Quantifying the Ripple: Word-of-Mouth and Advertising Effectiveness

John E. Hogan
Strategic Pricing Group

Katherine N. Lemon
Carroll School of Management, Boston College

Barak Libai
Faculty of Management, Tel-Aviv University

MEASURING ADVERTISING EFFECTIVENESS: HOW CAN WE IMPROVE?

Debate over how best to determine advertising effectiveness has continued unabated for decades as firms struggle to justify expenditures for one of the largest line items in the marketing budget. Participants in this debate often fall into two camps based on whether they focus on individual or aggregate level advertising response. Advocates for individual response models rightly argue that it is essential to understand how consumers process and react to an advertisement so they may better manage the development and deployment of advertising copy. Critics of individual level models argue that such models do not provide a clear linkage between the individual's attitude formation and firm profits. In contrast, aggregate response models can be more clearly linked to profitability, but often provide few insights into the underlying processes driving sales growth and profits.