What is advertising effectiveness measurement? Explaining the correct indicators and how to use them for each purpose and medium, and four perspectives that lead to results

"Advertising effectiveness measurement" is essential to correctly understand the results of advertising and use them in your next move. How much of the budget you invested in advertising has been effective? By clarifying the causal relationship, you can increase the repeatability of successful measures and accurately identify areas that need improvement.

Especially in today's world where various channels are mixed together, such as mass advertising such as TV commercials and transportation advertising, web advertising, and social media promotions, if the method of measuring effectiveness is incorrect, the risk of making incorrect decisions and not being able to optimize investment allocation increases.

In this article, we will explain the types of advertising effects and the main measurement indicators, and then explain the "4 points" that you should keep in mind to achieve results in practice. We will also introduce analysis methods and measurement methods, so please refer to this if you want to take your marketing a step further.

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What is advertising effectiveness measurement?

Advertising effectiveness measurement is the process of visualizing and evaluating the extent to which advertising measures are successful using numbers and indicators. In order to achieve maximum results within a limited advertising budget, it is essential to verify based on objective data, rather than relying on intuition or experience.

Three main areas that can be measured as advertising effectiveness

The effectiveness of advertising is multifaceted and cannot be measured simply by whether it led to sales. Understanding the effectiveness from the following three perspectives makes it easier to determine the intrinsic value of advertising measures.

① Contact effect(Reach/Visibility)

It is an index that shows how many people an advertisement reached and was viewed. For television commercials, this would be GRP or reach rate, and for web advertisements, this would be impressions or viewability.

② psychological effect(Attitude and perception changes)

It measures how the viewer's awareness, interest, favorability, etc. have changed as a result of exposure to an advertisement, including changes in brand recall, ad recognition, and purchasing intent.

③ Sales effect(Actions and Results)

It evaluates how much advertising actually induces actions such as purchases and applications, and is visualized using indicators such as CPO (cost per acquisition) and ROAS (return on advertising spend).

How to measure advertising effectiveness

The basis of advertising effectiveness measurement is "relative evaluation." You set clear goals in advance about what you want to achieve through advertising, and measure the effectiveness by comparing the changes in numbers before and after advertising.

The important thing is not to be satisfied with just "the numbers have improved," but to focus on "whether or not we achieved our goals." To do this, it is necessary to make the conditions such as period, target users, and channels as consistent as possible when comparing before and after advertising.

In addition, the effectiveness of advertising is not determined solely by your company, but is also affected by trends in the overall market and competition. For example, if demand is declining across the industry, this will also affect advertising performance. In order to correctly interpret the measurement results, it is essential to organize assumptions based on the external environment.

Furthermore, the indicators you should use will vary depending on the type and purpose of the ad. Next, we will explain the characteristics of mass advertising and web advertising, as well as the main indicators for measuring effectiveness.

Indicators for measuring the effectiveness of mass advertising

Mass advertising is used when you want to deliver information to a wider audience. It is easily recognizable to a wide range of generations and can reach many people in a short amount of time.

Here we will explain the effectiveness measurement indicators for mass advertising.

Characteristics and types of mass advertising

Mass advertising is an advertising method that delivers information to an unspecified number of people at once, such as television commercials, newspaper ads, magazine ads, radio commercials, etc. It has a wide reach and is suitable for raising awareness among many people in a short period of time.

In addition to promoting products and services, it is also expected to have an effect on corporate branding and improving image. However, due to its broad appeal, it is difficult to quantitatively grasp the effects.

For example, even if the viewer rating is high, it is not clear whether the viewer actually saw the advertisement. Also, the impression of the advertisement may lead to purchasing behavior with a time lag, so the effect may not be captured by short-term measurement.

Mass advertising effectiveness measurement indicators

The typical advertising effectiveness measurement indicators used in each media are as follows.

GRP, used to measure the effectiveness of television commercials, stands for "total viewer rating" and GAP stands for "total number of gazes."

GRP is the total household viewer rating for each minute of a commercial, and indicates how well the commercial is reaching the viewer. For example, the GRP for two commercials aired during a time slot with a 15% household viewer rating per minute is as follows:

15% x 2 = 30GRP

This number is used as an indicator when deciding what time and how often to run advertisements.

However, GRP alone does not tell us whether the viewer was actually watching the commercial. Therefore, GAP is measured using a sensor camera, including who is watching the screen and how long. GAP is measured in units of every second, so for example, if a viewer stares at the screen for 5 seconds, it will be 5GAP.

By measuring GAP along with GRP, the facial recognition function of the sensor camera can be used to confirm whether the target audience of the commercial was actually watching it.

CPR and CPO, which are used to measure the advertising effectiveness of newspaper advertisements, calculate the cost of advertising effectiveness.

