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CASE STUDY: ​Global Attribution

CMO:​ How is our ad budget allocation changing this year compared


to last?

VP of Advertising:​ We’re doubling our allotment to digital channels


like social media ads and online search ads and paring back our
spending on traditional channels like television and magazine ads.
Overall in the advertising industry, traditional ad channels are
declining and digital channels are growing, and we’re leading the
way.

CMO:​ Great! So are we seeing better results now?

VP of Advertising:​ We are now showing advertisements in over ten


different channels, so consumers are being exposed to our advertisements on more media than ever.

CMO:​ Okay, good, but are we getting more bang for the buck?

VP of Advertising:​ We feel that being exposed to more ads in more locations can only help sell
customers on our brand.

CMO:​ That’s probably true, but is there any evidence that moving budget away from television to digital
channels is bringing in more sales?

VP of Advertising:​ It’s impossible to know for sure, but we think keeping ahead of recent trends is a
good idea.

In the internet era, many customer actions can be measured. As a result, advertisers are under increasing
pressure to use this customer data to show that their ads are increasing sales. But even with careful
tracking of all possible customer data, problems with attribution can cause faulty conclusions about the
effectiveness of various online ads. For example, last-click attribution typically exaggerates the effect of
search marketing efforts, and first-click attribution can give highly errant results with small changes in an
arbitrary time window assumption. No ready solution to the attribution problem has yet been developed,
so marketing analysts must simply keep in mind that their data is not 100% reliable.
Even more difficult than the attribution problem within digital marketing is the attribution problem across
an entire advertising budget, including both online and offline ad spending. Even if a marketing analyst
could be confident in attributing sales to marketing efforts in email, online search, social media, and
display advertising, how could she determine the relative effectiveness of marketing efforts in television,
billboard, magazine, and catalogs? An analysis that would accurately determine the relative effectiveness
of the myriad advertising channels would be extremely valuable to any business, but an analysis of this
kind is extremely difficult. The largest marketing research company in the world, The Nielsen Company,
along with another marketing research heavyweight, Arbitron, undertook a joint project in 2005 to make
such an analysis possible. The project was terminated three years later and deemed an expensive failure
(https://magnostic.wordpress.com/2008/02/25/marketing-measurement-misplay-project-apollo-is-dead/).

In 2013, Peter Danaher and Tracey Dagger, marketing scholars from Monash University, in Melbourne,
Australia, published the results of a research project for a large Australian retailer in which they were able
to measure the relative effectiveness of advertising expenditures across ten different advertising channels
spanning both online and offline advertising activities. In other words, Danaher and Dagger were able to
solve the attribution problem, not just for the digital marketing, but for all marketing channels. This case
describes the methods they used to collect the data and run this analysis.

Collecting Data
When a marketing analyst is trying to determine the effect of advertising expenditures on sales, what she
is trying to determine is whether seeing an advertisement caused an individual (or several individuals) to
make a purchase. Advertising is only effective if it changes individuals’ behavior. As a result, the only way
to reliably determine the effectiveness of advertising is to measure both advertising exposure and
purchasing at the individual level. That is, a company would need a list of its customers along with data
on their purchasing and amount of exposure to all forms of advertising done by the company. The
company could then analyze this data and determine whether customers who saw more television ads
subsequently spent more than customers who saw fewer television ads for the company.

Collecting such data is challenging. Many marketing research companies collect portions of this data, but
none of them collect all of this data at the individual level. To collect this data, Danaher and Dagger used
the loyalty program members of the Australian retailer. (The retailer wishes to remain anonymous, but it is
an upscale department store analogous to Macy’s in the United States.) Specifically, they sent an
invitation to an online survey to 20,000 randomly- selected members of the loyalty program (hereafter LP)
who fit the target market (women between the ages of 25 and 54) on the day after the conclusion of a
major four-week-long sale and accompanying advertising campaign. The survey measured LP members’
exposure to the retailer’s ads across all 10 advertising channels used by the retailer during the ad
campaign for the sale. The LP program maintained a database of each member’s purchase history, so
sales of each LP member could be retrieved from this database and matched to the data on her
advertising exposure.

