Econometrics: The case for long-term advertising

Matt Clary and Paul Dyson

Econometrics provides a compelling case for the positive long-term impact of advertising on sales, but to measure it requires rigorous data analysis and a category-specific understanding of what long-term vs. short-term effects are.

Like many investments made in business, the financial return from advertising isn't always immediate. Many econometrics studies have shown that the short-term return on advertising is often less than the investment itself, especially for FMCG and consumer packaged goods (CPG). So, advertisers put their faith in the 'long-term' benefit of advertising to justify the investment, assuming it will more than compensate for the initial shortfall.

Indeed, many econometrics practitioners present the low, perhaps disappointing, short-term RoI to their clients, with the caveat that, 'Of course, the long term will be four times as much as the short term, so it will pay back'. But where is the evidence? Justifying a multimillion-pound advertising budget by simply multiplying the RoI by four (a standard multiplier used by many advertising professionals), might not seem like good business sense. That doesn't mean it's not correct.