new group of customers or users enters the marketplace. Timely marketing spending can permanently shape markets that are emerging or evolving.

With advertising spending, the most common effect is an immediate, large impact followed by a smooth return to prior sales levels. Customers, Hanssens believes, learn quickly, so they rapidly adapt to the new information. But they forget slowly, so it takes some time—typically a few months—for the market to revert to its old status.

Sales calls are far more effective (and much more expensive) than advertising. Sales call spending generates about five times the response generated by the same spending on advertising, but is subject to the same long-term multiple.

Students of marketing have long distinguished between brand-building spending, like advertising, and sales promotion activities, including coupons, deals and sweepstakes. Research says that sales promotions preserve the status quo in the market, and are generally money-losers. In the short term, sales promotions increase sales for the promoted brand by drawing sales from competing brands. In the long term, however, the bulk of sales growth comes from more consumers buying within the product category—customers who are normally priced out of the market, but who seize the opportunity, while the deal lasts.

Hanssens cautioned that marketers need to carefully consider the metrics that they use to evaluate their marketing actions. He cited the example of the Aflac duck. Aflac, a company with primary strength in Japan, spent $450 million in the United States promoting the company using its new spokesfowl. The campaign had a profound impact on awareness of the company in the United States, but the impact on Aflac’s profits was far more modest. Given the finite impact of most marketing actions, Hanssens said, each marketing action needed to earn its own keep in terms of its impact on a firm’s bottom line.


About the Author — Edward E. Rigdon, Ph.D., is Professor and Chair, Dept. of Marketing in the J. Mack Robinson College of Business at Georgia State University, http://robinson.gsu.edu/marketing/index.html. The department includes faculties in both marketing and business communications. As chair, Dr. Rigdon seeks to build on the department’s strengths and make the most of collaborative opportunities, working jointly with other units and institutions, with business leaders and with alumni. Contact Dr. Rigdon at erigdon@gsu.edu, or 404-413-7674.

About the J. Mack Robinson College of Business at Georgia State University — The J. Mack Robinson College of Business (http://robinson.gsu.edu/index.html) at Georgia State University is the largest business school in the South. With programs on four continents and students from 150 countries, the College is both worldwide and world class. Its part-time MBA program is ranked number five in the nation and has been in the top 10 for 13 consecutive years. The College has 200 faculty, 7,400 students and 65,000 alumni. Noted for an emphasis on educating leaders, the Robinson College and Georgia State have produced more of Georgia's top executives with graduate degrees than any other school in the nation.