The sale began on Wednesday, September 22, 2010 and concluded on Sunday, October 17, 2010. This
sale was accompanied by a four-week-long advertising blitz across ten advertising channels, including
mass media channels (television, newspapers, radio, and magazines), electronic media outlets (online
display ads, Google search ads, and social media ads), and direct media (catalogs, postal mail, and
e-mail). Across all media, ads were consistent in their appearance and messaging, announcing “massive
discounts” on a wide range of products or on specific featured items. Table 1 shows the relative spending
on these ten advertising channels and various measures of the resulting reach.
1: GRP stands for gross ratings points, which is a standard way to measure advertising exposures. GRP is calculated as Reach (%)
× Average frequency (#). A GRP of 100 indicates enough ad exposures to cover the entire population, though this score could come
from a reach of 50% and average frequency of 2 or a reach of 100% and frequency of 1. Television’s GRP of 1,048 indicates that
people on average saw the advertisement over 10 times.

————

Measuring an individual’s exposure to multiple advertising channels is a difficult task. Market research
companies have developed sophisticated measurement techniques for measuring exposure to a single
medium, such as Nielsen’s People Meter panel for television and Arbitron’s panel for radio. These
companies typically require participants to keep a diary of every exposure to the medium in question. For
example, participants in Arbitron’s radio panel will record every instance of radio listening for a week,
including the radio station listened to and the length of time spent listening. Keeping such diaries is
labor-intensive for one medium and thus would be impossible for ten media.

As a result, media exposure was measured through the survey sent after the sale and ad campaign
concluded. Because the retailer had a known media plan, the survey could be limited to asking about the
media on which the retailer had advertised. For example, instead of asking an LP member for every
instance of TV viewing during the four-week advertising campaign, the survey asked, “In the past four
weeks, how many episodes of Desperate Housewives have you seen?” For newspapers, LP members
were asked, “On which days did you read or look into these newspapers in a typical week?” To measure
exposure to online display ads and social media ads, participants were asked their frequency of visiting
the sites on which the retailer had placed banner ads. To measure exposure to Google search ads, the
survey asked, “About how many times did you do a Google search for [retailer] in the past 4 weeks?” To
measure exposure to radio ads, the survey asked respondents about their typical weekly radio-listening
habits.

Because the purpose of the study was to determine how ad exposure influences purchasing,
measurements of media exposure must be converted to measurements of ad exposure. Ad exposure was
measured using the traditional GRP, with a major difference being that GRP in this case indicates an
individual’s exposure to ads in that channel rather than the population-level exposure. Individual-level
GRP was calculated from the individual’s exposure to the medium in question combined with the number
of times an ad was shown on that medium. For example, if an individual watched 3 of 4 episodes of
Desperate Housewives and the retailer advertised on this show twice, the individual’s GRP would be 150
for this show (100 × 3⁄4 × 2). The same calculation would be carried out for all television shows on which
the retailer advertised, and the individual’s television GRP would be a summation of the GRP numbers for
all television shows on which the retailer advertised.

Fitting the Model


This case is not meant to provide an in-depth study on statistical modeling, so it will skirt many of the
details of the model, but some of the basic aspects of the model must be discussed if the reader is to
develop an understanding of this research project and have any hope of replicating it. Table 2 shows a
small portion of the data as they were formatted to enable fitting of the statistical model.
The desired end result of the statistical model is measurement of the effectiveness of each advertising
channel. That is, we wish to know whether and by how much advertising expenditures in a given channel
increased sales. In order for advertising to influence sales, it has to influence an individual to either (1)
make a purchase when she otherwise would not have purchased or (2) spend more money than she
otherwise would have. To determine whether advertising influenced the first behavior, or purchase
incidence, we could run a logistic regression or probit regression model with the Purchase variable as the
dependent variable and the GRP data as independent variables. This model would indicate which
advertisement channels influenced LP members to shop when they otherwise might not have shopped.
But we would not be able to determine whether advertising influenced the amount of money they spent.
To determine whether advertising influenced the second behavior, or purchase amount, we could fit a
linear regression model with the Spending variable as the dependent variable and the same GRP data as
independent variables. But the Spending variable has several 0s in it. Roughly 45% of LP members in the
sample made no purchases at all during the sale period. Running a regression on data with these 0s
violates the assumptions of linear regression, so our results would be biased.

