Everybody knows that Super Bowl advertising is expensive. Last year at Super Bowl XLIX the cost of a thirty-second television ad was $4.5 million, or $150,000 per second. Prices have been rising every year, and as such, the cost of this year’s advertising will obviously be higher. However these costs don’t deter big companies, especially beer companies, from purchasing single, multiple or longer adds. One ad for Budweiser was three minutes and eight seconds long. Going by the above rate, that’s around $28 million (this probably isn’t the actual rate or cost). But are these costs worth it? Does the boost in potential sales offset these large costs of advertising? Or is there something else in play?
First, it should be noted that the price of the ad itself is not the only cost associated with high profile advertising. Companies have to produce the ads as well as pay any potential celebrities who appear in them. Everything about an advertisement, regardless of the time of year, is appeal. Celebrities increase the appeal factor, but also the cost. The $4.5 million ultimately is only another layer to the process. In AB-Inbev’s own words, their Super Bowl ads were “star studded”, which means an ever-higher cost.
During 2014, AB-Inbev had revenue of $47,063 million and a gross profit of $28,307 million. Sales and marketing expenses totaled $7,036 million, or 15% of revenue and 25% of gross profit. SAB Miller in the same year had revenues of $22,130 million, $3,557 million in profit, and $2,428 million in Sales and Marketing costs. Both companies make large sums of money that clearly cover all expenses, not just those of advertising. And, given the fact that advertising is a sunk cost, AB-Inbev and SAB Miller are anticipate these costs. The expenses related to advertising, both at the Super Bowl and in general, may or may not outweigh the potential gains of saving the money by not advertising, but to companies with multi-billion dollar revenue streams, a few million dollars is not that much.
Although not indicative of broad market conditions, there are small samples that show that advertising during the Super Bowl can increase sales. During the 2015 Super Bowl, immediately after Budweiser’s puppy and Clydesdale commercial, an app that allows one to purchase beer and other alcohols sent out notifications to those with the app promoting the sale of Budweiser. Order volume of Budweiser through the app increased 500 percent over the previous period, and dollar sales rose 650 percent. App use increased 400 percent within ten minutes of the ad airing.
There are other reasons to advertise at the Super Bowl. The most important is the extremely large audience size. At no other point in the year will as many people see an advertisement, therefore the costs of Super Bowl advertising may be mitigated when accounting for the efficiency of the adds. Advertising is also one of the few ways that companies can attempt to differentiate overwhelmingly similar products. This is seen primarily with lite beers. Large beer companies also expect their competitors to advertise heavily, and if they don’t follow suit, they may fall behind. The Super Bowl is only a focal point of these larger market concerns.
In short, the empirical benefits of advertising at the super bowl are difficult to discern, however, based on other factors, advertising is a must. Budweiser commercials are almost synonymous with the Super Bowl. I would say that in the grand scheme advertising at the super bowl is a win for those who choose to invest in it. Bud light and Coors light are the two largest beer brands in America by sales. They also are two beer companies that advertise the most during the Super Bowl.
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11 Comments
While you cited “order volume through the app increased 500 percent over previous periods” I would like to see the data that illustrates how sales improved from an overall sales perspective. I recognized the immediate benefits of advertising during the superbowl, but does the price tag of the 30 second spots justify the vast expenditures on the commercial? While the social aspect of Superbowl commercials might be affected from an a lack of beer commercials, would sales really decline for any of the major brewers if they were to simply decide not to spend millions of dollars on an advertisement?
Going off of that, it would be interesting to determine the deadweight loss of such an expensive advertising strategy. How does the change in supply and demand actually affect the producer or consumer surplus, and who benefits from this change?
If ads are a fixed cost, then the remaining question is what happens to demand. If ads don’t shift that, then demand doesn’t change and hence marginal revenue is unchanged. Likewise, as a fixed cost marginal costs don’t change. So producer surplus and consumer surplus don’t change, only the split between profits and fixed costs, into whose pocket the producer surplus goes.
You’re correct in your critique that the hard evidence that I found is perhaps too narrow in scope. As you stated, an analysis of how beer sales across the industry are affected by Superbowl advertising would have been much more effective. That being said, that ‘smoking gun’ was obviously difficult to find. I had hoped to find monthly and annual graphs/data for the beer industry to see if there was a spike in February and if sales and increased ad cost were changing with any correlation, but i couldn’t.
And on your second point about losing sales to lack of advertising, we have touched on that in class in saying that people may forget about your product in the face of other ad campaigns. Seeing as the major breweries are in continuous cycles of advertising because the cost benefit analysis indeed suggests heavy advertising, I’d imagine what would happen if advertising stopped would be a more difficult, yet interesting, analysis.
Above comment by harringtonj16
• Will Superbowl ad prices rise faster than inflation forever??
• What of net profits? If ads aren’t effective, then cutting them shifts money directly to the bottom line of AB-InBev and SABMiller, net profit not gross profit (operating margins). When you do that, cutting $20 million in Superbowl ad costs may in fact be a pretty nice boost. For SABMiller EBITA in North America was $858 million in 2015. Globally the ITA come to about 20%, so this would leave perhaps $700 million.
• However, as a British company SABMiller had large foreign exchange translation losses, and a complex web of subsidiaries, and I did not take time to puzzle out how to reconcile positive profits including (apparently) profits in each geographic segment with a $1.43 billion comprehensive loss.
The idea of an application tied in with a commercial is interesting. As we have discussed in class, persuasive advertising is not really designed to increase market size, but to maintain or grow market share. Connecting a persuasive advertisement to an opportunity to purchase immediately after exposure seems to run counter-intuitive to that expectation. However, I can see where it would be effective and wonder if the trend will continue.
One smaller factor that hasn’t to be present in AB Inbev’s mind and plan is that they also market and have signed sponsorship deals to have Bud Light be the beer of the NFL. This makes is pretty hard for Bud Light to not air a commercial during the biggest game of the year. Thus this becomes in essence a necessity for AB Inbev. The other aspect that we might be able to look at would be if this sponsorship allows for any reduction in the costs of the ad air time. How we go about finding this out, i don’t know but it would be interesting to see the cost comparisons between AB Inbev and SABMiller on just the Superbowl ad campaigns.
The obligation you talk about for Bud to advertise as the official sponsor only confirms the need for the other firms to advertise as well. I would imagine that Bud Light does get a discount, which means that Miller and others most likely do not, or at least as big of one. This would cause an interesting discrepancy in the comparison between the two that you mentioned.
The Wall Street Journal released news last week in an article that AB InBev extended their contract with the NFL through the 2022 Super Bowl valued just north of $1.4 billion. An interesting perk for AB InBev in this deal is their ability to become the first NFL sponsor to be able to use footage from games in highlight clips on Bud Light’s website, Facebook page and other digital media outlets. Their president of consumer relations seems overly confident that this new contract will reverse the negative sales the company is experiencing in the U.S. This is also revealing of the demographic that AB InBev targets. It seems that there are no limits to the partnerships and different methods of advertising as long as you’re willing and able to meet the price-tag.
The note on advertising as the froth of marketing expenses is interesting. Yes, there’s the ad itself, but also related packing, in-store displays, apps and youtube content, plus ads outside the specific venue that attempt to leverage particular themes. Production costs can be quite expensive, some of the superbowl ads are visual extravaganzas, that may also utilize celebrities who get paid a million or two for the use of their name.
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