CPR is calculated as "cost ÷ number of responses" and is the unit price per response (application or inquiry). CPO is calculated as "cost ÷ number of orders" and represents the unit price per order. For example, if the advertising cost was 1 yen and the number of orders was 1, the CPO would be as follows:

10 yen ÷ 20 = 5,000 yen

Like television, radio uses GRP as an advertising metric. However, while television measures viewer ratings at the household level, radio measures at the individual level, known as "listener ratings."

Indicators for measuring the effectiveness of online advertising

Web advertising is an advertisement that is easy to be recognized by a specific target. Here, we will explain the advertising effectiveness measurement index for web advertising.

Characteristics and types of web advertising

Web advertising (digital advertising) is advertising placed on websites, social media, YouTube, email newsletters, etc., and allows for detailed targeting. Advertisements can be delivered to specific users based on data such as age, gender, and interests, and can be operated at a relatively low cost.

Another feature is that it is easy to visualize the effectiveness of advertising. Because web advertising records user behavior as numerical values, the entire process, from displaying an ad → clicking → purchasing, can be tracked.

However, because there are a wide variety of measurement indicators, it requires the ability to select appropriate indicators according to purpose and interpret them correctly.

Web advertising effectiveness measurement index

The effectiveness of web advertising is measured in three stages:

• Impressions:How many times the ad was displayed
• traffic:How many people were led from the ad to the desired website?
• conversion:How many people purchased products or services on the website they were directed to

The type of web advertising used varies depending on the situation and purpose, and measurement using different indicators is required for each advertising effect to be targeted. The main effectiveness measurement indicators for web advertising are as follows:

Impression

The difference between Imp and Reach is that Imp is the number of times an ad was displayed on the web, while Reach measures how many people saw it. For example, if a person moves from site A to site B and the same ad is displayed on both sites, Imp is 2 and Reach is 1.

Advertisements that target impressions include "banner ads (pure ads)" that are displayed fixedly or in rotation in ad slots on websites, etc. If you display them on sites with a high number of views, you can reach a wider range of users.

traffic

An example of an ad that targets traffic is a listing ad (search-linked ad) that is displayed to users who search for a specific keyword. For example, by targeting keywords such as "housework time saving," you can approach a relatively narrowed-down user demographic, such as people who are looking for ways to save time or people who are interested in time-saving items.

conversion

If you want to increase conversions, place ads that can reach users who are more likely to purchase. For example, even with listing ads, it is a good idea to use keywords that people who are specifically considering a purchase would search for, such as "compact dishwasher, latest," rather than "saving time on housework."

The main goal of advertising is conversion. To increase conversions, you first need to increase impressions and then optimize your ad content to increase traffic. It is then important to measure and verify the cost per conversion and aim for cost-effective advertising.

Key indicators and analysis methods for measuring advertising effectiveness

When placing ads, cost-effectiveness analysis is essential. Here, we will explain in an easy-to-understand manner the meaning and usage of the representative advertising effectiveness analysis indicators "ROAS", "LTV", and "ROI".

ROAS (Return on Advertising Spend)

ROAS (Return on Advertising Spend) is an indicator that shows how much sales were generated for the advertising costs invested. It is calculated using the following formula:

ROAS = (revenue from advertising ÷ advertising costs) x 100%

Sales from advertising can be easily estimated by multiplying the average unit price of the product or service by the number of conversions. Therefore, it is relatively easy to calculate ROAS.

For example, if your ROAS is 150%, it means that you are earning 1 yen in sales from 1.5 yen of advertising expenses. However,ROAS is merely an indicator of "sales" and does not reflect profits.It is important to note that because costs of sales, labor costs, and operational costs are not taken into account, even if the ROAS is over 100%, it does not necessarily mean that the business is in the black.

*Difference from ROI: ROI is an indicator of "profit," while ROAS is an indicator of "sales."

LTV (Lifetime Value)

LTV (Life Time Value) is an indicator that represents the cumulative profit a single customer brings to a company. For example, the LTV of a customer who has continued a monthly subscription of 1 yen for 1,000 months is:1,000 yen x 24 months = 24,000 yen.

The general formula is as follows:

LTV = average purchase price x purchase frequency x duration of continued purchase

When calculating the upper limit of advertising costs based on LTV,LTV × gross profit marginIf you estimate based on the gross profit of a single item, advertising expenses tend to be too low, but if you base it on LTV, you can make strategic investment decisions that take future profits into account.

Utilizing LTV makes it easier to determine whether your current advertising expenses are too low or too high, which can also lead to a long-term customer acquisition strategy.

ROI (Return on Investment)

ROI (Return on Investment) is an indicator that shows how much profit you have made from your investment in advertising. Advertising ROI is calculated using the following formula:

ROI = (Revenue from advertising – Cost of sales) ÷ Advertising expenses x 100%

For example, if your advertising expenses are 10 yen, your sales are 20 yen, and your cost of sales is 12 yen, your ROI will be 80% (= (20 - 12) ÷ 10 x 100%).