The model used by Danaher and Dagger is called a Type II Tobit model. The model first fits a probit
model to the Purchase variable to determine whether advertising influenced purchase incidence. It then
fits a linear regression model to the Spending variable but ignores the 0 data to determine whether
advertising influenced purchase amount2.

A number of important statistical issues arise in the fitting of this model. This case will briefly discuss three
of these issues. They are:

• customer heterogeneity
• purchase/viewing bias
• endogeneity

Other issues besides these three arise, but we select these three issues for discussion because they
illustrate important points about analyzing market data that every marketer should understand.

Customer heterogeneity refers to the fact that customers differ from one another. One important way in
which customers differ from one another for our model is a difference in underlying purchase propensity.
If one customer spends $500 and another spends $100 during the sale period, the model will attribute the
first customer’s higher spending to the media outlets to which this customer received more exposure. But
it could be that this $500 expenditure was a drop from her usual $1000-per-month spending at this store
while the $100 expenditure made by the second customer was an increase from a typical expenditure of
$0. The model will be biased if it does not correct for the customers’ baseline level of spending. To correct
for this difference in baseline spending, the model also included a variable expressing the amount spent
by each customer in the nine-month period before the start of the sale.

The purchase-viewing bias refers to the fact that someone who is a frequent shopper at the retailer might
also be a heavy media viewer. If so, the model would incorrectly infer that it was the exposure to the
many ads that led to her large purchase level. But this correlation could be spurious. To correct for this,
the model included a variable measuring each LP member’s general level of media consumption.

Endogeneity, the third issue, is a very technical problem that arises frequently in marketing data. Though
it is a problem for statistical models, it is often a sign of good strategic marketing decisions. In the case of
the current data, endogeneity problems arise because the marketing managers for this retailer were
strategic in directing their advertising to the customers who were most influenced by the advertising. The
retailer obviously wants to encourage this kind of optimal advertising allocations, but it makes modeling
more difficult because it biases the model results. The example data shown in Table 3 illustrates why.
Consider a very simple movie store that sells DVDs. Every week, the store advertises the latest new DVD
for sale. Table 3 shows the advertising and sales of DVDs in three successive weeks. In week 1, a small
independent film is the only new title. Knowing the movie to be of limited appeal, the store invests only
$100 in advertising the new film and is able to sell $1000 worth of DVDs. The next week, an action movie
comes out. Because this movie has a larger market, the store invests $500 into advertising and achieves
$10,000 in sales. Finally, in week 3, a major blockbuster movie with huge market appeal is released. The
store puts $2,000 into advertising this movie and achieves $25,000 in sales.

————

2: This description is not 100% accurate, but an accurate description would require more technical detail than this case is intended
to give. The gist of this description is accurate even if a few technical details are omitted.

————

Table 3

Week Movie Type Advertising Sales Market Share


1 Independent $100 $1,000 10%
2 Action $500 $10,000 10%
3 Blockbuster $2,500 $25,000 10%

What if we were to analyze the effect of advertising on sales? From this table, it appears that advertising
has a dramatic influence on sales. When advertising increased, sales also increased. But the market
share data reveals that the effect of advertising was not so dramatic. If anything, the advertising merely
preserved the store’s share of the market. What explains this strong relationship between advertising and
sales if advertising is not causing larger sales? A third variable, audience size, is influencing both
advertising and sales. When the audience size is high, the store advertises more and sales are higher. A
portion of the higher sales level is due to the higher advertising, but that portion is small. If the store had
spent $2,000 to advertise the independent movie from week 1, we would not have observed sales
anywhere near $25,000.

The term endogeneity refers to the fact that advertising levels were not set randomly but were set
strategically to maximize sales, the dependent variable. A third variable, audience size, is causing an
exaggerated relationship between advertising and sales. If we were to run a regression model predicting
sales from advertising, the regression would tell us that advertising had a much larger effect on sales than
it was having in reality. This is a major concern for the analysis done by Danaher and Dagger. If the
retailer was at all strategic in setting advertising levels, the analysis would be misleading, and since most
competent marketers are strategic in their decisions, the analysis here would be biased if the endogeneity
issue were not addressed. As a result, Danaher and Dagger had to use a statistical technique known as
instrumental variables to account for the fact that advertising levels are endogenous.

