441. Does Advertising Actually Work? (Part 2: Digital)

Freakonomics Radio

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4.6 • 32K Ratings

🗓️ 26 November 2020

⏱️ 48 minutes

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Summary

Google and Facebook are worth a combined $2 trillion, with the vast majority of their revenue coming from advertising. In our previous episode, we learned that TV advertising is much less effective than the industry says. Is digital any better? Some say yes, some say no — and some say we’re in a full-blown digital-ad bubble.

Transcript

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0:00.0	In our previous episode, we learned that more than $250 billion a year is spent in the
0:07.6	US on advertising.
0:09.4	Globally, the figure is nearly $600 billion.
0:12.5	That's more than half a trillion dollars on advertising.
0:17.1	Hmm.
0:19.3	Because of the digital revolution, television advertising has lost some of its primacy,
0:24.5	but TV still accounts for roughly a third of ad spending in the US.
0:28.9	The Super Bowl alone brings in more than $300 million.
0:33.0	And how effective is all that TV advertising?
0:35.7	I mean, how good is it at actually selling the products it is telling you to buy?
0:40.9	The conventional wisdom says it's got to be effective.
0:43.7	Why else would companies spend so much money on it?
0:46.5	But the data?
0:47.5	Well, the data tell a different story.
0:50.1	Here's what we heard last week from Anna Tuckman.
0:53.0	She is a marketing professor at Northwestern University, and she recently co-authored
0:57.9	a massive study on the efficacy of TV advertising.
1:02.3	This means that doubling the amount of advertising would lead to about a 1% increase in sales.
1:07.8	So your research argues that TV advertising is about 15 to 20 times less effective than
1:14.5	the conventional wisdom says, yes?
1:17.0	That's right.
1:18.3	There are not surprisingly objections to this research, especially from the marketing industry.
	...

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