By using ROI, you can specifically determine whether or not an advertising campaign has generated profits.ROI is likely to be low in the early stages of advertisingTherefore, it is important to avoid judging ROI based solely on short-term figures. It is important to track ROI trends from a medium- to long-term perspective and continually evaluate it.

For more information about ROI, see the related article "Key metrics to maximize your marketing ROI (MROI)."

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Four key points for measuring advertising effectiveness

Measuring advertising effectiveness is not just about collecting data. To make use of it in marketing decision-making, it is essential to clarify "what to measure, for what purpose, and how." Here are four perspectives to make effective effectiveness measurement.

1. Measure according to ad type and objective

If you measure multiple ads together, it becomes difficult to see how much each measure contributed. For example, the metrics you should look at for video ads aimed at gaining awareness and for listing ads aimed at purchases are different in the first place.

Setting KPIs for each campaign and measuring and analyzing the results of each campaign individually will lead to correct decisions. Be sure to look at data appropriate to your purpose, such as the number of contacts and engagement rate, rather than just the number of conversions.

2. Evaluate the process with attribution analysis

Many conversions are the result of contact with multiple ads. Even if the last ad clicked was decisive, the contribution of the ads that nurtured the user's interest in the previous stages cannot be overlooked.

Attribution analysis makes it possible to visualize the role of each measure in this series of contact paths. It is particularly important to properly evaluate "advertising that did not directly lead to sales but encouraged purchases."

Consider using "integrated attribution," which also includes offline measures such as TV commercials and OOH, which are often overlooked in "online attribution," which only targets online advertising.

For more information on the importance of attribution analysis and specific methods, please see the following explanatory article.

What is attribution analysis? A simple explanation of the overview, typical analysis models, and analysis methods

3. Don’t just measure results once

Advertising effectiveness fluctuates daily depending on competitors' movements, market changes, and seasonal factors. Even measures that were successful at one time may become ineffective over time.

Regularly measuring effectiveness and responding to changing trends is the key to keeping your marketing fresh. By watching the changes in the numbers and adjusting the content of your ads and channel allocation accordingly, you can achieve sustainable results.

4. Don't just measure, take action to improve

The purpose of measuring advertising effectiveness is to clarify "what is working well and what needs improvement" and derive the next action. It is important to go beyond just looking at the numbers and then plan and implement improvement measures, then measure the effectiveness again - this cycle should be repeated.

The basic flow is as follows:

1. Set clear goals(Example: Improve CVR by 10%, increase awareness lift by 15%, etc.)
2. Measure and analyze the effectiveness of each ad
3. Develop and test solutions to problems
4. Check the cost-effectiveness again and verify the effectiveness of the improvements

By implementing the PDCA cycle in this way, you can continuously improve the quality of your advertising operations.

MAGELLAN, an MMM analysis service that optimizes advertising effectiveness measurement

For companies who want to accurately measure advertising effectiveness and use it to make decisions,MMM (Marketing Mix Modeling)This is a very effective approach. And, the recommended way to use MMM at a practical level is to use theIntegrated marketing analysis service "MAGELLAN".

MAGELLAN comprehensively analyzes multiple factors that affect sales (TV commercials, web ads, SNS measures, seasonal fluctuations, etc.), and can evaluate how each measure contributes to sales with a single standard. For example, a major feature is that measures with different objectives, such as "cognitive effect," "psychological effect," and "sales effect," can be compared and optimized in parallel based on the final result (sales, number of purchases, etc.).

MAGELLAN is a service that not only provides analysis, but also suggests improvements based on the results. In advertising effectiveness measurement, which requires continuous measurement and improvement, highly specialized analysis and complex data processing that are difficult to perform with in-house resources alone can be efficiently carried out with the help of tools and support systems.

For marketing departments that aim to maximize cost-effectiveness, MMM is not just a reporting tool, but a decision-making support tool that guides them to "what to do next." If you want to optimize your overall marketing investment, please consider using MMM and MAGELLAN.

My Feelings, Then and Now

It is important not just to run ads, but to measure their effectiveness and maximize return on investment.

Advertising effectiveness measurement requires different indices depending on the type of media, and analysis of indices that suit your purpose is necessary. Understand the advertising effect you are aiming for and the appropriate measurement indices to correctly determine the contribution of each measure.

In addition, advertising effectiveness changes depending on the surrounding environment, such as the time of year and trends, so advertising effectiveness needs to be measured regularly. By collecting and analyzing data over a long period of time, it becomes possible to predict to some extent the effect of new advertising on improving profits.

In order to collect and use data correctly, you should aim for efficient advertising that leads to results while utilizing tools depending on the situation.

Author information

XICA Co., Ltd. Marketing Team