Results
Recall that the Type II Tobit model used to analyze the relationship between advertising and sales is
really two different models—a model of purchase incidence and a model of purchase amount. Table 4
shows the coefficients of both parts of the model depicting the effect of advertising exposure on sales.
The stars next to the coefficients report whether those coefficients are statistically significant. The results
indicate that exposure television ads, radio ads, Google search ads, the sale catalog and postal mail ads
significantly increased purchase incidence. Being exposed to those ads significantly increased the
likelihood that a shopper would visit the store and make a purchase. The analysis indicates that
newspaper ads, magazine ads, online display ads, social media ads, and email blasts had no significant
effect on the likelihood of LP members’ making a purchase during the sale. The model of purchase
amount shows similar results, though with some slight differences. The model indicates that exposure to
advertising on television, newspaper, and radio influenced the amount customers spent, as did exposure
to the sale catalog, but exposure to advertising on other channels had no reliable effect.

Table 4

Purchase Incidence Purchase Amount


Television .138*** .050*
Newspaper -0.004 .022***
Radio .025* .024*
Magazine -0.004 -0.004
Online Display -0.018 -0.008
Search .052* 0.031
Social Media 0.059 -0.002
Catalog .148*** .091**
Mail .203*** 0.039
E-Mail 0.064 0.056

*Significant at the .10 level

**Significant at the .05 level

***Significant at the .01 level

Surprisingly, the results of this analysis indicate that advertising in the more traditional media outlets of
television, newspaper, and radio are effective, as are catalog distribution and postal mail ads. On the
other hand, of the newer digital media outlets, only search ads were found to have a reliable effect on
sales. Online display ads, emails, and social media ads were all found to have no reliable effect on either
purchase incidence or purchase amount. Given the large growth in digital advertising, it is disappointing
that the data from this study indicate that most digital advertising techniques provide no significant
increase in sales. What accounts for this surprising result?

The most likely explanation for the ineffectiveness of most of the digital advertising is the nature of this
retailer’s website. This retailer’s website is almost purely informational. Very few products are available for
purchase on the retailer’s website, and none of the items being discounted during the sale and
accompanying ad blitz were available on the website. Countless other investigations have found that
digital advertising positively affects online sales, so the inability of customers to immediately purchase the
advertised item on the website was likely a huge missed opportunity for additional sales. Indeed,
follow-up analyses show that all forms of digital advertising had a positive effect on visits to the retailer’s
website. If the website had made sale products available, digital advertising would likely have had a
significant effect on purchase incidence and purchase amounts.

An additional possible reason for the ineffectiveness of online display ads was a poor choice of websites
used to show these ads. Most of the online display ads were shown on the web version of the same
newspapers selected to show print ads. The online display ads may have been more effective had they
been shown on different websites and used ad copy that was more suited to online display rather than the
same ads being shown in the physical newspapers.
Replicating the Research
Other companies should be able to apply the methods described in this case to determine the relative
effectiveness of the various available advertising channels for their company, but these methods are not
cheap or easy to apply. Anyone attempting to replicate this research should be aware of potential pitfalls.

First, measurement of ad exposure will always be difficult, especially if the company is running
advertisements on multiple channels. Measurement of ad exposure by Danaher and Dagger was feasible
in some instances because the retailer was focused in some of its ad buys. For example, the retailer
displayed online ads only on a few select online newspapers. Had the retailer instead purchased online
display ads through an ad network, these ads would likely have displayed on thousands of websites,
making it impossible to measure ad exposure through a survey. Instead, data on ad exposure would have
required retrieval from the ad network. But the ad network keeps the identities of shoppers anonymous,
so matching online ad exposure data to online and offline sales data would have proved difficult.

This matching of offline and online purchasing will be another difficulty faced by anyone trying to apply
these methods. In the study described here, virtually all purchasing occurred offline. But many companies
offer both online and offline purchasing ability, so utilizing these methods will require matching purchase
data from both channels. This is not always feasible. And when it is feasible, it is not always ethical,
because customers’ privacy may be violated.

Privacy concerns are likely to arise any time a company tries to match online activity with a person’s
identity. Most data collected online is anonymous in that anyone using the data does not know the name
or address of an individual. But running a study of advertising effectiveness would require matching online
activity with a person’s identity. Anyone running such an analysis should consult the latest privacy
guidelines before proceeding.